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Perspectives: Five years that transformed EU trade policy 

The outgoing leadership team in the European Union has overseen an unusually significant legislative programme affecting trade since 2019. Growth is clearly no longer the defining priority as Brussels gets increasingly involved in the day-to-day operations of firms.  

The European Parliament’s approval of the EU’s new corporate sustainability due diligence rules and the ban on forced labour products this week completed a remarkable five years of trade-related activity. 

Quite simply, this European Commission has overseen a radical transformation in trade policy since 2019.  

Free trade agreements are no longer the main tool. Growth and economic efficiency are no longer a major objective. The commission is now directly involved in international trade operations. 

The Covid-19 pandemic and Russia’s invasion of Ukraine clearly provided the impetus for what has happened. These crises put a spotlight on the realities of modern trade – leaving politicians afraid of what they saw. 

To crudely summarise many attitudes – we don’t make enough of what we need and are therefore dependent on others whose motives are dubious. This explains a call for more traceability. 

Thus, the concept of ‘open strategic autonomy’ was born which, in 2024, turned into a reality.  

Much of this quest for autonomy came from new regulations, some from a more assertive implementation of what was already there – such as trade defence.  

Trade policy won’t be taking a back-seat during the coming election season either. The EU’s anti-subsidy investigation into Chinese electric vehicles is already featuring in the campaign. 

Like it or not, the next commission will inherit and operate the 2024 model of trade policy. This is the baseline for those wanting to influence what happens next. 

Multi-functional multi-tool trade policy  

The EU shifted from pursuing free trade agreements to unilateral regulation affecting global trade. 

During the 2014 to 2019 Commission, new FTAs were signed with Japan, Canada, Vietnam and Singapore. What we may consider as classic EU trade policy clearly had economic growth as the main objective and FTAs the main tool. 

Of course, the growth priority was balanced with environmental and labour objectives in that period. 

What happened in the last five years has however been completely different.  

In terms of FTAs, in the last five years only New Zealand was added as a completely new free trade agreement to the EU’s panoply.  

Meanwhile it passed a plethora of new regulations aimed at significantly affecting trade. 

These include carbon border adjustment, deforestation, corporate sustainability due diligence, the international procurement instrument, foreign subsidies, foreign investment screening, forced labour, digital markets and digital services. 

Quite clearly, growth was not the main objective in any of these regulations. Rather, climate change, security and creating a level playing field have been vying for the spot as the priorities. 

Supporting economic performance through openness has at least been a design consideration. Unlike in US policy, the EU made efforts to respect the letter of world trade rules. 

Whether attempts to affect world trade through unilateral regulations are within the spirit of WTO membership is another matter. 

Where preferential market access might previously have been subject to some conditions, any access to the EU now requires others to meet far more stringent rules. This is a major change. 

Emerging and developing economies have a particularly high awareness of the potential impacts of this shift. 

Traceability is the central element of the new trade policy 

Looking collectively at recent EU regulations there is one common element above all others – the need for companies operating in the bloc to understand their business and supply chains. 

Whether it is the emissions inherent in products, or supplies that may have resulted from deforestation or forced labour, far more detail is now required. 

Among the most likely consequences of this approach is to further squeeze smaller companies out of international trade. Compliance costs will simply be too high for them to meet. 

Quite plausibly many international companies will decide that the European market is not worth the effort. Multinationals based in the EU may decide to bring production back from other countries. 

Conversely, developing countries may lose out from their companies having to meet the same requirements as any other. 

On a bureaucratic level, it would be unsurprising to see the commission make ever greater demands of companies in terms of data. 

None of this feels likely to be positive for growth.  

Perhaps compliance technology will help manage costs. Perhaps there will be a renaissance of domestic manufacturing. 

What seems unlikely is a reversal in course. Expect more demands for trade to be intensely monitored in the future.  

Managed trade, European Commission-style 

For many years commission trade officials complained to EU member states that they did not have the regulatory tools they needed in trade policy to meet their demands.  

At that time, they suggested that it would be easier to strike beneficial trade deals if the commission had more power to level the playing field. 

Once again, the pace and scale of change has been dramatic. 

In 2020, Denis Redonnet became the first EU chief trade enforcement officer. At that time the expectation was a focus mostly on ensuring full implementation of FTAs. 

Fast forward to 2024, and direct commission intervention in company trade has become normalised.  

Investigations under the new foreign subsidies regulation and the international procurement instrument are ongoing, while trade defence is clearly becoming more assertive with the investigation into electric vehicles. 

In all these cases, Chinese companies have been the target. But others might be targeted in the future, for example companies benefitting from the US Inflation Reduction Act subsidies. 

Taken together with other measures such as the Chips Act, we see a commission that appears increasingly seeking to manage the EU trading environment. This would presumably be in the name of economic security, even if this term is yet to be fully defined. 

Should Donald Trump be elected as the next person in the White House, we should certainly expect some of the new tools to be targeted towards the US. After all, the anti-coercion instrument was really inspired by Trump in his first term. 

All this will potentially lead to ever more collaboration between the public sector and the leading EU companies in actively manage the European economic environment. Whether this will deliver environmental, security or economic objectives remains to be seen. 

Perhaps there will be a fightback. Free trade agreements may return to fashion. The commission may not continue to assert all its new powers in the same way. 

But the last five years created a new baseline. There is no easy return to 2019. 

One Comment

  1. John Clarke

    excellent summary as always by D Henig of the trade policy landscape in Europe. Agree no turning back but there will be some delays on implementation and possibly new flexibilities introduced at the demand of both EU and third countries and their companies.

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