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In the shadow of America First – three EU trade conflicts flying under the radar

The EU is posing as the new champion of trade openness and guardian of the international rules-based order. But three recent trade initiatives show that Europeans are all-too eager to do the opposite of what they preach, writes Hosuk Lee-Makiyama.

With all its new steel tariffs, trade wars and threats of withdrawal from the World Trade Organization, trade pundits seem to universally agree that the Trump administration is the main culprit in wreaking havoc with the international trading system.

But who is the saviour of the open trading order, the leader of fair and free trade, the bulwark against protectionism? After clinching a landmark trade deal with Japan, European leaders were quick to appoint themselves to the role of last hope for the rules-based international order and started posing for the cameras.

This self-image, however, is not always shared outside the eurocrat bubble – and there are three new EU rules on imports that explain why.

Firstly, the EU has not missed out on the opportunity to impose its own steel tariffs. While the news media is busy scrutinising every step and turn in US trade policy, the EU has introduced its own safeguards that are as restrictive as the famed the US ‘Section 232s’ – albeit for imports above recent historical levels. The EU applies its duties without any exceptions, be they friends or foes. The initial quotas imposed on Korea, China and other economies were also riddled with calculation errors.

Secondly, the Association of South-East Asian Nations – ASEAN – that includes some of the world’s fastest growing democracies and 700 million consumers is holding back on regional and bilateral trade negotiations with the EU, and on designating Europe as a strategic partner. This diplomatic excommunication is a direct response to Brussels’ updated directive for renewable energy (RED II) which indiscriminately bans sustainable biofuels from palm oil produced in ASEAN.

The heads of governments of Indonesia and Malaysia have already threatened to challenge the new rules at the WTO’s dispute settlement body. It is therefore unsurprising that the last element of the reform – a ‘delegated act’ on how the European Commission would determine whether a crop is sustainable or not – has been postponed beyond its legal deadline. The purpose of the exercise was probably to designate all oil from ASEAN as unsustainable.

Understandably, you cannot lay claim to being the new sheriff in town who upholds the law, if a universe of like-minded countries is lining up to file complaints against you in the WTO for violating the law.

Foreign goods safety controls to hit small exporters

The third example is the ultimate proof of the EU’s temptation to flout global trade rules. It is a highly technical piece of regulation called the Goods Package – which has been under preparation for over a year in Brussels – and risks provoking new trade disputes.

Masquerading behind its innocuous-sounding name, the draft piece of legislation is intended to protect EU consumers against ‘unsafe’ products. However, it foresees direct discrimination of foreign imports. Indeed the package assumes all imports are unsafe, while all locally produced items are presumed safe. The rules will subject almost every parcel to meaningless inspections that are designed to drive up costs and delay shipments – as if Europe was attempting its own hard Brexit with the world.

Rather than directing resources to fight illegal smugglers and unsafe products, customs authorities will be asked to do tick-box exercises with compliant importers. Without solid data on where and how the riskiest products are traded, this will lead to the opening of millions of parcels at the border. Ironically, when Washington contemplated a similar rule in 2010, Brussels lobbied hard – and successfully – against it.

Some of the world’s most vulnerable people will be further excluded from selling to Europeans. Platforms like Etsy, eBay or Alibaba let artisans – predominantly women entrepreneurs – from the developing world in Sub-Sahara and South East Asia sell to the Single Market. For these entrepreneurs, the EU is already the costliest and the most perilous destination to sell to, as their products are arbitrarily confiscated or destroyed.

All these new rules would be the final nail in the coffin for small-scale exporters, as the new ‘safety’ rules will force platforms and wholesalers to either carefully scrutinise millions of sellers, or to ‘cleanse’ them out.

Similarly, Indonesia alone is the home to 2 million smallholders producing palm oil that accounts for two-thirds of the country’s rural income. Some of them made significant investments to comply with EU sustainability requirements – but will most likely be banned from exporting to the EU anyway.

This is why WTO cases against Europe are almost a certainty.

If you have a compact of the US, Japan, Canada, Korea, China, ASEAN and women entrepreneurs in developing countries raising concerns, it may be a good idea to stop and ask ourselves if the world really see us as the champion of free and fair trade that we like to believe we are.

We may think our own protectionist antics may fly under the radar in the times of ‘America First’ – but the number of potential WTO disputes lining up against Europe from all corners of the world clearly tells a different story.

 

 

Hosuk Lee-Makiyama (@leemakiyama) is Director at the European Centre for International Political Economy in Brussels.

 

Opinion pieces published by Borderlex are those of their authors only.

 

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