Happy New Year, dear subscribers!
The year 2018 will offer a very narrow window of opportunity to bring key EU trade policy files forward. On the EU’s plate this year: finalise trade negotiations with Mexico and Mercosur, get key trade agreements with Singapore, Vietnam and Japan through the European Parliament, and gear up on a post Brexit trading relationship with Britain.
Narrow window for decisions and a turbulent trading environment
Most policymakers in Brussels are already thinking of 2019, the year the renewal of the European Parliament and of the top leadership at the European Commission is due. This leaves little room for major new initiatives.
Germany still has not set up a new government following last year’s election. This means Berlin is neither leading policy no having a strong line on any major policy file. In the commission, a leadership contest is set to begin as DG Trade’s Director General’s post is up for grabs. Jean-Luc Demarty, the incumbent, is set to retire this spring.
The relative political vacuum is already being filled by Paris. The Council will be presided by Bulgaria – with a government that is more sceptical of free trade than recent EU presidencies including the outgoing Latvian presidency.
All in all one can expect a ‘defensive’ and less liberal or commercially ‘offensive’ trade and investment policy coming out of Brussels in the coming months. Files such as the new investment screening regulation could potentially take precedence over securing a mandate for new trade negotiations with New Zealand and Australia, something the commission has failed to do in 2017.
If the EU is likely to become more defensive on trade, the trading bloc looks liberal and benign in comparison to the turn taken by other major trading powers. EU trade officials will be fighting trade defence measures and other protective measures in the United States, China’s growing standards and information technology protectionism, and the continued reluctance by high-growth giants like India to embrace free trade.
The crucial trading relationship with Turkey is in dire straits as there are signs of increased dysfunction of the EU Turkey customs union. Attempts to launch negotiations to modernise it are stuck not least due to the deterioration of political relations between Berlin and Ankara.
The EU rolled over its sanctions against Russia late last year: this means no thawing on trade relations anytime soon, though the pressure is on the commission to establish firmer relationships with the Eurasian Economic Commission in Moscow.
2018 could be the year when a subset of World Trade Organization members start working on a plurilateral agreement on e-commerce, with the EU involved as one of the major proponents. But given that there are no signs of the Environmental Goods Agreement, another WTO-sponsored plurilateral negotiations (or of TiSA, the services pact negotiated outside the WTO), coming to fruition, it is hard to see how this deal can come off the ground in the foreseeable future.
Getting Mercosur and Mexico trade deals over the finishing line
The EU’s trade negotiating machinery that was set in motion since 2014 will continue to churn.
The EU and Chile are sitting down mid January to properly get going on trade negotiations with the aim to update their existing Association Agreement. Despite difficulties in the negotiations, a new round of talks is scheduled with the South East Asian giant Indonesia in February. Member states also agreed to let the commission explore the potential revival of free trade negotiations with Thailand if elections there go ahead as planned.
Crucially, new meetings are planned with Mercosur and Mexican negotiators to gauge whether a deal can be clinched in the coming weeks or months. With Mercosur, the South American trading bloc, the EU came close to concluding a long-sought trade agreement in December, but agricultural issues in particular have, yet again, been the deal breaker. With Mexico, a political deal over the modernisation of their already existing ‘Global Agreement’ stumbled over investment protection and geographical indications protections for cheeses, as Mexico faces high pressure from the US in the context of NAFTA negotiations.
Ratifying major FTAs
The EU will have a major task in 2018: get the free trade agreements concluded by Cecilia Malmström’s DG trade with Singapore, Vietnam and Japan through the council and in particular the European Parliament.
The commission has sought to separate the ratification processes of the bulk of the trade pact and the parts of the trade agreements – such as investor state dispute settlement – that the European Court of Justice in May last year ruled as falling under the mixed competence of the EU and the member states. The first part could potentially be ratified more easily through the qualified voting majority procedure in the Council and a simple majority in the parliament in Strasbourg. The latter requires ratification by all member state capitals on top.
The EU executive has been arguing that the ECJ Singapore ruling provides clear justification for going that way. Some member states, including Germany, have been arguing that already signed agreements such as the one with Singapore and Vietnam would need to be ratified the ‘old way’. This means that the entire pact should be also ratified by all member states.
The trade directorate in the commission is also launching preparations for the ratification of the EU Japan free trade agreement concluded before Christmas. But ‘legal scrubbing’ and translation obligations mean this could take some time.
CETA, the trade pact with Canada is already largely in force provisionally. In 2018, the focus will be on getting its institutions working properly and exploring if the deal’s sustainable development chapter can be made to have more legal bite. CETA also needs ratifying in the EU member states. Italy has not yet ratified CETA. France is hoping to do so in the second half of 2018, and with the current situation in Germany, no date is set.
Post Brexit trade relations up the priority list
Throughout 2017, Brussels has not seen the trading relationship with Britain post Brexit as a political priority. This attitude started to change in the weeks before Christmas. The commission is preparing suggestions to the member states on how to approach that relationship and aims to secure a mandate to launch negotiations over a framework for a future trade agreement, likely in March.
Michel Barnier’s Article 50 task force has clearly stated that given Britain’s red lines on free movement and the role of the European Court of Justice, only a deal modelled on existing advanced trade agreements with non EU member states such as with Japan or with Canada can be envisaged. These are a far cry from membership of the EU single market, however.
Whereas small(ish) trade-dependent countries such as Denmark, the Netherlands and Ireland have been at the forefront of lobbying for early talks for a generous free trade agreement with Britain post Brexit, European capitals from bigger countries have been somewhat slower and focused on taking a principled stand on the need to secure Britain’s payments into the EU coffers for the remaining time of its membership, on citizens rights, and the integrity of the single market.
But now the wheels of Brexit politics are churning in the bigger countries. Governments need to balance the interests of businesses fearing the loss of the British market, businesses trying to take the opportunity to get a share of British business, and a business community afraid of having to reckon with a neighbour next door that applies a lighter touch approach to regulation.
We are very far from any trade agreement post Brexit, though, but the thinking, scoping and lobbying in Brussels will now start to work in full gear.
Meanwhile, London is very slowly getting organised for an independent trade policy outside the EU. The coming weeks will be about getting a new trade and customs bill through a parliament that has recently reasserted its rights over the government and secured a right to vote down the deal the deal Whitehall is planning to sign with the EU. The Department for International Trade has grown in size in 2017, but it still lacks competence and negotiating experience.
Dreamers up in the higher ranks of the DIT are exploring joining the Transpacific Pact (without the United States). As long as there is no real political mandate from the House of Commons one cannot see such projects gaining traction in the short term.
The real focus of the DIT this year will be to have an independent trade defence policy ready for 2019. Amanda Brooks is reportedly getting on with the task quite diligently though thinking on this policy is still in early stages. The other major focus will be to secure trading continuity with trading partners such as Switzerland, Canada, Korea with which the EU has deep trade agreements in place.
Even if Britain secures a transition agreement with the EU involving continued membership in the customs union and the single market, if it is no longer a member of the EU, these trade agreements cease to apply to the United Kingdom – unless something is done to somehow roll them over. There are reports that the DIT leadership is not sure it will be able to make it in time for March 2019.
All in all, 2018 can be seen as a year where the EU will seek to get on with its agenda, but won’t do anything daring or new on trade. Domestic politics will take precedence, and the ugly separation with Britain will become an increasingly important issue in Brussels.