Trade: the EU’s rising exposure to pressure and blackmail

The EU’s trade policy is being renationalised under the pressure of national governments seeking to regain control over an exclusive competence of the EU and of Brexit. The European bloc is thereby becoming increasingly exposed to new political pressures and blackmail at home and abroad. A pamphlet by Iana Dreyer.

In TTIP, and TiSA, Commission negotiators are stunned by the trade negotiating tactic of Washington: attack. At home, the Commission, after some macho-style boasting in the media over the legal status of CETA by Jean-Claude Juncker, capitulated to member state pressure to renationalise trade policy. With Brexit, both the UK and the EU are now exposed to being played out against each other by trading partners keen to carve out the best trade deal for themselves.

EU: welcome to a new era of blackmail.

Tough US

“You got punked” an EU lobbyist was told by US trade diplomats after a meeting between TiSA business groups and negotiators in Geneva in July. There, the lobbyist told Michael Punke he believed the US’ offer in TiSA signalled no willingness at all to talk about the market access problems that matter most to EU business, such as the Jones Act which closes off maritime services to foreign suppliers, or telecommunications. This view was in direct contradiction with the US view, which is that the EU’s own offer in TiSA is meek and weak and that Brussels should move first.

The exchange became heated between Punke and the lobbyist. After the meeting, a team of USTR staff went to see the EU business representative, telling him he had gone too far and had not been deferential enough to Punke. One example of his supposed lack of respect was the fact that the lobbyist called Ambassador Punke by his first name – Michael. This although Punke himself had, according to the lobbyist, first called him by his own first name during the meeting. He should go and apologise to Punke’s office, USTR staff said. Which the lobbyist duly did.

Apparently, getting “punked” – instead of “punched” – is not unusual in Geneva by those who don’t agree with the US Ambassador. Punke is reputed for being a tough guy in Geneva. In Brussels, staff of the European Commission say privately the US is extremely tough in TTIP talks.  Stakeholders in business say they see the Commission slowly giving in to US demands, but without getting many tangible results in return.

This is not about falling into clichés about a weak and naïve EU and a nasty US.  The US is only doing what it has to do. The method fetches results. It is up to the EU to devise a method to ‘hit back’ and get something out of TiSA and TTIP, currently the two big battlegrounds of Washington and Brussels.

At a recent conference in London, a former trade diplomat, Sir Andrew Cahn, a senior staffer at Nomura, and a former EU trade negotiator, said trade talks are “as unsentimental as war”. Clearly, Brussels should get itself equipped for this “war”.

After all, the EU too can be awfully unsentimental. Many trading partners shudder when they start discussing trade with the EU. Australia and New Zealand are reportedly finding the current ‘scoping exercise’ ahead of planned formal FTA talks with the EU rather awful, as the Commission and member states sniff out every single faults of their trade policy, be it their investment or public procurement market restrictions, or Australian antidumping duties on Italian canned tomatoes.

With TTIP, however, it is two giants which are now facing off. Both the EU and the US are proud and rigid trade negotiators, used to getting more from others than they give away. Here they are equally powerful – and frustrated with each other. Yet though the US is formally the smaller player, the EU’s internal divisions over TTIP and its institutionally fractured nature could lead to it ending up being the weaker party.

Brexit fault line

Then comes Brexit.  Brexit has created a new fault line in trade policy that will serve neither the UK nor the EU.

Though the US has set its priority on getting TTIP through this year first, and hopes the UK will join TTIP separately, with Brexit the EU can now forget about having financial services regulation included TTIP’s regulatory cooperation component. This was initially a key EU demand on the US in TTIP, a request pushed most by London: Whitehall knew full well that the only way to have any chance to get heard in DC was via EU-led negotiations.

Now Brussels and London will most likely need to be content with a revamped EU US Financial Market Regulatory Dialogue, a pre-existing talking shop the US has promised to upgrade, as a tactic to avoid having to make promises to include financial regulation in TTIP.

Wonder why the Brazilians are keen on a separate Mercosur trade deal with the UK? They hope to get bigger quotas for their beef and sugar exports, without giving too much in return in terms of opening up services or procurement markets or reducing tariffs for UK businesses. And then they hope to go to the EU, and ask for a similar deal.

Both the UK and the EU risk losing out in such a triangular EU-Mercosur-UK trade game. You can’t blame the Brazilians. The French would say that for Brazil it’s “de bonne guerre” (literally “of good war”), meaning a rather normal if cold and cynical game. Let’s not even venture into making scenarios by which China launches free trade talks with the UK – which it will as soon as it can. The pressure on the EU to do the same – and on terms it doesn’t necessarily like – will only increase.

Commission blunders

Finally, there are the EU Commission’s own blunders. The CETA blunder could prove fatal.

Commission President Juncker made an enormous mistake. Earlier this month, he announced to the media a few days in advance of a Council meeting a move that the Commission has always made before putting a free trade deal to the member states for adoption: stating it is an EU-only agreement that would need ratification only by the Council and by the European Parliament. But by going live and making provocative statements Juncker exposed himself to the pressures of the two EU big beasts Berlin and Paris. These two member states had enough time to gang up on the Commission ahead of the fatal meeting. They were cheer-leadered by all the pseudo-democratic moralists and opponents to free trade in Brussels and back home as Juncker’s statements went viral on social and mainstream media. Among those seemingly outraged were MEPs and/or other avowed pro-Europeans such as many Greens in the EU Parliament: clearly they are happy to risk destroying the EU just to avoid having a trade deal to go through. Ideology trumps good governance.

What’s at stake is whether the EU can act internationally: in this global era, if the EU can’t act internationally, the EU has no value. It cannot afford that deals that belong to its core competences – such as trade policy – are subjected to conditions and vetos from 28 – pardon 27 – individual member states. The member states in the Council and the democratically elected European Parliament already have the requisite vote and thus democracy is already guaranteed.

What is unfolding in front of our eyes is not more democracy, it’s more nationalism.

Member states should know that by trying to win back small bits of power from Brussels they expose themselves to all sorts of pressures from trading partners. By acting unilaterally in taking unhelpful measures, the French, after their move to introduce a tax on palm oil whose design contravened WTO rules, were exposed to unpleasant threats and pressure from Malaysia and Indonesia this spring until the French parliament caved in. These pressures included a threat to take the EU to court at the WTO and to cancel ongoing public procurement deals, and actually stopping French exports at customs. So much for French démocratie.

These ASEAN members have learned from China, which has often played these games to cow Paris, Berlin or Brussels when Beijing didn’t like their brash actions – such as 2013 antidumping duties on solar panels few actually wanted in Europe. Suddenly French wine was stopped at Chinese customs.

Now that the EU is undergoing a very charged political process over the treatment of Chinese antidumping duties – China MES – after December 2016, it appears businesses have ‘massaged’ usually vocal and easily China-bashing capitals such as Paris into treading carefully and not coming out with careless statements for fear of commercial retaliation. Instead Paris and Berlin are working together with the Commission on a joint political package to bridge the many overlapping divisions over Chinese antidumping, however difficult and likely botched it will be.

Pointless nationalism like the one regarding the ratification of CETA is one of the many EU-killers we are currently seeing. Few member states see the bigger picture here. Alas, the Commission has played the CETA file very badly and shot itself in the foot. No wonder, at its head there is a man who tries to apply at EU level the methods of national politics. Juncker was bound to fail.

The EU looks awfully ill-prepared for what’s coming in trade policy: not least Donald Trump, who threatened a few days ago to pull out of the WTO if elected US president in November this year.