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Comment: The trade policy of Emergency Europe

Emergency Europe, a term forged during the eurozone crisis reached the EU’s trade policy during the pandemic. There are now-established patterns for many areas of trade policy affected by global and regional turmoil. Let’s brace for a more unpredictable EU.

Emergency Europe. This is how some scholars refer to the European Union and the way it operates ever since the Eurozone crisis that broke out in 2009-2010 at more or less the same moment when the Lisbon Treaty came into force.

An inadequate legal basis for action in crisis moment

This is not the place to discuss the EU’s treaties. Yet it is clear that the legal basis the Lisbon treaty offers to the EU’s institutions and their actions has proven inadequate in helping the bloc as whole to deal with the decade and almost a half of rolling crises that have shaken the European continent.

To put it briefly and simply: the treaty gave the EU more powers than ever before in new areas of policy, at the same time in many areas it withheld the requisite decision-making powers from the Brussels institutions to deal with crisis situations adequately and effectively. This is to a range complex arrangement where either unanimity rule or competences are ‘shared’ with Brussels.

This is indeed the treaty that enshrined the fact that we have a monetary union but no fiscal union to flank it. This is the treaty that gives the EU a common foreign and security policy but subjects it to the unanimity rule. This is the treaty that includes mixed competences on migration with extensive member state powers to exempt themselves from free movement, the treaty gives member states the final say over their energy mix and security policies and no EU competencies on health policy.

The art of improvisation

As a result we have had an EU drifting further away from what it professes to be: a rules-based order. It is increasingly a political machinery with at times surprising outcomes emerging from unusual processes.

This an era when we’ve witnessed a great deal of improvisation coming out of Brussels to respond to crises and shocks.

Sometimes the improvisation has yielded astonishing results despite initial chaotic fumbling such as when the commission embarked on vaccine procurement for the entire EU during the Covid-19 pandemic.

Then interesting things start to happen. Once the crisis is over, the commission makes crisis action a more permanent feature of the way it acts in subsequent policy-making and legislation.

During the eurozone crisis, the first flare-up of the war in Ukraine in 2014, the so-called migration crisis in 2015-2016, EU trade policy was not affected but this trend.

This has changed since the pandemic.

The permanent crisis mode in Brussels has taken on a new dimension under the stewardship of Ursula von der Leyen at the helm of the commission.

Anti-coercion instrument: testing the limits of EU treaties

The most emblematic move in this regard is the anti-coercion instrument (track the story here), which is coming into force this year.

This legislation will allow the EU to introduce potentially sweeping trade restrictions on a trading partner that is seen as trying to coerce, through trade and investment restrictions, the EU or one of its member states into compliance with its policy preferences or outlook.

This instrument is not likely to be very effective, if it is ever used at all. The commission says the goal is not to use it – because it is precisely meant to be a deterrent. But if it is not used it is not for the same reason as the commission hopes for.

After inter-institutional negotiations on this new legislation, the decision to effectively start a trade war against countries such as China or a potentially newly hostile Trump-style United States is left to the member states. In this configuration the most likely scenario is that it is the the member states that will be deterred from doing what this amounts to: starting a trade war with the likes of the US or China.

This even so in the current context of US-China rivalry and where Europeans are being shown the scale of their security dependence on the US.

The commission’s original legislative proposal wanted the decision to declare coercion and to trigger and design trade restrictions to be a traditional ‘comitology’ procedure, whereby member states need to muster a qualified majority against the measure.

Technically, the comitology procedure might indeed have been more ‘effective’ as a deterrent tool but the implicit power grab it involved over an issue that touches upon security was simply impossible for most member states to countenance.

Crisis working-mode made permanent: an established pattern

There are many other episodes where crisis mode has been made permanent.

The pattern in this regard that has emerged can be summarised in four steps and has become quite recurrent in the trade policy field since the pandemic.

Step 1: Something bad happens, the European Commission is clearly not equipped to deal with the situation because it doesn’t have the legal – and related administrative – powers do so, domestic politics in one or several member states heat up.

Step 2: A member state takes unilateral action in a way that jeopardises the EU’s single market – either because national governments driven to desperation shoot-out-of-the hip or act with the intention of obtaining some concession from Brussels – such as a policy change or money.

Step 3: The commission lets this illegal behaviour pass or negotiates with the member state with the aim of restoring the single market, jeopardising its international trade commitments along the way.

Step 4: The EU enshrines the new way of acting in new legislation aimed at dealing with comparable future situations.

All this started with big EU member states – not least the big ones France and Germany – blocking exports to their neighbours of personal protective equipment to deal with a surge in domestic demands for such products during the spring 2020.

The European Commission negotiated with member states to restore the internal free flow of essential goods but in return introduced export controls or licensing – euphemistically called export authorisations – to outside the EU.

These measures have involved reporting exports to the commission– so that it can gather data – and an implicit understanding that exports are not allowed unless expressly permitted by a licence issued by the member state.

When empowered to procure vaccines a few months later, the commission pre-empted any such internal PPE-related wrangling among member states by imposing upfront an export authorisation scheme for vaccines.

Both the PPE and vaccine export controls were phased out in the end.

But they stuck in other ways. Some in the commission clearly enjoyed the semblance of power the export scheme gave it.

Internal market commissioner Thierry Breton has been on the record in saying the scheme was a useful bargaining chip to obtain concessions from other countries tempted by export restrictions – having in mind not least the United Kingdom and the United States on vaccines or critical ingredients for vaccine production.

The idea that an export restriction is part of the EU’s new bargaining power survives until today in new pieces of legislation coming on stream such as the EU Chips Act and the Single Market Emergency Instrument, where joint procurement and ‘priority orders’ are part of the legislation’s so-called crisis management ‘toolkit’.

These new pieces of legislation come without any in-depth consideration of what the genuine vulnerabilities in the supply chain of the relevant sectors are. This would have required thorough studies and impact assessments of the regulations. We’ve had none of that.

Take semiconductors. In an analysis of the EU Chips Act’s crisis response’s toolbox, Jan-Peter Kleinhans and Julia Hess of the tech policy think tank Stiftung Neue Verantwortung write:

“Instead of focusing on crisis response and management, governments need to shift their focus to a long-term strategy for crises prevention.”

To these authors, there should be more focus on “increasing supply chain transparency and putting more emphasis on the responsibility of end-customer industries.” – such as the automotive or medical devices industry of Germany and Europe. There is little of the latter in the EU Chips Act as it is now coming on stream.

And it continues….

A more recent crisis is not due to member state unilateralism or blackmailing but to tech and clean vehicle sector pressure on member states for more subsidies once the United States Inflation Reduction Act was set into law. Industry is playing the EU – including its member states – and the US out against each other.

This episode resulted in even more taps being eased on subsidies via new laws such as tne Net Zero Industry and the strings of the internal state aid rule-book being loosened even further.

The very latest episode is the EU imposing country-specific import safeguards on agriculture imports from Ukraine that were liberalised to help the country cope with the war that Russia is waging on its territory. Those safeguards are in place for a few weeks until early June – at least in principle, as the measures are extensible.

Here the commission was literally blackmailed into the safeguards by Poland, Hungary and others who resorted to unilateral import bans – mostly for domestic electoral reasons. They obtained money for their farming communities and no genuine rebuke of their bans, which are clearly illegal and violate the customs union and the single market.

These things will inevitably happen again. This is because the commission is manifestly proving to be pliable.

Migration crisis rears its head again

Nobody was expecting the migration crisis of 2015-2016 to rear its head again, but we now find it also lurking in the EU’s trade policy.

It takes the form of a planned obligation put on beneficiaries of the EU’s GSP trade preferences – granted to help poor countries develop their economies – being conditioned on these countries complying with migrant readmission agreements signed with member states or the EU.

The GSP regulation is up for renewal. But at this very moment the European Parliament is fighting a difficult battle against both the commission and the member states, which are bent on introducing this new form of conditionality tied to granting these trade perks. The proposed move is likely to violate WTO jurisprudence on unilateral trade preferences for developing countries.

The question has geopolitical implications: the EU is trying to win over the ‘Global South’ for its various causes such as support in its approach to Ukraine and Russia or to to woo many countries to guarantee it access it critical raw materials in its attempts to ‘de-risk’ from China in this area.

Yet adopting this new type of migration conditionality will backfire.

The matter is bound to come to a head with a country such as Bangladesh. Bangladesh is due to graduate from its duty-free-quota-free access to the EU as it leaves behind its least-developed country states.

The EU would like it to join the GSP Plus scheme that offers better import duty and quota terms than to ‘normal’ GSP beneficiaries as long as these agree to have their compliance with a range of international human rights, labour rights and environmental conventions monitored by the EU.

Bangladesh happens to be one of the largest sources of migrants to the EU… But Bangladesh is also weighing other options, such as joining RCEP, the (almost) pan-Asian trade agreement many say is de facto built around China.

Implications for other areas of trade policy

There are large swath of EU trade policy that don’t fall into the ‘Emergency Europe’ category, such as the bilateral free trade agreements it has negotiated or is negotiating. These are slow, long-planned and carefully negotiated deals made to establish relationships for the long term.

But this new emergency mode makes their ratification processes more uncertain and raises questions as to whether the EU will be able to stick to any market access commitments it made to its FTA partners in sensitive import sectors, such as – but not only – agriculture.

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