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Perspectives: How the European Political Community can address trade issues

Leaders from 44 countries are holding an inaugural European Political Community meeting in Prague this week. The new forum could provide a setting for continent-wide dialogue and cooperation on critical trade issues linked to today’s challenges in the area of supply chain resilience or digital.

Vague purposes

The French-inspired initiative is perceived in multiple ways: a means to avoid taking meaningful action on EU enlargement, a method to bring back to the table the EU’s awkward neighbours UK and Turkey, or a response to Russia’s invasion of Ukraine.

European Council president Charles Michel wrote to EU member states that they “will have the opportunity to discuss themes such as peace and security, the economic situation, energy and climate, and migration and mobility” but that there will be “no formal written outcome”.

Trade obviously features in any discussion on the economic situation – and is increasingly linked with security. All countries in the region benefit when trade is strong between them. Numerous supply chains operate across the continent, disruption to which would be costly.

Despite such shared interests, the politics of trade relations between the EU and neighbours have never been straightforward. A union of 27 countries with a single market and customs union will always dominate trade across the entirety of the European continent, leaving non-members finding their policy options constrained.

There is currently no single formal structure that brings all European countries together to discuss trade issues such as pan-European supply chains. There is web of formal bilateral agreements. At technical level there is the Pan-Euro-Mediterranean convention on rules of origin. But neither offer an appropriate format for a broader conversation.

So the forum provided by the EPC is an opportunity to discuss the development of trade ties.

But there are challenges. The EPC’s vague objectives mean it starts with some suspicion of its motives. There are numerous bilateral frictions between countries such as Kosovo and Serbia. It is also not clear whether discussions on trade policy between country leaders can go into any particular detail given the European Commission’s exclusive competence over trade issues.

Acknowledging the variety of trade relationships in Europe

Europe’s trade is carried out under a variety of different terms, from the more or less seamless participation in the EU single market to the numerous EU-Switzerland agreements, to the even more numerous barriers implied by the average Free Trade Agreement in place with countries in the Balkans, the Eastern neighbourhood and the United Kingdom.

Tempting though it is to think of one model of trade arrangement – that of being EU members – as superior, the reality is that it is highly unlikely this will ever materialise. There will always be some barriers to trade in Europe.

One of the first steps the EU could make to improve relations with neighbours is simply to respect their different models of trade relations, and commit to improve them in mutually beneficial ways. Particularly with regard to larger neighbours with no imminent plans to join the EU and often deeply-held suspicions that they are to be punished for this, such mood music could be helpful. It also shouldn’t cross any issues of competence.

Potential EU accession states are clearly in a different position. They want a deeper relationship with the EU and are often with good reason suspicious that they are not wanted. For them it is probably easier to emphasise that the European Political Community cannot and will not be a formal trade agreement.

Discussing common challenges such as supply chain resilience

Concern about complex supply chains has grown among politicians since the start of the Covid-19 crisis.  Much of the attention has been on supply vulnerabilities linked to dependencies on imports from China. But it should not be overlooked that value chains are more regional than global, and that there is a competition between European countries to attract investments to feed into supply chains.

There must first be a recognition of the importance of a prosperous Europe as a whole. Companies will largely be making their decisions on where to source particular elements of their products on where it is most competitive for them to do so. Adopting a zero-sum approach to supply chain resilience between European countries means that the continent as a whole loses.

The sheer scale of its market means the EU will remain at the heart of European supply chains. It should therefore feel comfortable in progressing conversations about facilitating trade across the whole continent.

Resolution of future supply chain crises would hopefully also be helped by better leader-level relationships offered by the EPC and offer a setting for conversations around issues such as customs, regulations or infrastructure.

A pan-European trade dialogue

One of the recent trends of trade policy has been the rise of the dialogues, the Trade and Technology Council between the EU and US, and the Indo Pacific Economic Framework for Prosperity sponsored by the US. These formats offer some promise in helping tackling modern trade challenges whether digital, supply chains, or regulatory differences – though as yet without evidence of results.

Europe already has multi-country organisations that promote cooperation beyond EU members, such as standards bodies CEN and CENELEC, regulatory bodies allowing wider membership such as the European Aviation Safety Agency, and a range of industry groups. While the relationship between the EU, its member states, and third countries in these settings is never entirely straightforward, this work continues.

At the very least a European Political Community could provide a venue for escalating issues such as institutional challenges to working together. One could envisage moving beyond a leader-level approach, towards trade ministers setting a whole new agenda focusing on regulatory cooperation in specific areas such as digital.

To tackle the challenge that the commission does not really want member states involved in negotiations with third countries, the EU could adopt a model like that adopted towards the OECD, where both the commission and member states are involved in discussions, with some degree of coordination.

Much modern trade policy is about making small incremental gains, the largest benefits having already been obtained through many years of liberalisation. The European Political Community doesn’t look like a game-changer, but putting continental trade on a firmer footing has sufficient value to be worth the effort.

 

 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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