Internal EU politics, Latest news, Perspectives

Perspectives: Next EU Commission will need new consensus for an open, growing EU

The policy challenges awaiting the 2024-2029 European Commission  are daunting. Brussels will need to set a new direction of travel for the EU that involves balancing economic growth – which includes trade openness –  with reaching net zero.

Economic growth is too low, and the global trade system in serious trouble. There is conflict in the EU’s neighbourhood, and the net-zero transition is struggling with emerging public doubts about its costs.

Bluntly, this is the big picture currently faced by the EU.

Things could get worse. A Donald Trump back in the White House would have little hesitation in completely ignoring World Trade Organization rules and EU trade interests.

Optimism about Ukraine’s prospects of defeating Russia and avoiding a long conflict is waning. That of course directly affects the EU’s enlargement agenda.

This commission has had its successes, notably in, by-and-large, maintaining unity on the issue of Russia.  It has also developed an enhanced unilateral trade toolbox, the anti-coercion instrument and the carbon border adjustment mechanism CBAM being two of the most notable measures.

Overall, though the EU is not entering the 2024 election year in a happy place. Its faltering economy is at the heart of the problem. Its failure to progress trade deals such as with Australia is just a symptom.

To be successful, the next commission needs to lead the development of a revamped competitiveness story, one that restores confidence in enlargement, tackles the climate emergency, and keeps trade open.

There is no economic security in a divided or closed Europe

For thirty years, the EU’s economic agenda was broadly settled. Progressively developing the single market and signing new trade agreements were activities that went together, and were a sign of confidence that these would deliver positive results overall.

While never easy, internal debates and negotiations balanced multiple interests. There was a broad assumption that there would be economic growth, leading to the other assumption that losers from particular regulations or agreements could adjust and / or be compensated.

Economic confidence was thus at the heart of the EU’s global influence.

There is now a mismatch which needs to be tackled.

Faltering growth has made internal political trade-offs harder, while ambitions towards exerting global influence have grown.

Free trade agreement negotiations are one place where this EU discrepancy is becoming obvious.  The more the EU asks from its trading partners, the less it offers in return.

Perhaps Brussels’ FTA agenda offers diminishing returns as many key trade partners are now covered. Maybe other tools would deliver better economic results.

Such decisions should however be made based on consensus among EU members, rather than on public bickering between member states, as we see increasingly, for example in the case of the final stretches of trade agreement negotiations with Mercosur.

FTAs are just one aspect of a fundamental question related to the openness of the EU.

Many of the EUs new unilateral tools, from trade defence to screening of inward foreign direct investment or public procurement, can restrict market access. Their usage will be a key debate in years to come, starting with the much-publicised probe into Chinese-made electric vehicles.

There is no settled position in the EU, amidst divides between member states as to their belief in greater economic self-sufficiency or reliance of global supply chains. If this continues, all the resulting arguments will allow little time to develop a positive growth agenda.

Some form of resolution is needed on the question of the EU’s openness. This must surely involve recognising that prosperity and tackling climate change requires global trade within global supply chains, while also addressing concerns about impacts of trade on individual sectors or regions.

What should be equally accepted is that economic security is fatally undermined by internal disputes.

New global approach must start with the neighbours

Tensions between the US and China threaten global trade. The EU is not neutral in this new divide, the US is a longstanding political and trading partner.

Broad respect for international law and WTO rules is however also fundamental to EU values and growth. In this, there is increasing divergence with a US where bipartisan consensus sees the China threat as a reason to override these norms.

A crisis in global rules can’t be ignored, but resolving these issues should not be the main external focus of the next five years.

There is a more pressing need closer to home. Europe’s own neighbourhood needs attention that only the EU can give.

Starting locally will also demonstrate what a new growth and trade policy entails in the 2020s.

Most obviously, there is the question of enlargement.

Notwithstanding considerable support for Ukraine, we have seen resistance to its exports from those who believe their livelihoods are being undermined by the effort. There are concerns that enlargement countries may take economic activity from existing members or have other ‘unfair’ advantages.

Such issues also affect those neighbours unlikely to become members any time soon: the United Kingdom, Switzerland and Türkiye. None of these can be described as happy EU relationships.

What is missing is a convincing narrative of a competitive Europe, with the EU at its heart. A continent in which the success of one is the success of all.

This will become ever more crucial if, as seems likely, the accession process becomes elongated given its considerable challenges.

Technocratic constructs such as proposing a ‘concentric circles model’ deserve less emphasis than basic ideals such as a space of shared prosperity.

Some examples of what this could mean in practice would be starting negotiations now on how instruments such as CBAM will apply to the neighbours, standing negotiations on deepening trade ties with all neighbours, and a regional regulatory cooperation body on trade and climate measures.

All of this of course requires an acceptance that the EU cannot thrive if it is closed.

Implementation for growth

Transitioning to net-zero and the fragmentation of the global trade system have an economic cost. This has not been a message many leaders have been keen to convey.

EU measures are prime examples. One of the most obvious is the new EU deforestation regulation whose worthy objective is likely to mean higher prices for affected products.

This is even before we consider the response of affected countries, which has been particularly negative in this example.

Complaints from EU business about the cumulative regulatory burden are increasing. These are justified considering how much effort they must put into implementation of many autonomous measures.

Then there is the whole question of subsidies. There is no doubt that the transition to net-zero requires some level of public support. Care is however needed both with distorting competition and global responses.

Largely missing from the Brussels debate is a consideration of balancing implementation of the net-zero objectives with economic growth. There is an assumption either that regulations will help or ameliorate the effects of it not happening.

This simply isn’t good enough.

As with the general attitude to trade openness, and relations with the neighbourhood, there needs to be a clearly agreed direction of travel. This would involve recognising the need for various regulatory interventions, but also would seek to minimise the resulting cost.

Without such broad consensus the big risk the EU is facing is of decline and division. Leadership is needed to prevent this.

That should be the primary job for the next commission.

 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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