The EU and the New Trade Environment

By Dr Carol Cosgrove-Sacks
 

Dr Cosgrove-Sacks reflects in this issue of the newsletter on the role of the EU in the new trade environment: a new administration in the White House, the continuous rise of China and the potential consequences of Brexit. Learn about our Trade Policy course here and about all our Executive Education courses here.

As a major multilateral trading entity, the EU accounts for 16% of world trade, with a dynamic record of success regarding both trade in goods and services[1]. Yet the EU is currently confronted by many uncertainties in global markets, not least from threats by the new American presidency to scrap the results of the lengthy and complex negotiations for the Trans-Atlantic Trade and Investment Partnership (TTIP) as well as significant advances by China into traditional EU markets, not to mention the unpredictable consequences of Brexit. How will EU trade policy evolve?

Common Trade Policy

The EU Common Trade Policy was created to make the most of the economic arrangements between the Member States: the customs union, the common external tariff, the single European market, the developing economic and monetary union, and now the push for the digital single market all contributed to a united voice in international economic diplomacy. The European Commission, specifically DG Trade, is responsible for crafting EU trade policy and representing the EU in trade-related negotiations. Indeed, DG Trade speaks on behalf of the EU in almost all WTO meetings, although the 28 are also individual members.

In the aftermath of the 2008-2009 global financial crisis, the EU and its main trading partners (USA, China, Switzerland, Russia and Japan) have been confronted by widespread economic instability. The world economy in the last decade has been an unpredictable and often hostile environment. Nevertheless, the EU has remained committed to active involvement in international trade.

Within the EU, politicians and people increasingly frustrated by austerity at home have pressed for clearer benefits from international trade, including from special deals for developing countries. Assurances have been sought that EU Trade Policy will deliver new markets to strengthen European enterprises and hence employment opportunities and a fairer playing field to make sure that Europe is not at a disadvantage. DG Trade has responded positively to demands for more effective market access strategies and has a significantly larger budget in 2017 to make common trade measures serve EU interests[2]. Protectionist pressures like these no doubt contributed to the negative verdict of the 2016 United Kingdom referendum on EU membership and are evident in several other members, notably France and Spain.

Regional Trade Arrangements

Regional trade agreements (RTAs) have long been a core pre-occupation of EU trade policy. We should remember that the EU itself is based on a regional trade agreement, permitting special concessions to members of the customs union under international trade rules. Since the establishment of the WTO in 1995, the EU has pursued trade diplomacy to support globalization while at the same time negotiating a wide range of RTAs, increasingly based on reciprocal benefits. In recent years these negotiations have become more ambitious, embracing not simply customs duties, tariff reductions and quotas but also regulations and standards, intellectual property rules, investment issues and even public procurement. The 2016 Comprehensive Economic and Trade Agreement (CETA) with Canada represents the most far-reaching trade deal yet achieved by the EU[3].

Since its origins, the EU has partnered with selected poorer countries to deliver aid and trade programmes for poverty relief. Perhaps the most comprehensive arrangement has been the EU partnership with the 80 African, Caribbean and Pacific States (ACP), most of whom had earlier been colonies or dependencies of EU Member States. During the last decade the EU has pushed hard for the ACP states to negotiate regional, reciprocal trade agreements – four in Africa and one each to cover the Caribbean and Pacific countries – whilst maintaining a range of development aid and investment deals. The EU has also negotiated free trade agreements with several Asian and Latin American emerging market economies and meanwhile it is promoting its Everything But Arms (EBA) scheme to encourage the least-developed countries to export preferentially to the EU.

Globalization

The contemporary international trade environment is increasingly dominated by global value chains – initially in manufacturing but increasingly in services. Global value chains, sometimes known as supply chains, are exemplified by the vehicle manufacturing industry. They use trade to bring together all the various stages of production and sale of products, from raw materials, intermediate processed products, components, electronics, services, and added-value tasks being contributed from a wide variety of countries. Typically, as for example in the vehicle industry, the whole value-chain is managed by a massive multilateral enterprise which decides on sourcing and location of manufacturing and final assembly and sales. This new trade environment is often identified with globalization and it may be difficult to define the ‘nationality’ of a product. One thing is sure - the multilateral enterprises focus on cost and quality, ready to relocate one or more of their processes if economic circumstances dictate. No doubt the British Government is keenly aware of the potentially damaging consequences of Brexit on UK-based activities of such global value chains, especially in the transport sector.

EU trade policy is increasingly tailored to delivering European competitiveness as a basis for these global and European value chains. The effective integration of the European economy plays a major part too, not least high-quality transportation infrastructure, reliable telecommunications and digital networks, a well-qualified and flexible labour force, and efficient customs processes to ensure goods pass smoothly over the border. Moreover, security is an increasingly relevant concern. No doubt DG Trade must work closely with many other European Commission departments, national administrations, and the European External Action Service.

In its flagship 2015 document on ‘Trade for All- towards a more responsible Trade and Investment Policy’[4], DG Trade stressed obligations to its stakeholders and also proclaimed its commitment to EU values, particularly sustainable development, human rights, fair and ethical trade, anti-corruption measures, and delivering benefits for less developed countries. It may prove challenging for the EU to maintain its values in the face of global competitive pressures.

A Breakthrough in Trade Facilitation

A high priority of EU trade policy throughout the last decade or so has been a global Trade Facilitation Agreement in the WTO, as part of the Doha Development Round of multilateral trade negotiations. The TFA entered into force late February 2017 and the EU immediately pledged funds to assist developing countries to fully implement the new arrangements. The TFA aims to simplify cross-border import and export procedures, clarify customs requirements, and ensure that transit rules are respected. EU customs authorities have committed to playing a major role in further trade facilitation and in supporting technical assistance for capacity building in developing countries. The TFA is designed to improve the efficiency and transparency of trade authorities, cutting ‘red tape’ at the border, promoting faster customs clearance through information technology and reducing the scope for corruption.

Having played a leading role in the TFA negotiations, EU trade policy can claim much of the credit. To quote the EU Commissioner for Trade, Cecelia Malmstrom: "Better border procedures and faster, smoother trade flows will revitalize global trade to the benefit of citizens and businesses in all parts of the world. Small companies, that have a hard time navigating daily bureaucracy and complicated rules, will be major winners."[5]

The TFA is forecast to add significantly to global wealth. But a more predictable trade environment is needed for the Agreement to deliver the promised benefits. Hopefully EU trade policy in the rapidly-changing international political milieu will maintain its commitment to multilateralism and play its part in demonstrating to EU citizens the advantages of open participation in the global economy.

 

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[1] EU in world trade – see WTO: stat.wto.org/country/profiles/E28

[2] The EU 2017 work programme for the financing of projects in the area of external trade relations, including access to the markets of non-European Union countries and initiatives in the field of trade related assistance [Brussels, 28.2.2017 C (2017) 1293 final]

[3] The Benefits of CETA, European Commission, DG Trade, 2016 [ISBN  978-2-79-59055-9]