European Trade policy “ABCs”
A new year, a new decade and a new Commission may be the perfect combination to make a new start when it comes to trade policy. Europe faces some “basic” challenges which could make 2020 a year of “raw geopolitics” for trade. I suggest that Europe will need to go “back to the basics” in 2020 as it focuses on the “ABCs” of its’ trade policy, namely: A: America, B: Brexit and C: China.
“A” for “America first” and Donald Trump’s protectionist trade policy, which in 2019 included an outright trade war with China, an attack on the multilateral rules-based system and a refusal to appoint appellate judges to the World Trade Organization (WTO), as well as the imposition of tariffs on $7.5-billion worth of imports of European Union (EU) goods, including French wine, Scottish whisky and Greek canned peaches, following the decision of the WTO arbitration panel in the Airbus case. As he faces impeachment during an election year in 2020, President Trump says nothing as his self-proclaimed deadline to impose “Section 232” tariffs on imports of foreign-made cars and auto parts expires. Instead, he announces that he will sign a “first phase” trade deal with China by January 15 that remains unclear and threatens to impose 100% tariffs on French imports ranging from wine to cheese to porcelain in retaliation for its’ digital tax on tech giants, which happen to be mostly American.
“B” for Brexit, which was approved by the European Parliament at the end of January, starting a new countdown of an 11-month transition period to negotiate and finalize a free trade agreement between the EU and post-Brexit Britain. June 30 is decision-time on whether to prolong the transition period by one or even two years. Forgoing the chance for any extension would revive the threat of an economically disruptive severing of U.K. ties with the EU — this time at the start of 2021. Meeting the deadline will not be the only difficulty. Trade negotiations, which by their nature are technically challenging and politically contentious, in this case will also involve a delicate balancing act, in an attempt to strike a “good deal” that serves everyone’s economic interests but not “too good” so that it lends credence to Eurosceptic populist rhetoric.
“C” for China, which has been promising to transition to a free market economic model since it joined the WTO nearly 20 years ago, but continues to adopt non-market-oriented policies, including state subsidies, to boost strategic industries which then flood Europe with their excess capacity. A case in point is OECD data on how China affects international prices through the dumping of subsidized aluminum products. 85% of the $70 billion support to aluminum companies worldwide went to just five Chinese firms. As a result of this support, China now produces 57% of worldwide primary aluminum, compared to only 10% fifteen years ago. Meanwhile, the Chinese carbon footprint for primary aluminum production is 3 times higher compared to Europe.
So how will Europe achieve the overall objective which President von der Leyen says is to “strengthen Europe’s global leadership in trade” starting in 2020?
Commissioner Hogan is mandated by the President to deal with the “ABCs” as follows:
A: “Work towards a positive, balanced and mutually beneficial trading partnership with the United States.”
B: “Pave the way for an ambitious and strategic partnership with the United Kingdom.”
C: “Step up negotiations on a Comprehensive Agreement on Investment with China, with the aim of reaching an agreement by the end of 2020.”
At the same time, the Commissioner will ensure that Europe strengthens its ability to protect itself from unfair trade practices by making better use of trade defense instruments, upgrading its’ Enforcement Regulation to allow for more sanctions, and implementing the new system for screening Foreign Direct Investment. An undoubtedly ambitious and politically challenging trade policy agenda. As the Commission, the Parliament, the Member States, Civil Society, businesses and ordinary citizens face these challenges, we should not forget that the “ABCs” are about “the basics”.
The basic idea behind trade policy is the “liberal international order”, namely, an international, rules-based multilateral system that addresses both economics and geopolitics. Today, with populism, authoritarianism and armed conflicts on the rise, as the world faces new challenges from non-state actors and cracks in traditional strategic alliances, we need to remember that the founders of this system maintained that there is no separation between these two components, the economic and the geopolitical.
Stated simply, today, perhaps more than ever, going back to the basics involves reviving the idea that free trade and lasting peace go hand in hand.As Commission President Ursula von der Leyen kicks off her “geopolitcal’ term in office, she recognizes that trade is “more than simply the exchange of goods and services”. It is a “strategic asset” for Europe. So back to the basics it is. After all, the EU was founded as a “single market” and its greatest strategic asset has always been “lasting peace”.