August 01
2021
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Trajan Shipley
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24th February 2021
External Relations & Trade

Insight: “EU presents new Trade Policy Strategy aiming at open strategic autonomy” by Trajan Shipley

On 18 February, the European Commission made public its much-awaited new Trade Policy Strategy, its first major review of its trade policy in six years. Back in 2015, the Commission’s overview was concerned with making the EU’s trade policy more effective, transparent and values-based. Now, in 2021, with the United Kingdom no longer an EU Member State, a continuous shake-up of the transatlantic relations after the Trump presidency, the increasing ‘strategic competition’ with China and, of course, COVID-19, the new policy seeks to meet new ‘internal and external challenges’.

Overall view

For the past five years, the EU has been generally on the defensive when it comes to trade policy. While it has concluded substantive trade agreements with Canada, Singapore, Vietnam and Japan, it has struggled to manage an increasingly assertive China and faced a lack of commitment from the US toward multilateralism, which sees its most evident expression in the paralysis of the World Trade Organization (WTO). It has even been caught in the middle of the trade war that erupted between the two superpowers, and has also had to coexist with the uncomfortable truth that the international trade system is gradually departing from the globalised and multilateral consensus of the post-Cold War era, Brexit being the nearest example of that.

While the EU’s new trade policy certainly follows the thread of reactions to these events over the recent years, it seeks to enable the EU to play on the offence and meet these new internal and external challenges, as well as to further shape a world in accordance with both its trade and non-trade interests. While it cannot escape its unique reactionary character, it also looks into the future and seeks to promote and secure commitments from trade partners on its view on how the world must emerge from the COVID-19 pandemic: more sustainable, digital and fair. Thus, the EU’s new trade policy is highly horizontally linked to other domestic policies such as the European Green Deal or the European Digital Strategy, but also to the EU’s stance on human rights and decent work in global supply chains or to its desire for a closer partnership with Africa.

At the core of the strategy is the idea of achieving an ‘open strategic autonomy’, presented by the Commission as the ability to be stronger from an economic and geopolitical standpoint by being (i) open to trade and investment and remaining competitive; (ii) a sustainable and responsible global force; and (iii) assertive in defending and promoting the EU’s interests, albeit prioritising rules-based cooperation. The fact that the EU has chosen this concept as the leitmotiv of its policy overhaul is, as Luca Rubini argued, a signal that it intends to ‘shift or redress the balance of its trade policy’. In doing so, the medium-term objectives the EU has set itself include supporting the EU’s recovery strategy in line with its green and digital objectives, shaping global rules in accordance with this view and increasing the EU’s capacity to do so.

Eyes on Beijing

The new strategy seems to be addressed more toward China than to the US: the EU will still seek to partner with the latter, especially when it comes to WTO reform, but the policy is structurally aimed at securing commitments from the former. According to the Communication, the EU will prioritise strengthening the transatlantic partnership, but besides WTO reform, it only mentions green and digital transformation as fields where the EU will be seeking regulatory cooperation. Besides that, the EU and US will also have to address issues such as the Airbus/Boeing case and possible further tariff reductions.

The Communication mentions China more often than the US, and points out challenges affecting the level playing field for European companies (it specifically mentions the steel sector) and the need to protect the EU’s essential interests and values with respect to the Asian superpower. In this sense, the recently agreed deal in principle on the Comprehensive Agreement on Investment (CAI) with Beijing is part of the EU’s efforts to ‘rebalance the bilateral trade relationship’, an approach that is to be continued under the new policy in order for China to assume ‘greater obligations in international trade’, not just bilaterally but also multilaterally, as it points out that China’s market openness does not correspond to its weight in the global economy, something that has created dysfunctions that have ultimately lead to the WTO’s ‘crisis’.

Seeking commitments

The new strategy also reflects the overall ambition of the EU to secure commitments from its trading partners that reflect both the bloc’s values and its interests, and to do so through a varied set of means which include trade agreements, multilateral and bilateral fora, and increasing its regulatory capacity and the extra-territorial application of EU law. While it will seek to do so with all its trading partners, it is an approach that, again, seems intended to mirror China and achieve commitments from what the Commission considers to be significant market imbalances in its relationship.

Thus, the EU will deploy a multi-varied commitment-seeking strategy in global value chains and international fora to both project its own view of the post-pandemic world (a more fair and sustainable one), but also to address these imbalances with regard to market openness, trade and labour standards, respect for human rights and the role of the state in the economy. While academic literature has traditionally considered human rights, environmental and labour standards as ‘non-trade policy objectives’ for the EU, the new strategy seems to assimilate them, at least from an unfair competition perspective, with other more traditional trade policy objectives such as market access and the role of the State in the economy.

This stance is perhaps more visible in the field of bilateral trade agreements. The Communication dedicates an extensive paragraph to underline the fact that through these agreements it is able to ‘secure access to third country markets’, ‘ensure undistorted trade and investment’ and ‘engage with partners’. It goes on to say that the EU will introduce in future agreements a dedicated chapter on sustainable food systems, respect of the Paris Agreement as an ‘essential element’, and the implementation of commitments toward core human and labour rights as enshrined in the fundamental conventions of the International Labour Organization. This approach has already been visible in the ongoing negotiations on the MERCOSUR trade agreement with respect to deforestation commitments.

The achieved effects vis-à-vis these bilateral trade agreements have been evident lately in the so-called ‘new generation comprehensive trade agreements’. Only recently, a panel of experts established under the EU-South Korea free trade agreement found that the Asian country was in breach of core international labour rights and standards as enshrined by the ILO, despite the fact that to date, South Korea has still not ratified the ILO Convention. However, as noted here by Yves Melin and Jin Woo Kim, the enforcement mechanism of these panel findings is particularly weak. Unsurprisingly, the Communication specifically states that the EU will pursue a greater effort to ‘ensure the effective implementation and enforcement of sustainable development chapters in EU trade agreements, to level-up social, labour and environmental standards globally’.

WTO reform

While the EU will seek to update global trade rules as a medium-term goal, WTO reform, especially when it comes to the Appellate Body, is something that the Commission is looking forward to in the short term. The Communication devotes a detailed Annex in which it explains the EU’s view on the current state of play of the organisation and how this multilateral body fits into the core of its new trade strategy. Besides the paralysis of the Appellate Body, the EU identifies several malfunctions in the organisation, including the failure to adopt new rules that govern today’s complex trading environment, the special and differential treatment of more than two thirds of its members and its underperformance in its monitoring and deliberative duties as a result of a lack of transparency by members regarding ‘taboo topics’ (such as climate and labour standards).

Bringing the Appellate Body out of the intensive care unit is set to be the stage for transatlantic cooperation and a stress-test on the high expectations toward the Biden Administration. The Commission’s Communication states that the EU is open for a ‘meaningful reform’ and brings many of the US concerns to the table, such as judicial economy, higher accountability and restraint in engaging in judicial activism, and it is even willing to give them a ‘stronger legal formulation’. However, it also identifies three clear limits in any future reform: (i) the negative consensus rule, (ii) its independence, and (iii) the central role of dispute settlement in the multilateral trading system. 

While the result remains to be seen, the EU has already sought to overcome the current paralysis situation. First, it agreed with 15 other WTO members to create a multi-party interim appeal arbitration arrangement (MPIA), an arrangement that allows them to bring appeals in trade disputes amongst them that are settled under the WTO dispute settlement mechanism. Second, it introduced amendments to the Trade Enforcement Regulation (which only recently entered into force), allowing it to impose retaliation measures against third countries breaching their international obligations with the EU under WTO, as well as suspending IP rights and other restrictions on services provided from companies established in those countries. These are only some of the existing tools that the EU has lately developed to better protect its interests, as explained thoroughly here.

Beyond the Appellate Body crisis, the EU’s new strategy seeks to make the WTO relevant again as a forum where the EU can promote many of the policies it is developing back home. It is especially interested in modernising four sets of rules that are directly related to its post-pandemic vision and its stance on China: (i) digital trade, services and investment; (ii) competitive neutrality; (iii) market access commitments; and (iv) non-trade-distorting agricultural policies. In addition to this, the EU will also look at integrating open plurilateral agreements in the WTO and other general issues affecting the functioning of the organisation (including the roles of the Secretariat and Director-General and furthering stakeholder engagement).

Overall, the EU’s new trade policy revision combines the actions taken by the EU in the last five years and portrays them in the next level, where under the guiding principle of achieving an open strategic autonomy, it seeks to navigate an uncertain trade scenario, build on the window of opportunity presented by a Biden Administration and a post-pandemic recovery, and revive multilateralism while combining it with a dose of assertiveness.

 

Trajan Shipley is a Legal Reporter at EU Law Live.

An upcoming Special Weekend Edition on the future of EU-US economic relations will be published by EU Law Live in March.

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