Is the EU Trade Strategy Really A Fit for the Challenges Ahead?

New EU trade strategy: On February 18, the European Commission launched its new trade strategy: “Trade Policy Review — An Open, Sustainable and Assertive Trade Policy.”

This is the first overall trade strategy since 2015. So, what is new in this new trade strategy? And is it really fit for the challenges that lie ahead?

Christian Bluth, author of Europe’s Trade Strategy for the Age of Geo-economic Globalization shares some thoughts, concerns, and a few suggestions.

A New Trade Strategy For A New World

The last EU trade strategy — “Trade for all” was published in 2015. Since then, the global economy has seen Brexit, Trump’s protectionist populism, a more assertive China under Xi’s leadership, the WTO’s Appellate Body’s demise Covid19 pandemic, one new Commission president, and two new Trade Commissioners. Enough reason to expect fundamental changes in the EU’s trade strategy.

The new strategy, entitled “Trade Policy Review — An Open, Sustainable and Assertive Trade Policy” doesn’t revolutionize EU trade policy, but it highlights different aspects. The controversial “open strategic autonomy” mantra of the EU Commission is presented as a guideline of the strategy, but “open” is by far the most important element in this trio.

There is no reference to reshoring and little that points towards strengthening autonomy through strategic industrial policy. But sustainability and assertiveness are two leitmotifs that can be found throughout the strategy.

The Shift in Priority Makes Sense

Trade policy is often broken down into two components: multilateral and bilateral. In the past, the EU followed a two-pronged strategy: it affirmed its commitment to the WTO and multilateral policymaking while pursuing an active bilateral agenda. In fact, the last trade strategy contained a detailed list of envisaged trade partnerships, including the US and much of Asia beyond China.

Now, we can observe a decisive shift in priority. WTO reform and a new impetus for multilateral initiatives are central to the new strategy. The current strategy is accompanied by a second lengthy document detailing EU proposals on how policymaking at the WTO can become more effective. Some of these are close to what GED has been proposed in the past.

This shift makes sense. The rules-based trading system, embodied by the WTO, is under severe pressure. The WTO serves to make trade rules, enforce them, and provide transparency on domestic action relevant to international trade — all these functions are currently under pressure.

2021 might be an opportune moment to give WTO reform new impetus: The Biden administration is more open to rebuilding multilateralism, there is a new energetic Director General at the WTO, and the realization that further neglect of the rules-based system doesn’t come without a price is sinking in with many of the member countries.

But the new strategy doesn’t give up the bilateral route completely. While it doesn’t provide a list of new bilateral trade agreements that to pursue, it does outline a vision of how the existing bilateral network — which is extensive — can be deepened and updated.

Which Aims will Trade Policy Pursue?

Two core aims emerge again and again from the new trade strategy: supporting sustainability and digital transformation. This is reflected both at the multilateral level as well as at the bilateral level. Concretely, this means new initiatives at the WTO to develop rules for digital trade — which go beyond the ambition of the existing talks on e-commerce. And — the rulebook on sustainability at the WTO should be developed further with a trade and climate agenda.

This is mirrored by the bilateral agenda, where sustainability and digital get a much more important place. More ambitious Trade and Sustainability Chapters will aim at improving the respect of climate commitments (under the Paris Agreement), labor standards (ILO), and fundamental human rights.

At the same time, the EU will also aim to be more assertive in ensuring that trade partners respect their obligations through the newly created office of the Chief Trade Enforcement Officer.

Which Trade Partners for the EU?

The new trade strategy is much less specific than its predecessor regarding specific trade relations with a given country. It calls for more cooperation with the United States in regulating technology and digital flows and giving WTO reform fresh impetus. There is no mention of a revival of TTIP or other deeper economic integration with the US — which had featured prominently in the previous strategy.

For WTO reform and technology regulation, it refers to the Ottawa Group (Australia, Canada, Chile, European Union, Japan, Kenya, South Korea, Mexico, New Zealand, Norway, Singapore, and Switzerland).

China is called upon to address the negative spillovers of its domestic economic policies and to take more responsibility in international organizations. Where China is unwilling to provide a level field by opening up, the EU is prepared to take unilateral action to level the playing field.

Interestingly, neighborhood, enlargement countries, and Africa are often addressed in the new trade strategy and more prominently than Asia beyond China — even though this region is expected to be the center of gravity in the world economy in the future.

So, is this Strategy Fit for Purpose?

Yes — but it will need complementary elements. Generally, I support the new emphasis on multilateral policymaking. The EU will remain an important trading power, but its relative power will decline. Investing political capital in the rules-based trade governance system is its best chance of retaining rule-making power.

The digital and green transformation are two big priorities over time — and hence it is right that a trade strategy supports it. However, especially in digital, the EU needs to find ways to improve its performance when it comes to developing digital business models and improving its ability to innovate. Here the ambition is right but needs to go beyond what we see in the strategy.

Finally, the rise of geoeconomics is discussed at the beginning of the strategy but then is addressed only through technological cooperation and risk management. Both are right, but not enough. The EU needs to be capable of dissuading geoeconomic aggression and needs to develop an appropriate toolbox and decision-making mechanisms. The EU should also seek a closer alignment with the US and like-minded countries in this area. Closer regulatory cooperation can only be a start — a more ambitious approach is needed.

Finally, while I welcome the attention that Africa rightly receives, I am worried that Asia beyond China is largely absent. One might argue that this is because the EU already has a dense network of trade agreements in this region. But if Asia is going to be the epicenter of the world economy. I hope the EU continues to be ambitious in deepening and broadening its trade relations with this important region.

Author: Dr. Christian Bluth

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