The new European Union proposal on prohibiting products made with forced labour triggered a discussion about the role of national authorities in its enforcement. This is only one example of the significant implementation and institutional challenges raised by Brussels’ new unilateral trade policy agenda.
Since the 1990s, EU trade policy has been dominated by the pursuit of free trade agreements enhancing trade rules beyond those enshrined in the WTO with a large number of countries. Negotiation was typically a higher priority than trade rule implementation for most of those involved in trade policy, be they MEPs, EU member states or indeed stakeholders.
Big power factor
There were rather significant exceptions. The importance of the relationships between the ‘big three’ trading giants meant China or the US were rarely out of Brussels’ focus even when there were no live trade talks.
The focus on major powers explains in large part the EU’s new ‘strategic’ and regulatory autonomy agenda, which has led to a slew of new unilateral trade regulations such as an anti-coercion instrument or a carbon border levy. By implication, implementation of the broad EU trade agenda now becomes ever more a part of the EU’s management of major power relations, as well as being about individual regulations.
This is notwithstanding that other countries will be affected by specific new instruments, such as Indonesia and Malaysia with the EU’s new regulation banning products contributing to deforestation.
It is the use of these new, yet untested, tools that will to an extent define them. In the case of the anti-coercion instrument only practice will show what level of ‘coercion’ will lead to what type of response.
There is also a greater focus on FTA enforcement. This is testing the very meaning of legal provisions negotiated in trade treaties.
Finding the right balance
All this raises the question as to whether the EU’s existing trade policy institutions and their balance is appropriate for this evolving position.
It is likely that there will need to be change. The emerging conversation on the precise scope of European Commission powers in the anti-coercion mechanism must now be intensified.
Collectively, given the importance of the EU to trade, these autonomy instruments will add to the global trade rule book just as in the past with regulations such as the GDPR, which set global standards for data privacy. Spreading the ‘Brussels effect’ is indeed a far more explicit aim now.
How these new EU regulations will impact global trade is still unclear, because we don’t know how each will be implemented and how other countries will react. The carbon border adjustment mechanism explicitly provides space for discussion with other countries. But after an extensive internal discussion, the anti-coercion instrument by contrast will be mostly defined by its use.
Some chatter in Brussels trade policy circles has turned to which country will be targeted first by new anti-coercion powers. There is an expectation it might not be one of the other great powers, where retaliatory risks would be much greater. The EU’s own record on issues such as forced labour or deforestation might be used as a trigger for retaliation by trading partners.
The issue of compliance costs is a further concern for many ongoing trade files. This is about a regulation requiring corporations to undertake due diligence or being caught in a potential trade conflict.
Around all of this then lie issues around EU decision-making and competence, which are still being debated.
FTAs, building on WTO rules, have so far provided a framework within which the international trade of private companies operated. One of the major risks of the EU’s autonomy agenda is the state taking a far greater role in the operation of day-to-day trade, particularly when coupled with a focus on supply chain resilience such as in this week’s single market emergency instrument.
Undoubtedly the Russian invasion of Ukraine has led to businesses considering their supply chains, including their Chinese dependencies, more carefully. Such analyses are however a core part of their normal operations.
Political interference makes business planning far more complex.
Banning products made with forced labour is clearly in line with European public sentiment, but if there is a risk of trade restrictive action on just a broad suspicion that forced labour input has been used, then this will raise great challenges to businesses trading across borders. Similar issues could arise for products related to deforestation, while the challenges of implementing carbon border adjustment in a fair manner seem to have been underestimated.
Policy makers are in a rush to make progress on the autonomy agenda. This creates a risk of measures that are poorly designed or too broadly targeted.
It might therefore be helpful for trade liberal member states to be clear that they see limits on how all these new tools will be implemented.
Developing and implementing the autonomy agenda should ideally happen in a way that builds on existing trade relationships.
Questions about the implementation of the EU’s autonomy agenda are already featuring in many discussions with other countries. Businesses across the world are similarly considering how measures will affect them, and they are briefing governments accordingly to seek to influence the process.
Third countries may also be considering counter-measures to those of the EU, retaliating where they think necessary. It is not just the EU that wants to ensure that trade happens in accordance with national interest.
All of this business engagement will reinforce the appetite of member states and MEPs to oversee the activities of the European Commission. However, trade committees in council in parliament already have packed agendas.
Spending more time on implementation of both autonomous measures and free trade agreements may well overwhelm the time available, just as the furore around TTIP negotiations threatened some years ago. Enhancing structures for the EU’s handling of trade policy may well then be something that has to be discussed sooner rather than later.
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.