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Perspectives: EU needs a thorough think about its trade relationships with neighbours

The European Union has tricky trade relations with many neighbouring countries: it would gain from having a joined-up approach to its diverse neighbourhood.

A permanently crowded EU trade agenda rarely allows the time for reflection. The global trade context of a struggling world trade system dealing with COVID-19, the fight against climate change and difficult big-power relations, feels particularly onerous – takes up much of the political debate on trade in Brussels.

Trying to fix the global trade system comes second only to considering domestic implications of trade agreements – be they new or to be enforced. Consideration of relations with the EU neighbours appear to be very much a third order priority.

Yet there are major issues to consider.

Member States recently backed negotiations to update and enhance the EU-Turkey customs union. The European Parliament is considering ratification of the Trade and Cooperation Agreement with the UK while sensitive negotiations proceed on the application of the Northern Ireland Protocol. In both cases the overall EU aims can be described in technical terms, but the EU’s political aims seem less clear.

Relations between the EU and Switzerland are also “not exactly the easiest”. The EU-Ukraine relationship has generally been better, to the extent of there being talk of upgrading the Association Agreement, but there have also been major trade irritants.

What all of these relationships seem to have in common is a lack of obvious EU strategy. These relationships are never being considered in the context of each other.

One would expect regional prosperity and security to be foremost in European leaders’ minds. But it sometimes seems instead that the opposing forces of a desire to win on the one hand and a desire not to seem overbearing on the other hand prevent such a holistic approach.

No single home for neighbourhood relations

Before we even get to the EU’s strategy there is already a problem in merely describing regional relations.

The European Neighbourhood Policy covers the Middle East, North Africa and ‘Eastern Partnership’ former Soviet countries. Countries in the Western Balkans are treated differently, mostly as accession countries, as is Turkey, which is also unique in having a customs union with the EU. Norway is part of the European Economic Area, Switzerland has the complex series of agreements, whilst the UK has the new Trade and Cooperation Agreement but with Northern Ireland treated separately.

It is difficult to start a conversation about the totality of these relationships when you are first likely to be reminded of the internal bureaucracy. Not all EU neighbours are part of the neighbourhood policy, and not all official neighbourhood countries are in fact neighbours.

It is important to persist though, because we would expect the EU to aim for strong trade relations with all neighbours. There are also a number of shared institutions from European standards bodies to the PEM convention on rules of origin, which should be creating a stronger regional emphasis. These deserve to be the subject of a joined-up discussion.

Reconciling EU market size, demanding member states and independent neighbours

When pushed, senior EU officials don’t seem to want to consider engaging in such a joined-up discussion.

The size of the EU single market is such an obvious factor that neighbours feel forced to seek to access it on whatever terms are offered.  Or, as a Turkish business official said: “the customs union is the worst possible arrangement apart from not having it.”

Such market power combined with a role as global regulatory leader can easily lead to resentments on the side of the neighbouring countries, bound as they are by formal or informal constraints. This in turn is exacerbated by an EU wanting to be the regional leader on regulations, but not really wanting to admit to this. Member states also often have particularly tough demands when it comes to trade with neighbours, which can again strain relations if the Commission seeks to keep internal unity.

Clearly the tensions are highest currently with the UK but this isn’t just a UK issue. The EU is an overbearing neighbour with insufficient self-awareness of this.

At stake: unity and economic prosperity

It is possible that there is seen to be no obvious gain from the EU considering regional relations in a coordinated manner. Each country concerned will continue to have their relationship ups and downs with Brussels, but will probably stick close to the large market next door. The EU will simply consider the price asked for preferential market access. Such an approach might be tempting – but is ultimately not in the EU’s interest.

First and foremost, strong neighbourly relations should mean greater shared prosperity as a result of enhanced trade. Gravity isn’t just a factor for the EU’s neighbours, it also works for the EU, which should think of trade in the region first. By contrast resentment and uncertainty is going to be a disincentive to investment across Europe.

There is a need to relax what seems an instinctive defensive reaction in Brussels to different approaches taken by neighbours, whether on regulation or on trade. These developments should be a source of new ideas, not least as countries across Europe, inside or outside the EU, do compare with each other. It shouldn’t be seen as such a threat or an irrelevance, as it is now.

There is also perhaps the opportunity to build a shared Europe based on different levels of integration. For many countries that is going to be as members, but others should feel there are opportunities for cooperation.

At the very least the question of whether the EU has the right approach to regional relations should be considered seriously.

 

 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

 

 

 

 

Views expressed by columnists at Borderlex are strictly their own.

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