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Lange: Spare a thought for developing countries in a post Corona trade world

The European Parliament’s INTA committee chair Bernd Lange in February 2020. Credit: EP.

The European Parliament’s international trade chair Bernd Lange in conversation with Borderlex’s Iana Dreyer. Topics: what’s on the agenda for the committee in the coming months and what needs to be done in a post-Corona trade world.

The European Parliament has significantly slowed down its activities as a result of the general COVID-19 lockdowns in Europe. But the institution is gradually adapting to a remote-working and digitalised environment as its own lockdown is set to last at least until July. Now legislative work is picking up pace again.

Trade committee keeps on working

“We have important files to deal with,” said Lange.

One of these files is the revised ‘enforcement regulation’, which needs to get through the finishing line and be approved by MEPs. The regulatory move aims to give the EU powers to unilaterally ‘retaliate’ in a situation where a World Trade Organization or a free trade agreement partner blocks legal proceedings in a formal dispute. The initiative comes after the United States blocked the appointment of new members of the WTO’s Appellate body and that institution vanished last December.

The ‘multiparty interim appeal arbitration arrangement’ or MPIA  is an alternative WTO appeals mechanism agreed to last month by the EU and a subset other WTO members such as China, Brazil and Canada. It is meant to exist on a temporary basis until the Appellate Body is restored. The system was formally approved by EU member states on Wednesday (15 April). Soon the WTO in Geneva will be formally notified of its existence.

Reaching agreement on this mechanism was not preordained. “Amidst the COVID-19 crisis, some of the world’s biggest trading partners [of the EU] agreed to safeguard and stabilise the WTO system. This is a big success. I am a little bit more optimistic than I was in January,” said Lange.

“It is important to make clear that we want our partners in this mechanism. We want to be clear we want to be able to act immediately after a panel ruling,” said the German MEP, referring to those countries in the WTO that have not joined the MPIA. The enforcement regulation is a way of incentivising these partners.

The enforcement regulation will be discussed at the second live-streamed exclusively online trade committee on 27 May. The ground will be prepared for MEP approval before the summer.

The other major file for INTA is the EU’s export controls on personal protective equipment, which is up for discussion with trade commissioner Phil Hogan at the next committee meeting (on 21 April).

The Commission is preparing to narrow down an EU-wide export licensing system to one single product: face masks. Today the temporary scheme enacted in March covers a wider array of products such as gloves and goggles. The new version of the regulation also aims to extend existing exemptions for European Economic Area and European Free Trade Area neighbours to the Western Balkans. The latter exemption was a European Parliament ask.

“We have ongoing work on dual use,” referring to a contentious legislative file the Parliament and the Council have been locking horns over. The new piece of legislation would widen the scope of the EU’s current dual use product export controls to cover issues such as human rights and cybersurveillance. At the moment it is exclusively geared to prevent production of weapons of mass destruction. The Council is in the final stages of preparing its mandate for coming ‘trilogue’ negotiations with the EU’s legislative body.

Lange also perceives movement in the Council on the Commission’s plans to change the EU’s international procurement rules and see the ‘IPI’ file land in the committee’s lap in the coming weeks or months.

FTA with United Kingdom on the priority list

Bernd Lange and EU chief negotiator for the future partnership with the United Kingdom Michel Barnier in early March 2020.  Credit: EP.

The trade committee is also continuing to monitor ongoing bilateral trade agreement negotiations.

“The most important is the FTA with the United Kingdom,” said Lange. “I hope that we can manage to have it in time.” referring to a much-dreaded 31 December deadline to agree a deal. Indeed the UK is heading towards the end of its status-quo transition period as is extracts itelf from the EU – and is not considering extending it.

Other priority FTAs for Lange are the ones with Australia and New Zealand, which are still under negotiation despite current restrictions on movement and travel: talks have simply moved online.

“Australia is an important partner globally,” said Lange. “We are like-minded in several areas.” He said the European Parliament had issues with Australia’s raw materials policies “and the coal”.

“But there is room to discuss. Australia ha[s] a lot of renewable energy and interesting projects in renewable energy production. The Australian capital, Canberra, was the first city outside Europe to shift from fossil fuel to 100% renewable energy.”

Australia is part of a wider range of friends that Lange cites the EU should continue to work with on the global trade scene in the coming months. These include Canada, New Zealand and Japan. “The United States are out of the game at the moment.”

No to economic nationalism

Looking to the broader global trade policy picture in the aftermath of the COVID-19 crisis, Bernd Lange worries there could be a drift towards nationalism, even within the EU itself.

“We really have to avoid national measures after the Corona crisis,” said Lange, referring to the EU’s nation states. Whatever the measure one enacts: “We need a European approach. We need to overcome national thinking,” stresses Lange.

The German social-democrat cites a now-dropped German export ban on medical protective equipment and new foreign investment controls enacted this month by Berlin. These, in his view, don’t agree with the new EU foreign direct investment screening mechanism.

On investment we need to “look at the European way [doing it] and, if it is necessary, try to improve it”. Also: “Chinese investment in Europe is going down. It is not a danger anymore.”

Global supply chains: not the what, but the how

“This national thinking is also alive when it comes to the production of medical goods,” said Lange.

There is a lot of talk in the EU of reshoring production lines as many woke up to the fact that supply chains may be disrupted in a pandemic and that some critical medical inputs or ingredients were supplied by one single country.

“I am not sure that the only solution to the Corona crisis is in reshoring production lines. Because if you close production in a developing country – most of the now-existing value chains are based on production in developing countries – then jobs and investment [there are] gone.”

Bernd Lange cites the global textile and apparel sector, where global companies have reneged on orders from countries dependent on the trade during the coronavirus crisis. “A lot of people in Bangladesh and textile production countries lost their jobs. And it is a serious problem.”

“After Corona we will need investment in developing countries to help them [create] their own economic possibilities. So not all production can be re-shored to the European Union.”

Also the price of products in the might well increase as a consequence of reshoring. “This will have an economic impact.”

But there is one issue that needs to climb up the priority list in looking at current global supply chains: “Which conditions are linked to the chain? Are they really fair? Are they secure?”

“We can really discuss a lot of improvements of supply chains,” said Lange, who calls for genuine EU supply chain due diligence legislation in this field.

“There is new thinking in some companies that we have to modernise supply chains. The old thinking that we have to build supply chains along exclusively low-cost and efficiency possibilities is not the right way [to go].”

“I think just-in-time production will be reduced a little bit,” and sustainability, labour rights and the carbon footprint climb up companies’ and governments’ priority lists.

Digitalisation, e-commerce, WTO reform

The pandemic-induced lockdowns across the world have accelerated the digitalisation of the economy. The general consensus is that the trend will continue in the foreseeable future. “The digitalisation of production might also [contribute to shorter] supply chains and bring more added value to local production,” reckons Lange.

This brings us back to the WTO, where discussions on new rules on e-commerce are ongoing – albeit slowed down by the temporary shutdown of the Geneva institution’s premises and the cancelling of the 12th ministerial meeting initially scheduled in June in Kazakhstan.

“I have always said that e-commerce is a bridge-building exercise. It also helps build bridges with developing countries”.

Many poor countries see e-commerce as a chance for their service sector companies to engage in economic activities with meaningful added-value – something that has proven difficult to achieve in manufacturing, argues Lange.

“I hope we can bring the e-commerce discussions to a point where we can start negotiations in the WTO framework. The postponement of MC12 will give us a little bit more time for preparing this e-commerce agreement”.

Lange also hopes work on ‘green’ trade and on UN Sustainable Development Goals can continue with like-minded countries in the WTO going forward.

Finally, deeper WTO reform needs to move forward and here China plays a critical role. Bernd Lange reckons China will be more open to discuss new rules on subsidies and state-owned enterprises, given the economic crisis that has followed on the global pandemic.

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