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COMMENT – International trade: it’s time for an Argumentative European

Brazil’s president Luiz Inácio Lula da Silva, on the left, and European Commission president Ursula von der Leyen in July 2023. Credit: EC.

Something has to give if the EU’s trade agenda is not to unravel due to the extra-territorial application of its climate ambitions.

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Europe goes through regular spasms of trade scepticism.

It is happening now, as the bloc struggles to define its relations with China in the face of domestic and American pressure to decouple, as it faces pressure to press the pause button on its climate agenda due to populist protest over the cost of going green, and while it keeps mum about its free trade agenda – so as not to scare the horses on the eve of the European elections.

Nowhere is the heat more intense than in the agricultural sector, with increasingly violent farmer protests across Europe as you read this.

EU trade policy between a rock and a hard place

So the European Union treads gingerly into 2024 facing a host of trade challenges. One is Ukraine. How to maintain an open market for Ukrainian goods despite Polish and others’ attempts to block Ukrainian agricultural imports which they claim undercut farm prices? How to preserve the single market in the face of Polish illegal border closures?

All this complicates the negotiating climate for Ukrainian accession while sapping political support for Ukraine.

Two, triangulation vs strangulation.

Can Europe like Odysseus steer a course between the siren cries of the United States of America and China, and avoid being taken hostage by either? Is Europe smart enough to say to the US that it has little intention nor frankly any possibility of decoupling from China, with whom it shares a mutual dependency?

And three, and most significant of all, can the European Union in 2024 and beyond continue to pursue its global climate and environment agenda while maintaining a forward leaning and open trade policy?

EU Green Deal and the quest for FTAs

In the view of this author, the EU’s sustainability agenda, if it continues unabated, is likely to frustrate its trade agenda for the foreseeable future.

Take India first of all, with whom the bloc has been negotiating a free trade agreement for the last two years as part of a post-Covid diversification strategy and a belated Indo-Pacific tilt.

Despite  the fanfare greeting the decision to reopen negotiations – the original FTA negotiations were suspended in 2013 upon PM Modi’s accession to power – negotiations are presently bogged down by the same issues that bedevilled progress in 2013:   agricultural and car tariffs, pharmaceutical patent lengths, sub-federal procurement, access to financial and legal services, and how many business visas to give to Indian IT entrepreneurs.

Of course India has a poor track record of FTAs, pulling out of the regional agreement RCEP and giving only paltry concessions to Australia. At a recent conference in Delhi University one of India’s top political commentators Swasti Rao asked the rhetorical question ‘so which sector in India is asking for this FTA?’

There is considerable scepticism surrounding this FTA. But writing it off is premature. For two reasons. First, all negotiations are difficult. FTAs are no exception. Easy to start, they are very hard to finish. EU-India is no exception; its exhibiting all the standard signs of what theorists label the ‘mid-game’: getting down to the basics of tariff levels and trade rules. Nothing to see there, move along!

But second, both the EU and India know that in today’s febrile political climate, in which neither has exactly a surfeit of friends, they need each other for their diversification policies and to reduce dangerous dependencies.

India’s goods and services can benefit from the stability and sheer size of the EU market; the EU can make hay in the largely untapped Indian market.

Above all, after the Netflix saga that is Mercosur, the collapse of the Australia FTA, the glacial pace of EU-Mexico and EU Indonesia negotiations, and lack of progress at WTO, the EU needs a success story – with India – more than ever.

For the FTA to succeed two things at least must happen: India WILL have to make tough political calls, and partially open its market in some sectors of EU interest – procurement, services, cars, wines and spirits…. But the EU will also have to trim its ambition in numerous areas, above all its   ‘sustainability’ agenda.

Overloading the Indian boat

It is here where clouds are gathering.

Let’s take a step back. To internationalise its Green Deal and achieve the UN sustainable development goals, the EU has tabled as part of this FTA a comprehensive sustainability chapter, hoping that the leverage of its 450m consumers will overcome Indian reticence to shoulder quite onerous obligations.

That agenda extends beyond standard health and safety rules to encompass the ‘one health’ concept, animal welfare standards, sustainable food systems, and above all a comprehensive chapter on  sustainable development, committing the parties to adopt AND (crucially) enforce key labour, human rights and environmental conventions – including their respective UN climate pledges.

This risks overloading the Indian boat.

Whilst India might be ready to make these pledges within a G20 best-endeavour framework, it is chary of doing so in a binding treaty subject to dispute settlement and potential withdrawal of trade concessions. India is not New Zealand.

The EU’s agenda is easily painted as an intrusion into India’s sovereignty, raising not only the spectre of green protectionism, but of regulatory imperialism. With elections looming, India will wish to avoid a debate on “sustainability with neocolonial undertones”.

The EU has not helped its case by introducing, in parallel to negotiations, a suite of Green Deal legislation applicable to both imports and domestic products.

These include the Carbon Border Adjustment Mechanism or CBAM, which taxes imports of polluting goods, a new directive on corporate due diligence up the supply chain that will force EU companies to police their suppliers in the developing world, a new regulation prohibiting circulation of goods made with forced labour and, fresh off the block, a regulation forbidding the marketing of goods associated with deforestation.

While well-meant and necessary to tackle global or transboundary problems, these measures are seen by India and others as a Trojan horse to level the playing field and maintain the competitiveness of Europe’s companies and farmers who face stringent environmental regulations from which ‘dirty’ imports are exempt…

At very least, these measures are perceived as impeding market access. What value has an FTA concession on soya, steel or wood, if the product cannot be marketed in Europe in the first place due to its environmental footprint? A case of giving with one hand and taking away with the other?

So we risk a paradoxical, even illogical situation whereby negotiations might be stymied over an issue where India and the EU should not only share the same fundamental global goals, but where the logic of their cooperation in an increasingly unstable, divided world is more vital than ever.

The EU’s green deal trade legislation also risks stymying negotiations with Mercosur, Indonesia and Australia.

The Mercosur FTA negotiations, launched twenty two years ago, were finally concluded in 2018. I was part of that process.

Even before the ink was dry the agreement faced resistance from an unholy alliance of European farmers and environmental NGOs. The farmers unhappy at the undercutting of European producers by ‘unfair’ Brazilian beef not subject to stringent EU environmental or labour rules. And the NGO’s worried about the deforestation and climate impact of beef and soya production in the region.

These concerns are as alive now as they were five years ago. EU farm ministers meeting just last week underscored their dislike of the Mercosur agreement.

Mercosur: passing a camel through the eye of a needle?

Under pressure from industry and  EU member states, the EU side has proposed an additional protocol to the agreement detailing how Brazil will implement and fund the stringent climate and environment commitments set out in the sustainability chapter. This is now being negotiated between the two sides and the commission has expressed some optimism that a solution is at hand.

But can a balance be found that will both satisfy European legislators and be palatable to a very hostile Brazil – it was naïve to assume Lula would be more receptive than Bolsanaro on this – and without reopening  the agreement? This is camel-through-the-eye-of-a-needle stuff.

The Mercosur negotiation, like that with India, is complicated further by the EU’s ‘strategic autonomy’ agenda. Brazil objects vociferously to the Deforestation Regulation which could well hit its exports of beef, leather, soy and timber and has, according to reports, tied its readiness to negotiate an additional climate orotocol in the FTA to getting effectively a free pass on deforestation – demanding that the EU classify Brazil, improbably, as a climate paragon along with Norway and the like for the purpose of its exports to the EU.

Brazil has also spearheaded a coalition of like minded countries in WTO protesting the extension of this green deal agenda  to imports, and hinting of WTO litigation if it is not pulled back.

The EU’s credibility – and legal position – is in turn being gnawed at from within by the agricultural lobbies and member states, notably France, arguing for a “clause miroir” or Mirror Clause in all trade agreements.

Such a clause that would automatically impose on  overseas producers the whole spectrum of EU environmental, climate and animal welfare standards so as to level the famous playing field. This is not an argument that will persuade any WTO dispute settlement court!

Matters will come to a head in the coming weeks.

First, whether finally the EU and Mercosur will find it possible to agree an additional protocol to the FTA remains to be seen. There is some optimism being signalled on this by the Commission but it is hard frankly to imagine the next, more protectionist and isolationist European Parliament being convinced.

And second, with an imminent decision by the WTO dispute settlement court in respect of a case brought by Indonesia against the EU, protesting the EU’s decision to regard Indonesian palm oil production as unsustainable under its renewable energy rules.

The palm oil can be imported – as it is in massive quantities for the food industry, chemical and cosmetics sectors etc – but does not qualify as a renewable biofuel for the purpose of meeting member state  targets.

The WTO is notoriously reluctant to second guess members’ environmental policies – in this case determining whether Indonesian palm oil production is contributing to greenhouse gas emissions or not.

Panellists will defer to majority scientific opinion on this and I suspect find the EU at fault if at all for a lack of proportionality, national treatment breach, or for not having given Indonesia adequate time and support to ‘green’ its production. Switzerland, interestingly, has agreed to import only sustainably produced and certified palm oil from the region.

Something has to give if the EU’s trade agenda is not to unravel due to the extra-territorial application of its climate ambitions.

The EU needs to recognise that the developing world has a different calculus. I am reminded of India’s Nobel prize winning thinker Amartya Sen, who in his masterly work The Argumentative Indian described India’s long tradition of dialectics, self-questioning and above all its “capacious tolerance for others’ views”.

If the EU-India FTA and the agreements with Mercosur, Indonesia (and Australia) are going to succeed, then it is clearly time for Europe to self-reflect urgently on what is realistically possible, have a more modest environment and climate agenda, and try to see the world from the perspective of the Global South.

It is time, to paraphrase Sen, for an Argumentative European.

 

John Clarke is a former Director for International Relations at the European Commission and senior EU trade negotiator. He previously headed the EU Delegation to the WTO and UN in Geneva. 

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