With TTIP off the table for now, 2017 will be a good year for the EU common commercial policy to sort itself out, Iana Dreyer muses.
There is no doubt : the EU’s trade policy has taken quite a few beatings lately. The blows have come from outside and from within. The election of Donald Trump in the United States has just put two priority trade negotiations on hold: the transatlantic TTIP and the Trade in Services Agreement, or TiSA. The first agreement is (or was) expected to cover half of world output, the second 70 percent of the world’s trade in services.
Back home the EU is facing a double revolt against international trade and against itself. National governments, are tempted to make trade policy a national affair again, quite brutishly in the case of some EU member states, as seen in the way Paris and Berlin pressured the Commission to declare CETA a mixed agreement in July 2016, just after Italy was edging close to declaring CETA an EU only agreement.
Trade policy was also one of the factors at play in the decision of UK voters to leave the EU in the ‘Brexit’ referendum in June.
So, what next for the EU’s trade diplomacy?
In the short term, quite paradoxically, some trade files could become be easier to pursue.
The US isn’t signing the Transpacific Partnership? Well, the EU has now a greater chance of concluding a trade deal with the TPP ‘orphans’. Think Japan, who will now seek alternatives to the failed TPP. Other new negotiations with New Zealand or Australia – other TPP orphans – could begin in 2017. The two countries will be keener, more than ever, on a deal with the EU with TPP flailing. We shall also see where recently launched negotiations with the Philippines and Indonesia lead us.
The Commission is also hoping to make some headway with EU Mercosur negotiations next year, as well as in its negotiations to upgrade an existing agreement with Mexico.. These deals have so far been less in the limelight of NGOs. Though they are in the limelight of the farm – beef – lobby…. Let’s say ‘not-so-fast’ for Mercosur.
Yet in practice, 2017 is shaping up as a relatively idle year for EU trade negotiators.
In the WTO, it is impossible to predict how constructive the United States will be in developing a new trade agenda ahead of a new ministerial meeting in Buenos Aires in December 2017. We don’t know at all where the WTO will be heading under Donald Trump. This potentially leads the EU to deal alone with a China. Yet China is increasingly reluctant or unable to strike minimal compromises – as is seen in current environmental goods talks (EGA), the small-scale ‘plurilateral’ agreement in the WTO parties hoped to clinch in December.
2017 will hence need to be a year of profound rethink of the EU’s trade policy and an opportunity for the EU to sort itself out internally.
That will not be easy.
Europe sort thyself out!
Firstly, the EU needs to find a way to be able to act again as a unified actor. The Commission needs to take on the French, Berlin on this issue: trade policy should remain an EU-only competence. That is a battle that requires stamina and careful alliance-building.
Secondly, the EU needs to put an end to the current turf wars between member states and the Commission over competence on EU trade policy. Investment policy – and investment protection and related dispute settlement issues in particular – are at the heart of (though not the only factor in) the wrangling between the EU and member states in the traumatic CETA adoption saga of last October, when the region of Wallonia almost toppled the deal.
The investment protection chapter of CETA could still be the treaty’s undoing. Remember: Wallonia in its deal with the Belgian federal government greenlighting signature of the Canadian treaty said it would not sign the current investment chapter in CETA “as is” (tel quel).
The Court of Justice of the EU will, in a coming opinion on an EU FTA with Singapore, provide some clarity on who is expected to do what. If – and that is not unlikely – the Court of Justice rules that investment protection and related dispute settlement – are also a matter for the member states, then perhaps the EU will have to leave out investment chapter in these complex agreements in future. And perhaps do them separately. This would make it simpler to ratify trade agreements in future.
That said, there will need to be a serious conversation between the capitals and the Commission on how to ensure European investors will be adequately protected internationally in future. Old BITs of member states with ISDS are increasingly contested, if not at home then by trading partners, such as India, a country that is cancelling all its old BITs. It does no longer make sense to have just national deals – It will be difficult for Berlin alone or the Hague to get good investment protection agreements with emerging markets in future: that power must now stay with the EU, and better support the Commission rather try to undermine it. I am not sure that issue is clear and some politicians or old ISDS defenders in member states will need to grow up a little.
Alone supporting multilateralism?
Thirdly, EU players will have to realise Europe is increasingly ‘alone’ on the world trade scene advocating open trade and multilateralism. US retreat and rising isolationism is not limited to security. Even before Donald Trump suggested in one of his campaign speeches in the summer 2016 that the WTO is a “disaster” and that the US would “pull out”, the US’ commitment to multilateralism was wavering. Richard Katz, in an article in Foreign Affairs, analysing US behaviour in the TPP negotiations said the country was becoming both less benign and less hegemonic. It is increasingly unable to make compromises – with its partners, but also domestically, to clinch deals. Once president, Donald Trump will not likely pull out of the EU. But will the US continue to buttress the WTO?
So the EU as trading bloc will be left alone with China to save the multilateral trading order. It is not going to be easy. At the same time, the EU, like the US, is in rapid relative decline. The US, more then ever will likely be more of a rival than a partner in global economic governance. The ‘market size’ argument the EU uses to convince partners to accept some of the EU’s demands in free trade negotiations – such as the investment court system with Vietnam – will carry less weight over time. It already carries less weight with the big players with which the EU is seeking free trade deals – such as India.
Go slow on Brexit
Finally, there is Brexit. If and when the two sides start negotiating, both will be absorbed in negotiating a deal amongst themselves, talking beef quotas in the WTO and potentially entering acrimonious talks on difficult topics such as UK passporting rights for banks in the EU, data flows and privacy, to name only a few among the many likely future difficult issues. I don’t share the dominant Brussels view on the need to get talks started early.
A UK exit from the EU is a real political disaster for the bloc: in a Trump world even more so. This is not a time to go it alone, but to pull together. The UK will need to prepare its exit bid well. It will not be ready in March 2017, when divorce talks are due to begin. 2017 will be election year in Europe. That year could be full of bad (and good) surprises. So: start in 2018!
Nobody has an interest in destabilising the UK economy, or engaging in acrimonious divorce talks and excessive bad blood. Moderate voices in the UK who will seek a close partnership with the EU and continued deep economic integration – and cooperation will need time to organise and get heard. Until recently the hard Brexiteers are holding sway with the Prime Minister, but they only represent a fraction of the Tory party, and May’s policy of listening to them mainly so far could lead Britain to the wall. Nobody can afford that.
