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Comment: It’s the end of an era for EU trade policy

The ratification by the European Parliament of a trade agreement with New Zealand this week is the swan song of a long EU policy cycle made of globalising optimism and constructive economic diplomacy. Next year’s European Parliament elections might mark the turn to darker times.

This week two key decisions were taken that seal a long trade policy cycle in the EU and herald a new era: the ratification of the EU New Zealand free trade agreement by the European Parliament and the approval by the Council of the European Union of a new piece of legislation nick-named the anti-coercion instrument.

Residual FTA agenda

Many will regret the time when the EU was mainly focused on forging trade agreements across the world.

This is a process that began in 2006, a bygone era when a British trade commissioner named Peter Mandelson launched an optimistic, outgoing trade strategy called Global Europe. The cycle opened at that time is now coming to an end and something darker is coming upon us.

The EU New Zealand agreement is one of the last new bilateral trade agreements that Brussels will ink in a very long time.

Before the EU institutions fold next spring to go on the election campaign trail, we can expect an interim economic partnership agreement with Kenya to come on stream, as well as an updated trade accord with Chile.

While of value geopolitically, none of these three agreements will change the face of EU trade, nor for that matter that of these trading partners.

These deals tend to be very asymmetrical, reflecting the EU’s market access and regulatory priorities much more than they do their partners’.

But they reflect a genuine effort of the EU to engage with the world on the basis of rules-based trade, with a cooperative mindset seeking mutual benefits.

Under the tenure of Ursula von der Leyen, which began in late 2019, a few economically and geopolitically meaningful free trade agreements came into force: the one with Japan, the one with Singapore, and the one with Vietnam.

The 2019-2024 von der Leyen tenure will end on a few trade fiascos. There is little hope for the long-sought association agreement with Mercosur coming into force anytime soon for reasons that have obviously to do with politics – on both sides.

Australia recently walked away from its agreement with the EU at a time when Brussels was most eager to get a deal done with a minerals-rich Indo-Pacific political heavy hitter. Among others Australia has watched how some of New Zealand’s core export interests – not least in the meat sector – were treated with contempt by the EU with the opening of meagre import quotas.

Mexico’s populist AMLO administration is most likely not willing to seal a long concluded trade agreement upgrade deal with the EU that would help the country, if marginally, move of out the long trade shadow cast by the United States further north.

Those who believe there will be a free trade agreement with the giant democracies India or Indonesia – at least one that resembles the type of FTA the EU has developed over the years, with its significant tariff cuts and dense regulatory requirements – need to reassess their views.

The EU’s bilateral trade agreement agenda has become residual. And will become marginal after the European elections of June next year.

The geopolitical and domestic challenge to the EU

What the new EU trade policy will become after these elections is anyone’s guess.

Europeans are looking into an abyss.

The EU is geopolitically challenged to its core: Russia has attacked the painstakingly negotiated European order established in waves since the end of World War II. This comes at a time of US retreat from the European and Middle East scene and doubts about Washington’s future support for Ukraine.

China is entering the global geopolitical game and is challenging Europe’s economic and political model, making the Russia/Ukraine and related US question even more acute.

The EU’s institutions are not equipped to cope with the crises that have been hitting it since 2008 and the geopolitical wear-and-tear that is yet to come.

Proposals to strengthen EU institutions voted upon by a slim majority in the European Parliament this very week will not see the light of day anytime soon.

The just-voted anti-coercion instrument is a symptom of the EU malaise rather than a cure.

The instrument aims to give the EU powers to slap potentially sweeping trade restrictions on big trading partners that are seen as wanting to politically coerce, through economic means such as trade restrictions, Brussels or its capitals into policies they don’t want.

Yours truly has argued before that this measure will likely be a damp squib, perhaps used on occasion to respond to weaker partners than those originally targeted, namely the US and China.

No EU member state will seriously want to launch a trade war against these two countries, especially not in precarious security times.

Political arbitrariness trumps due process

The biggest threat to the EU comes from within, however.

We could well be facing a very ugly scenario next year: an EU parliament dominated by a collection of far-right parties; the re-election of Donald Trump in the US. And as Ukraine descends into endless war, possible Russian attacks on EU soil itself if NATO is weakened by Trump and support for Kyiv is on the wane in Europe due to its far-right surge and constrained German public finances.

Talking about trivial things such as trade policy in such a scenario, if it comes to pass, might seem inappropriate.

But there will always be a trade policy matching a political configuration.

So we can brace for something darker and uglier here too: more chaos and lawlessness.

In line with its growing existential crisis, the emerging EU trade policy we have witnessed in recent years has been of a defensive nature.

We’ve seen the return of industrial policy – the Chips Act, the Net Zero Industry Act to name a few – with built-in discrimination against Chinese and likely other players and possibilities to take arbitrary export, import or foreign investment restrictions.

New controls on foreign subsidies and foreign bidders in EU procurement contracts are complicating investments and also introducing an element of uncertainty and arbitrariness.

Anti-dumping and anti-subsidy policy tends to be a side-product of EU industrial policy. There are signs that this trade policy will be now turbo-charged – a slew of new cases brought against China in recent weeks and months reflect this.

Due process is being thrown overboard, such as with the commission’s decision to refuse to examine the subsidies of China’s top exporter, Tesla, in its anti-subsidy investigation. Its ostensible aim is to maximise the duties it will charge on all imports of electric vehicles from this country.

Its increased focus on anti-circumvention in its trade defence cases is also raising questions of due process, and dragging unwitting importers into fraught criminal fraud cases in some EU member states.

Economic security agenda in question

And then there are sanctions, export controls, FDI screening… Economic security is taking centre-stage.

The EU’s fragmented polity means that these security-related trade measures are relatively weak: sanctions implementation remains patchy, Washington will coerce single EU countries into their preferred action on export controls, FDI screening does not even exist in some EU countries yet.

What will become of these policies in a Trump-cum-fragmented-‘far-right EU’ scenario is anyone’s guess.

The more so as trade policy lawlessness is being allowed to fester inside the EU.

The commission has still not been able to bring Hungary, Poland and Slovakia into line on their import bans from Ukraine, which break the foundations of the EU, its single market and customs union.

Signs are the von der Leyen commission is ready to let this situation fester – putting in danger the very foundations of what has made the EU the unique power it is: a commercial power.

It is high time for the Brussels bubble and in particular its top decision makers across party lines to wake up to the dangers we are facing.

One Comment

  1. Pasi-Heikki Vaaranmaa

    Very pertinent points here, Iana, I am afraid.

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