Asia, EU FTAs & bilateral ties, Internal EU politics, LatAm & Caribbean

Opinion: EU Trump-era FTA-turbo-charge rings hollow

Current Brussels talk about turbo-charging bilateral free trade negotiations rings hollow. In 2017, less is more, opines Iana Dreyer.

 

EU member state trade ministers met in sunny Valletta, the capital of the Mediterranean island of Malta, the country that holds the rotating presidency, on Friday (3 March 2017). The aim was to close ranks on trade policy, but nothing concrete came out of the meeting.

 

The EU, whose economy depends very strongly on an open global trade regime, is facing serious headwinds. Malta’s trade minister Chris Cardona put it aptly: “We are facing a very challenging trade policy environment. Both due to external factors and internal factors”.

 

The first external factor is called Donald Trump. The first internal factor is EU paralysis.

 

United States retreat

 

The United States, by far the EU’s main trade and investment partner, is sending isolationist and protectionist signals. Disengagement from the WTO – or rather unwillingness to abide by some of the very rules on trade defence and subsidies the US set up in Geneva twenty years ago – has been a latent trend in the US. But the US is now blunt about not wanting to come clean on adverse WTO dispute settlement rulings.

 

A possible trade bomb is making its way in Congress with the Republicans preparing a border adjustment tax. It is not clear whether the tax will be adopted, as it does appear to divide the Republican leadership.

 

The future of the dormant TTIP negotiations is up in the air. In its new 2017 trade strategy, Washington has signalled it is still considering its options.

 

Given the many contradictory signals coming out of Washington on the future course of US trade policy, EU trade ministers and leaders in Valletta have mostly taken a “wait and see” approach. Whereas in the background bureaucrats are mulling a possible response to a potential border adjustment tax such as a WTO dispute settlement case or countervailing duties, officials like trade Commissioner Cecilia Malmström and Vice President Jyrki Katainen take a defiant note and tell the world: we will do more trade deals with everyone else.


The Commissioner’s cabinet is saying the demise of the US-led TPP is an opportunity, and that the EU should be the first ever non-South American country to sign a trade pact with Mercosur.

 

This week, member states are expected to formally call on the EU to finalise its trade agreement negotiations with Japan this year. The EU is also working seriously in the WTO towards a possible package of trade measures to unveil at the ministerial meeting in Buenos Aires in December 2017. There is progress on discussions on fisheries subsidies and seems to be some movement on getting an e-commerce agenda on the table.

 

Yet in many ways, the EU Commission’s response to the challenges ahead is puzzling. Frankly, one sometimes wonders on what planet some leaders in Brussels are living.

 

Domestic headwinds 

 

The EU is facing challenges to its very existence. The Commission’s freshly released White Paper on the future of the EU shows that the Commission is not even so certain that the EU is still exclusively competent about trade policy – despite clear language on that in the Lisbon Treaty.

 

The CETA ratification saga is not yet over: the EU has not yet proven it is capable of ratifying a new-generation trade agreement. The EU is not ready to significantly liberalise trade at the moment, let alone to endorse a modern trade policy that includes rules on free data flows, for example. Internal discussions between the Commission and the member states on a new template article on data flows for coming trade pacts just failed. 

 

The EU is facing potentially very destabilising elections in the coming months, in the Netherlands, in France, in Italy, and in Germany. France is no longer taking any single decision – including on trade. Germany is flirting with investment protectionism. Italy and the Netherlands – in opposite camps – have been obstructionist for too long in the EU’s quest an internal settlement on trade defence instrument legislation, ensuring the EU misses deadline to comply with its WTO obligations vis-à-vis China, and ensuring the EU gets dragged to the WTO’s dispute settlement mechanism.

 

We don’t know when the big EU member states will put CETA to a national vote in their national legislatures to advance the ratification process. There’s also a deal with Singapore and with Vietnam to ratify this year: who knows how that will pan out.

 

Disconnect 

 

Externally the EU’s trade plans look very fragile and disconnected from domestic and international realities.

 

The EU’s multilateral investment court is unrealistic. Should it ever materialise – in twenty years perhaps with a group of small like minded countries it will have managed to strong-arm – it offers no solution to pressing trade and market access concerns of businesses facing trade barriers in the US or on Asia.

 

Prime victim of the TPP, Japan is giving no sign of truly prioritising the EU either, as it awaits movement from Washington on a possible replacement by a bilateral deal. This means no extra cream for EU dairy exports in Japan in the foreseeable future. The EU is not in a position to include an e-commerce chapter in its deal with Japan, given its internal paralysis over data flows. That is a deal breaker for Tokyo.

 

At the WTO, the EU is not much better at listening to developing countries who are calling on members to deal with old legacy issues, notably better market access on agriculture, and to their own new issues such as Mode 4 in services other than high skilled professionals. That does not improve the odds of a WTO pact under EU leadership: leadership is about giving too, not only asking.

 

The EU’s plans to go ahead and negotiate a trade pact with the Philippines and other ASEAN countries looks both reckless and incoherent: on the one hand the EU has suspended negotiations with Thailand’s military junta. On the other hand it has no qualms about steering ahead with talks with the Duterte presidency in the Philippines and its open disregard for the rule of law and basic human rights. That could well backfire in the European Parliament.

 

BIA negotiations with China also look like a fully unrealistic plan at the moment: China will not buy the EU’s investment court (nor is this exactly a good idea to have government-appointed Chinese apparatchiks sitting in a bilateral investment ‘protection’ court), nor the EU’s labour and environment chapter, let alone open up its investment markets significantly just to please Brussels.

 

At some point this year, the EU will also start becoming embroiled in complicated discussions at the WTO about its 87 agriculture tariff rate quotas as the UK pulls out of the bloc. On paper Britain wants to replicate the EU schedule. In practice all TRQs need to be renegotiated. It would be simple if the EU kept its current quota size and the UK opened its own quotas, ensuring the WTO trade partners don’t feel they lose out. But some EU member states and the farm lobbies in Brussels won’t let that happen. This is set to significantly complicate the launch and process of negotiations with the agriculture export powerhouses New Zealand, Australia, Chile, and Mercosur.

 

The EU also aims to launch customs union modernisation negotiations with Turkey. The task is daunting. The EU also aims to revive talks with the Gulf Cooperation Council. We wish the EU fun with that.

 

In a year like 2017, the EU Commission probably better accept that ‘less is more’.

 

It might be wiser to focus on getting ready to act immediately and effectively should the US trigger its border adjustment tax – lest Brussels be accused of being yet again incapable of handling a major crisis. Energies also better focus on getting it right with the Japan deal, including by tackling France on this matter, getting the Singapore and Vietnam pacts ratified, and getting it right on the trade defence instrument overhaul to get help put relations with China on a more solid footing. The rest can wait.

 

Iana Dreyer is founder & editor of Borderlex.

 

 

 

 

Opinions expressed are those of their author only.

One Comment

  1. Paul Fournier

    Very good and interesting analysis Iana!

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