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In 2021, the EU will need to focus on positive engagement with its trading partners

The brand-new EU-UK trade agreement in many ways epitomises a defensive turn in EU trade policy in a world where its geostrategic certainties – not least the comfort of the US security umbrella – have been shaken and the global pandemic exposed its vulnerabilities. But turning defensive is not enough. The EU will need to offer a credible positive narrative about itself to win partners over.

A turbulent start to 2021

The European Union’s trade policy year has come to a turbulent start. An obscure bilateral investment negotiation that has been running over years with China was concluded on the penultimate day of 2020.

The deal was suddenly thrown onto the global limelight only to be chastised by China critics and many foreign policy pundits for being a sell-out to Beijing. The optics are indeed bad: China is cracking down on Hong Kong dissent and committing horrors in Xingjian.

Since 1 January, the EU and the UK are also experiencing live what an exit from the single market and customs union means for their trade and human relations going forward. It is a bloody.

We will forever remember the indignity of travellers’ ham sandwich confiscations at Dutch border control and stranded fresh fish boxes destined to the EU market not in a position to comply with new SPS requirements in the first days of January 2021.

At the time of writing some European fishermen for their part are still waiting for a chance to actually be allowed to enter British territorial waters as agreed in the Christmas Eve Trade and Cooperation Agreement with London.

Also, there have been new US tariffs on EU exports, hitting not least French wines and spirits, as part of a never-ending aircraft subsidy tariff saga. A last good-bye present by the outgoing Trump administration.

Meanwhile, the WTO is in a deep slumber. No new years’ wishes by a WTO director-general – because the post is still vacant. The institution is on a prolonged holiday of sorts, until perhaps 20 January 2021, when the Biden administration takes office. But the slumber might yet last longer.

All eyes on Biden

Clearly, all eyes are on the incoming Biden administration, who will preside a weakened United States.

The new government is raising hopes that there will be more international collaboration on a range of matters. Biden matters: it is China that caved to the EU – not the other way round – by signing up, at least on paper, on disciplines for its its state-steered economy at the prospect of seeing Washington and Brussels working together to address common concerns in the face of an authoritarian state-capitalist rival.

The EU for its part hopes to settle the Airbus dispute and move on to try to compare notes on a series of issues ranging from tech to China to climate to WTO reform – and beyond.

But there will be no miracles. The Biden team’s trade programme is largely defensive and protectionist. The political mess at home following the storming of Capitol Hill by a mob whipped up by the outgoing president will be a long and arduous process to clean up. The US will seek to heal its own economic wounds as a priority and offer its COVID-19 wracked population the prospect of new-found health.

The temptation to equate cooperation with ‘telling Europe what to do’ – on digital, on China – will continue to be strong at a time when such tactics no longer work. The pooh-pooing of the EU deal from parts of the Democratic establishment are a bad omen. The EU too is open to cooperation – only as long as it’s others signing up to its own agenda and processes – its new transatlantic agenda reeks of such an attitude. This won’t work either.

But there’s at least hope that there will be more transatlantic dialogue, note-comparing and damage avoidance. We might perhaps see a few outcomes here and there, say, joint initiatives at the WTO. We might never see tariffs on EU digital taxes. But let’s not see the WTO Appellate Body fixed in 2021 just yet or all transatlantic tariffs – on steel or related to Airbus – removed so quickly.

EU defensiveness

So, what are we looking ahead to in EU trade policy going forward?

A brief stock-take of where the EU currently is in its trade policy is in order.

This general EU state can be described as defensiveness. Defensiveness against rising Chinese economic power, against the consequences of US decline and rising protectionism, against the threat that Brexit poses to its model, against all those who ‘want it cheap’ on the environment and labour as the EU goes expensive and aims for carbon neutrality in thirty years.

Its trade toolbox is undergoing radical changes. This is a process that has accelerated since Ursula von der Leyen took over the helms of the European Commission in late 2019. The Commission is basically doing the bidding of predominantly German and French interests – some of which are shared by other member states, others not. The good old ‘Franco-German duopoly’ is now no longer tempered by the participation of the United Kingdom, buttressed by its then coalition of EU friends, at the decision-making table.

On the EU to-do and work-in-progress list with implications for trade policy: a new digital services regulation with interesting potential outcomes for global data flows and competition conditions in the internet area; the rollout of a shallow yet symbolically important EU-wide investment screening mechanism; plans to regulate supply chains to reduce strategic import vulnerabilities and human rights violations, which MEPs will want to use to address forced labour in China.

We will also see the emergence of the following: a new ‘enforcement regulation’ that will allow the EU to retaliate against partners blocking WTO dispute settlement processes;  a carbon border adjustment mechanism; a new regulation to control subsidies received at home by firms investing in the single market; and an ‘anti-coercion’ instrument that would allow EU member states resist political pressure by foreign powers à la US Section 301 investigations.

The EU now leverages its bilateral trade agreements to settle trade disputes as an insurance policy against the weakening of the WTO’s dispute settlement system orchestrated by the Trump administration. Brussels half-won a case against Ukraine as part of its DCFTA with its Eastern neighbour late 2020.

Labour and environment move front and centre

While it could at least partly lose a case brought against Korea as part of a dispute with Seoul under their bilateral FTA over the latter’s efforts to come clean on commitments to ratify core International Labour Organisation conventions, Brussels has vowed not to be caught in such a weak position again.

With the EU-UK Trade and Cooperation Agreement, violation of ‘level playing field’ commitments under an FTA with the EU could now lead to sanctions. This is a new fact on the ground, a major development. The European Parliament is rejoicing. And all those countries negotiating or renegotiating a trade accord with the EU – Australia, New Zealand, perhaps Chile and others – will have to reckon with this new reality.

With the UK agreement, the EU for the first time also ensured that any country that does not comply with the Paris Agreement on combating climate change could see its agreement terminated – the Paris accord is now an ‘essential element’ of any EU international agreement. This puts fighting climate change at the same level as fundamental human rights as a strategic goal of the EU’s ‘external action’.

It is the combination of the US retreat from the world and from Europe and Germany’s recent China-sceptic turn that  initiated this EU trade policy reorientation. This trend is here to stay.

But it is primarily a negative agenda. It might be necessary. But it has nothing that captures European citizens’ or non EU trading partners’ imagination in a positive way. The message is: be good the way we define it or you are punished.

It lacks credibility at a time when democratic standards are being eroded  at home and increasingly authoritarian Hungary and Poland are able to largely snub its critics and outwit the EU’s shambolic rule-of-law enforcement system.

The EU, in seeking to become more resilient by centralising new powers in the area where security and trade interact, will need to go back to making itself attractive again as a place to exchange with, to send people to, to do business with, to engage in foreign policy together with.

Let’s hope the breathing space a Biden administration might offer will be an opportunity to do so.

The EU absolutely needs a positive agenda with the United Kingdom going forward. It is pointless to see the Britain as a competitiveness threat above all. This is a very French-bureaucrat fantasy spread by people who do not know and understand the UK as a country. Even without level playing field provisions the UK has mechanically lost competitiveness in the EU market: that TBT and SPS paperwork onslaught and the shallow services agreement are enough of a damaging trade wall that the UK will pay dearly. And no, Britain will not ‘go cheap’ and deregulate to harm the EU. But an angry, resentful UK as neighbour is a genuine geopolitical problem.

The EU will need to get the EU-Mercosur agreement over the ratification line – treading the fine line between ensuring that environmental commitments are taken seriously in Bolsonaro’s Brazil – but also offering a genuine prospect of friendship and welcome to a group of democratic countries in quest for renewed relationships outside the US and China.

In South East Asia, the EU will need to engage more with partners willing to share some of its strategic goals not least on multilateral trade and environment.

At a time when new vaccines offer some light at the end of the pandemic tunnel, it might be a good idea to prepare for the world after and contribute to making it at a more open, cooperative place.

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