Energy & Environment, Internal EU politics, Latest news, Perspectives

Energy crisis: EU needs to emphasise ‘strategic’ in its autonomy agenda

Governments are facing tough decisions as rising energy prices threaten household and business budgets alike. This is a crisis of modern trade requiring serious consideration of what EU economic security means, and how trade policy should be adjusted accordingly.

The midst of a crisis is often not the best time to consider long-term policy implications.

Few if any policy makers predicted the return of inflation as a consequence of the COVID-19 outbreak. By contrast, the end of globalisation has so often been forecast and then not materialised that many have failed to note that behind those failed predictions there have been fundamental changes.

Nonetheless the severity of the energy price crisis across Europe must inevitably raise questions about the viability of our economic model, our dependencies on others, and the transition to a low-carbon economy.

Trade policy is a key part of these questions. For this is a crisis in which we realise the implications of an economic model which relied upon large scale imports of gas and oil from one country. The cost of dependency has been shown.

At the same time trade is helping solve the energy price problem. This has involved calling upon strong international , as well as functioning global markets, both of which require EU openness in order to develop and maintain.

Autonomy and openness must then both be part of the EU’s thinking, a realisation that has been growing in Brussels and capitals. This must not however be a stilted debate considering simplified opposites, in which it is either new Free Trade Agreements or all of the autonomy instruments.

What is needed is to refine both of these elements of the already evolving EU trade policy, in the light of what we are learning from this crisis. In particular we need to think of these in the overall context of economic security.

Crises remind us of need for trade, and deep political relationships

The broad economic argument for trade openness remains the most compelling one. It increases growth while offering a wider choice of products at more competitive prices than any single country can produce. A powerful secondary argument in favour of openness is that domestic production systems are always likely to have vulnerabilities, therefore trade offers supply diversification.

In recent months this has been most dramatically seen with regard to infant formula milk in the US, where a problem with one factory led to supply problems across the country. There were a number of issues at play. But ultimately the US government had to become involved in seeking solutions. It most notably ensured foreign suppliers had a pathway to becoming approved suppliers under domestic regulations.

The US – like the EU at times – gives the impression that trade should only ever be carried out on its terms, with imports and trading partners tolerated at best. All this with an autonomy agenda to assert politics above trade.  This attitude increases the risk of supply crises for which it will be harder to find solutions once they occur.

The European gas crisis and the US infant formula episode emphasise the need for open trade and deep political relationships with a range of countries that can also provide mutual support in difficult times. This is about more than just signing free trade agreements with them. FTAs can help deepen trade links and help transform the broader diplomatic relationships into genuine partnerships based on mutual respect, but this does not automatically follow.

The EU and the US are of course natural partners in a crisis, as are countries like Norway.

So moving beyond transactional relationships with a range of countries should be a policy priority.

Trade without dependency

In most sectors it is companies rather than governments that trade. Corporations have been successful in establishing a range of suppliers in different circumstances. That the energy crisis arose in a sector particularly influenced by government should actually provide a strong argument against politicians playing a greater role elsewhere.

Equally, though, we shouldn’t ignore the problems with trade dependency particularly with countries with whom relations are difficult. ECIPE colleagues Oscar Guinea and Vanika Sharma found 233 products out of 9000 where there are dependency issues, or 1.5% of EU imports. This includes some from China.

In the case of energy, there is a clearly a need for urgent action to bring forward alternate climate friendly sources whether in the EU or from countries with whom we can trade reliably. Equally in other sectors, there is a need to at least monitor where issues may arise, and take action accordingly, preferably working with business and allies.

This has at least a couple of implications for the EU strategic autonomy agenda as so far defined. Measures aiming at providing global public goods, such as the Carbon Border Adjustment Mechanism, should at the very least be based on discussions with allies. Protective tools, such as the anti-coercion instrument, should not be used against them, but similarly cannot be expected to overcome serious political differences with others.

Whilst the EU can have stronger defensive trade tools, it can never achieve full global autonomy. Climate change is of course the ultimate example of this.

Economic security needs good information and sophisticated analysis

Collectively, Europe has been shown to be naïve about energy supplies. Even a UK which thought it was doing well on renewables, and considered itself insulated from Russian supply issues, has discovered that.

That should prompt a renewed look at other sectors, to understand further the picture in them. Neither the autonomy agenda emphasising instruments such as anti-coercion and Carbon Border Adjustment, or the openness stressing Free Trade Agreements, are adequate as guiding principles.

A better framing is provided by the concept of ‘economic security’, which has been developing particularly in Japan, where it has a dedicated minister. This involves a holistic look at the aim of ensuring a stable economy using all of the tools available. In relation to trade this includes industrial policy, inward investment, climate change, and relationships with trading partners.

The complexities of modern trade and supply chains have not generally been well understood by policy makers. A key core part of such an economic security function should be to have such information available in a ‘digestible’ form for the public and policies, with an analysis of what this means. True vulnerabilities need to be considered, and plans established accordingly.

To the extent that this may involve amending existing institutional structures, then a crisis is the ideal time to take such action. Coming at this time, an already evolving EU trade policy agenda could be given a far more robust underpinning providing an effective framework for the coming years.

Overall, this might just be the time for the EU to emphasise the ‘strategic’ in ‘open strategic autonomy’.

 

 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.

 

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