The coming months will be a challenge for advocates of international trade agreements in Brussels and the wider European Union. Post-Trump, post-Brexit and post-pandemic trade policies are bound to focus on files that respond to a sense of existential threat emanating from its member states.
We all feel a big groggy after all the health, economic and political shocks we’ve lived through in the last eighteen months. ‘Groggy’ is also what the European Union’s trade policy feels like. As the second half of 2021 beckons, it’s time to take stock of what has changed over the last eighteen months in the way the EU conceives and does trade policy and to try to make sense of what awaits us.
Never the same again
We had three important events in eighteen months: the Trump administration transitioning into the Biden administration in the United States, the United Kingdom’s full departure from the EU’s customs union and single market in January 2021, and the pandemic.
The 2016-2020 Trump Accident destabilised Europeans to their very core – their security. Even with ‘America back’ under Biden, nothing will ever be the same again, the US will no longer be seen as a fool-proof guarantor of ‘order’ be it in relation to global and European security, or to international trade rules such as set and adjudicated in the World Trade Organization.
Britain’s departure created the EU’s second largest trading partner outside the EU, and likely a permanent trade policy headache going forward.
It also rearranged power balances within the EU, making it more than ever before a German- French duopoly. At times this morphs into a wider oligopoly involving Italy and/or other member states, depending on the topic. The European Commission under Ursula von der Leyen has become more than ever a servant of the Council, doing the bidding of the ‘collective’ of member states where possible, of Germany, France, Italy, their allies – in that order – more frequently in practice.
Brexit also weakened the European Parliament: Michel Barnier put all his energies into courting and doing the bidding of member states. The European Parliament had to swallow the Trade and Cooperation Agreement and rubber-stamp it. Since then, nothing has felt the same again on international trade policy in the European Parliament. Nobody listens when the European Parliament calls for the end of the extension of an EU export licensing scheme for vaccines or when it votes in favour of negotiating over a waiver of IP rights at the WTO.
Brexit and complicated UK EU relations over Northern Ireland are another thorn in the side of the EU. The Swiss have become emboldened in their euro-scepticism. They suddenly walked out of negotiations with the EU on a framework agreement that would have improved trading terms. They would probably never have walked out of such talks only a few years ago. As to attempts to patch up relations and modernise a customs union with Turkey – good luck this year.
The pandemic stripped everyone naked – member states in particular and also EU institutions. Europeans discovered the extent to which they had missed out on being leaders in the kind of technological innovation and disruption that shapes today’s world. We had been so complacent – delaying the kind of competitiveness reforms and public investments that would have averted that situation.
The public discovered the extent to which their governments were unprepared for a pandemic: no masks stockpiled, not enough medicines, insufficient hospital capacity, insufficient testing abilities – one member state weaker or better in one area than the other, but none shining through excellence.
Europeans discovered ‘strategic dependencies’ that ensue from such weak starting points be it in imports of medical supplies or of semiconductors, or a near-universal reliance on US digital platforms for all sorts of vital activities that kept us afloat during the pandemic.
The Commission was made to pick up the pieces of our collective shambles: it had to bang heads over internal market restrictions on PPE trade in 2020, and was tasked with joint vaccine procurement.
In March 2020 when everything came crashing, we had a brand new Commission president with no previous EU policy-making experience who had only been in the job for four months. Von der Leyen acted as a novice, all this in a novel policy area for the EU – healthcare. It’s no surprise the process was messy, rocky, full of big mistakes. But – all in all – it could have been worse. We now do have masks, Europeans are getting vaccinated, there is hope for a reopening. The rest of the world does not look that much better.
Trade after the apocalypse
Europeans’ political psychology has also changed.
An apocalyptic mindset is now prevalent in large swathes of the population. An ageing population and voter looks backwards to a better era, thinking of holidaying in Europe’s south and the amount of their pensions. Young people in long-stagnant economies retreat from formal politics – as shown in the latest regional elections in France, thus perversely reinforcing the old-people bias of our national politics. Climate or cultural/racial apocalypse is the collective psychological game in many towns: there is a big ‘No’ being shouted at a world that feels as if it escaped Europeans’ control.
These are Big Trends. These do impact strongly the EU’s trade policy. And this is how: talk of ‘strategic autonomy’ in its open or less open form, industrial policy, carbon border adjustment, greening of trade agreements – and perhaps no trade agreements at all. A desire to tame the Foreign Dragons, real or imagined, of Chinese SOEs, American Amazons and other predatory investors.
Key investment or trade agreements with China (CAI), Mercosur and Mexico are in limbo. They won’t get out of the fridge before German (September 2021) and French (April 2022) general elections are behind us. It is difficult to imagine the small but strategically important FTAs with Australia, New Zealand and Chile being concluded before those dates either. Odds for a deal with Indonesia soon are not good either. CETA with Canada won’t get ratified by the remaining member states that still need ratifying it – including Germany and France – before then.
Carbon border adjustment, a new foreign subsidy control regulation, a new international procurement regulation, the EU’s series of new digital market regulations, among others – will be given priority over the coming months. Some of them – notably CBAM and the digital market regulations – might be delayed or modified in light of US resistance.
We are likely to see a new regulation that bans imports of products made from forced labour announced shortly.
All that sits well with the French in particular, who will take over the Council presidency in early 2022. The Germans will be eclipsed for the next six months.
Over at the WTO, the EU will successfully torpedo the IP waiver talks. WTO modernisation plans of the EU won’t deliver results this year. Energy Charter Treaty modernisation talks have low chances of succeeding.
In such a context, it is not surprising, then, that the new Slovenian presidency which will take over the helm of the Council on 1 July does not put any emphasis on trade policy even as it stresses its quest for good transatlantic relations.
If all goes well we might have more functional trade and tech relationships with the United States in six months, provided the Trade and Tech Council and many other dialogues announced at the 15 June 2021 EU-US summit get off the ground.
Those who think the EU will need to be outward looking and open to thrive, matter and make a positive social and environmental global contribution – and that also involves doing international trade agreements – will need to go back to the drawing board and strategise hard.
The focus will have to be on reconnecting with the political grassroots in member states.
