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24th June 2020
External Relations & Trade Internal Market

Op-Ed: “A Delphic oracle?’ What does the recent EU Commission’s trade policy review mean?”, by Luca Rubini

Multiple crises

We live in a momentous period where multiple crises and challenges are significantly crossing each other: the volatility in international relations, the re-configuration of geo-political leadership, the inefficiency of current trade rules, the crisis of multilateralism and of the World Trade Organization (‘WTO’), the rise of preferential trade dynamics, the difficulty of integrating the Chinese economy into the world trading system, the rise of populist, protectionist and isolationist tendencies and of more aggressive industrial policy, the challenges posed by the fast digitization of economy and society, the climate change emergency and the imperative of sustainability, last, but certainly not least, the pending COVID-19 pandemic which is exacerbating many of the factors outlined above.

Trade policy is central to many of these crises and challenges and is equally affected by many of them. It should, therefore, not be a surprise that, on 16th June 2020, the EU Commission launched ‘A renewed trade policy for a stronger Europe’, a major review of its trade policy, including a public consultation ending on 15th September 2020, that will lead to a Commission’s Communication by the end of the year. This document should be read together with other recent EU policy initiatives – the Concept Paper on WTO modernization (2018), the EU – China strategic outlook (2019), the EU – Green Deal (2019), the EU Regulation on FDI screening (2019), the New Industrial Strategy for Europe Communication (2020), the White Paper on Foreign Subsidies (2020) – and also within the broader context of law reform talk at the global level (see, in particular, the ‘Trilateral’ EU, US, Japan initiative (2017 – current).

Old and new points of reference

As Trade Commissioner Phil Hogan noted in his speech launching the review, the change and complexity of the context of the review clearly comes out if we compare its scope with the strategic document ‘Trade for all – Towards a more responsible trade and investment policy’ which Commissioner Cecilia Malmström launched in October 2015. The latter reflected an ambitious but simpler policy agenda, advocating the benefits of open trade while meeting the public’s apprehensions for dilution of EU regulatory standards, calling for an improvement of the governance of trade and investment policies as well as directing trade policy to adjust to Global-Value-Chains (‘GVCs’), to promote sustainable development, human rights and EU labour, environmental and health standards, to re-invigorate multilateralism and the WTO.

This was essentially ‘post-Uruguay Round’ trade policy. This comes out clearly if one reads, for example, section 5.1 on the WTO. While identifying few traits of the malaise, the main policy directives are about overcoming the ‘single-package’ approach and enabling variable geometry, about positively concluding the Doha Round of Negotiations which had started in 2001. The seeds of the crisis that would have become more and more apparent in the following years (exemplified by the US’ veto to the Appellate Body appointments as well as its threat to abandon the organization altogether) are perhaps already there but that was still largely a ‘business as usual’ scenario. A lot has happened since October 2015 and various emergencies and challenges have added to one another. The COVID-19 pandemic of 2020 has possibly given the final blow to the ‘system’. The Uruguay Round which created the WTO is very far in the past. It is not an appropriate point of reference anymore. We are now on fresh ground. We need new thinking – and new action. The consultation note on EU’s renewed trade policy represents Europe’s take for now.

Objectives and scope of the review

As the accompanying press-release reads, the ‘Commission’s objective is to build a consensus around a fresh medium-term direction for EU trade policy, responding to a variety of new global challenges and taking into account the lessons learned from the coronavirus crisis’. In particular, the review has two specific objectives: first, ‘to assess how trade policy can contribute to a swift and sustainable socio-economic recovery, reinforcing competitiveness in the post-Covid 19 environment, addressing the challenges the EU will face, and helping to promote our values and standards’; secondly, ‘to see how trade policy can help build a stronger EU based on a model of “Open Strategic Autonomy” – reaping the benefits of openness for our businesses, workers and consumers, while protecting them from unfair practices and building up our resilience to be better equipped for future challenges’.

While there is certainly continuity with the 2015 ‘Trade for all’ document, the 2020 review’s scope and direction are far more ambitious. A new factor is given by the ‘increasingly challenging environment, both externally and internally’.

The consultation note is divided into six main areas and includes 13 questions to solicit inputs from stakeholders. The topics for a ‘trade policy in the post-Covid 19 world’ are:

  • ‘Building more resilience – internal and external dimensions’,
  • ‘Supporting socio-economic recovery and growth’,
  • ‘Supporting SMEs’,
  • ‘Supporting the green transition and making trade more sustainable and responsible’,
  • ‘Supporting the digital transition and technological development’, and
  • ‘Ensuring fairness and a level playing field’.

The review includes important points, such as the need to reform the WTO, the support of SMEs (defined as the ‘backbone of the European economy’), the use of trade policy to ‘foster a sustainable approach to trade and investment’ and the examination of how it can support the digital transition. In this piece, I will briefly comment on two areas (‘Building more resilience’ and ‘Ensuring fairness and a level playing field’), especially through the lens of the new concept of ‘Open Strategic Autonomy’.

The new model of ‘Open Strategic Autonomy’

The first topic (‘Building more resilience’) is the overarching area which informs all other areas of the policy review. Its key idea is that of ‘Open Strategic Autonomy’ that, in the Commission’s view, should aspire to the status of ‘model’ of governance.

According to the Commission, ‘[t]his simply means strengthening the EU’s capacity to pursue its own interests independently and assertively, while continuing to work with partners around the world to deliver global solutions to global challenges.’ The Commission explicitly links this new notion to the vulnerabilities shown by the Covid-19 crisis, in particular with respect to the supply of medical and protective equipment. EU’s production capacity has been shown to be largely insufficient to meet immediate EU needs during the crisis (for example, only 10% of the protective masks were produced in the EU at the beginning of the pandemic).

What is new in the notion of ‘Open Strategic Autonomy’ is the final word. In an increasingly fragmented and insecure world, the EU underlines the need for security. Two key areas where this new principle should apply focus on the stabilisation of the strategic engagement of the EU (essentially, how to refresh the historical transatlantic ties with the need to develop relationships with other trading partners, especially China) and the resilience of Global Value Chains (this may include the diversification or shortening of supply chains, strategic reserves and stockpiling, increased domestic production). The Commission suggests the EU should play a ‘leading role’ in developing ‘international governance that support stability and predictability’, for example supporting ‘rules-based trade, building mutually beneficial partnerships and promoting multilateral, plurilateral and bilateral trade agreements with important spill-over effects in other policy areas, or by promoting the international role of the euro’.

If this is the external side of trade policy, internally the Commission highlights the need to protect EU businesses and workers from the ‘increasing panoply of unfair trading practices, and contributing to security, in particular through foreign direct investment (FDI) screening and export controls for dual-use items’. This section of the document concludes: ‘[t]he Covid-19 crisis has clearly confirmed that, in order to remain an open area for investment, the EU needs to be able to control who invests in its territory and for which purpose, and to react when a foreign investment poses a threat to security and public order’.

These word, therefore, further clarify the meaning of the concept of resilience of the ‘Open Strategic Autonomy’, by adding other dimensions of security (‘national security and public order’) and ‘fairness’ rationales. Both follow increasingly common trends. National security defences, once pretty rare, have become largely used to justify protectionist behaviour. The Commission highlights the need to have the ‘right tools in place to protect [itself] from unfair practices’. This is fully developed in the final area of the review (‘Ensuring fairness and a level-playing field’). In the context of a (perceived or real, current or expected) increase in the state intervention in the economy, the Commission suggests there is a need to ensure that its ‘openness is not abused by unfair, hostile or uncompetitive trade practices’. This is a call for a comprehensive review of EU trade policy, definitely going beyond the traditional trade defence mechanisms (anti-dumping, countervailing duties and safeguards) and dispute settlement avenues. Reference is made to tax practices, industrial policies featuring massive state intervention, coercive actions, public procurement.

Be it as it may, at the general level, it is clear that, with this new concept of ‘Open Strategic Autonomy’, the EU intends to shift or redress the balance of its trade policy. What remains to be seen is how this need for security, autonomy and self-protection will combine with the openness of the EU trade regime.

A Delphic oracle?

‘What trade policy should we have?’ – the priestess Pythia in Delphi has been asked. Delphi is where the omphalos, the centre of the world, is located. Equally, for various reasons, trade policy is central to the EU. After an exhaustive process, the priestess has now spoken, and once again she has uttered an obscure oracle.

The new EU trade policy review is a good example of the complexity of trade policy today. The Commission’s review is certainly ambitious and comprehensive. The newly introduced concept of ‘Open Strategic Autonomy’ is particularly intriguing. While its blurred political aspirations may be understood, it remains to be seen how it will practically evolve and inform the specifics of EU’s trade policy action. It will also be interesting to see how stakeholders engage with this concept, bending it to one or the other direction in the Summer public consultation. For now, the consultation note shows a lot of ‘cognitive dissonance’ – and contrasting narratives. The EU wants its trade policy to be many things: open, fair, assertive, strategic, autonomous, leading, defensive …. Ambiguity is inevitable when policy has to tackle multiple challenges and pursue multiple objectives (and appease various special interests). This may also be normal in a document intended to trigger a process of consultation: you want to set the net wide and attract as many inputs as possible. In the end, however, this ambivalence is a reflection of the turbulent times the live in. We have to wait and see whether the Pythia will come out with a clearer response by the end of the year.

 

Dr Luca Rubini is Reader in International Economic Law at Birmingham Law School, UK

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