Judy Asks: Is the EU Getting Trade Right?
A selection of experts answer a new question from Judy Dempsey on the foreign and security policy challenges shaping Europe’s role in the world.
By Judy Dempsey | Wednesday, 31 January, 2018
Krzystof Bledowski | Council director and senior economist at the Manufacturers Alliance for Productivity and Innovation
The EU is getting trade “right” the way that Japan, Canada, or the United States get it right. All four trading partners keep goods and services flowing freely — except when political pressures dictate otherwise (rice in Japan, lumber in Canada, foodstuffs in the EU, and cotton in the United States are examples). Tariffs are low amid a number of free trade agreements (FTAs). Yet the EU boasts no more of those than the United States (aside from partnership deals in its near abroad).
The EU struggles to define trade in strategic terms. The bloc does not have in place a coherent investment and trade policy toward China, allowing the country to play one EU member against another. The EU’s stance toward hydrocarbon imports from Russia is anything but strategic. FTAs with India and Mercosur remain in abeyance. And the European public pushed back against advancing a comprehensive deal with the EU’s most consequential partner, the United States. On the other hand, Europe did clinch important FTAs with Japan, Canada, and South Korea in 2016–17.
The EU is a rich economic space that offers substantial benefits to its trading partners. However, it has not been any smarter about trade than its other developed counterparts.
Erik Brattberg | Director of the Europe Program and fellow at the Carnegie Endowment for International Peace
While the United States has adopted a protectionist approach under Donald Trump — walking away from TPP and possibly NAFTA too — the EU is now in the driver’s seat of global trade liberalization. Brussels is currently completing or pursuing an impressive list of bilateral and regional free trade deals, ranging from Japan and Australia to Mexico and Mercosur. Trump’s abandonment of the United States’ traditional trade agenda is an opportunity for Europe, as countries seek to hedge against Trump’s disruptive approach by forging new trade partnerships. Besides market access, these EU deals can help uphold the international rules-based order by setting high joint standards.
However, Trump’s anti-globalization stance also poses significant risks for Europe in the form of potential U.S. tariffs against Europe, and indirectly through lacking U.S. commitment to the broader multilateral trading system. Active European outreach in Washington to try to manage the Trump administration’s protectionist impulses is therefore critical.
Finally, while more scrutiny on Chinese trade and investment in Europe is called for, Europeans must resist the obvious temptation of following the Trump administration’s suit by potentially adopting overly protectionist measures against Beijing.
Fredrik Erixon | Director of the European Centre for International Political Economy
Yes and no. The EU is the sum of all its constituent parts, and there is a great deal of variation in how EU member states look at trade. Fortunately, old forms of industrial protectionism have weakened over recent decades, and most member states have gradually taken a positive view of give-and-get trade deals. With a growing role for the trade sector in each EU economy, there is far greater awareness now than twenty years ago that freer trade is important for improving the wellbeing of Europe.
However, there are many regulations in the EU that make it more trade restrictive than it needs to be, and that weakens the prospects for deals that cut barriers beyond tariffs. Moreover, the changing profile of the economy and trade — with a bigger role for services and the digital economy — puts the EU on defensive footing because of inadequate liberalization in Europe. Simply put, EU policy has not kept pace with the forces of economic renewal.
I hope that the EU will respond to both Trump’s trade policy and Brexit with greater market openness at home and bolder leadership for new trade deals. But that has not happened, yet.
Daniel Gros | Director of the Centre for European Policy Studies (CEPS)
One is tempted to answer that the EU is finally getting trade less wrong than before. The pursuit of the transatlantic agreement was a mistake. The real motivation of TTIP had been geopolitical, to strengthen the transatlantic alliance. Trump put an end to this. But the EU still concentrates too much on “deep and comprehensive” agreements with mature economies. The deals with Japan and Canada are useful, but these are countries with low growth potential and already low trade barriers.
The future of global trade is in developing Asia. EU trade policy should concentrate on the dynamic markets of China, India, and the ASEAN, where tariffs and other trade barriers are still considerable. Some of these developing economies might not be willing to engage in comprehensive and deep agreements (and might not even have the administration necessary to implement them). But even the mere elimination of tariffs on manufacturing products would be very beneficial for EU exporters, playing to the strength of European producers of investment goods and high-quality consumer products.
EU trade policy should stop trying to export its own model and instead concentrate on the type of agreements its most dynamic trade partners are willing to accept.
Jonas Parello-Plesner | Senior policy officer at the Hudson Institute
Yes, the EU is getting it roughly right on trade. At a time when TPP is being scuttled by the United States and NAFTA seems to hang in the balance, the EU has pushed free trade forward with countries like Japan and Canada. The EU-Japan agreement is the world’s largest free trade deal; together, the two economies make up 30 percent of global output.
Simultaneously, the EU is shedding some of its naive free-trader stance. Reciprocity in trade and investment is now part of the Brussels lingo. The EU sharpened its trade defense instruments in December 2017 as well as its anti-dumping methodology. The changes are country neutral, but China looms large with its great access to the European market versus its much more closed home ground. As EU Commissioner Cecelia Malström warned back in December, “[Europe] must ensure that others do not take advantage of our openness.”
On foreign investments, the EU is aiming to introduce security-based screening — a CFIUS-light system — where the main say remains at member-state level. I participated in the hearing at the European Parliament on this topic last week. It looks the current proposal is striking a compromise that nobody loves but nobody strongly opposes either. The EU is a latecomer to investment screening compared to the United States, Japan, and China (among others), and should quickly enact this. The keyword is prudence, not protectionism.
Gianni Riotta | Member of the Council on Foreign Relations
President Trump is changing — for good — the tone of our global political conversation. NAFTA, TPP, TTIP: all the established watermarks of negotiators have been obliterated. It is not what Trump “does” — slapping tariffs on washing machines or solar panels, leaving the Paris climate club (yes, this has to do with trade, not haplessly stranded polar bears), that counts. It’s the president’s perennial grudge against globalization, no matter how moderate he was in Davos, that casts a protectionist cloud.
Europe still seems stuck in a pre-Trumpian atmosphere, where endless jockeying for positions eventually signed the deal. Not anymore. The EU keeps biting the incumbent digital platforms, not without sound reasons. Yet at times the strident, somewhat petulant, campaign against “Big Tech” plays into the hands of anti-trade voices and interests. We should protect free trade, open our digital market, and be aware how tricky the world is today. Asia seems well ahead of us, so far.
Marietje Schaake | Member of the European Parliament
After a turn toward protectionism under President Trump, the spotlight is now on China and Europe. The competition for rules and standards for global trade is real and should not be underestimated. I know whose rules and standards I prefer!
Over the past years, the EU has done its homework. Trade agreements have become more transparent and investment protection more accountable. There is also a clear commitment to prevent trade from becoming a race to the bottom. Our ambition is to secure the highest standards for labor, environmental, food security, and privacy protection. We also adopted stronger trade defense instruments to use when China or others dump products onto our markets. Trade in death penalty, torture, and cyber-surveillance tools, as well as conflict minerals, have been curbed.
It seems people are convinced, too. The kind of criticism we saw toward the TTIP and CETA negotiations were not repeated when the EU concluded its negotiations with Japan.
Europe realizes that there are clear advantages to being rule-makers instead of rule-takers. The EU is leading global efforts toward rules- and values-based trade. There is no time to lose.
Christopher Smart | Senior fellow in the Geoeconomics and Strategy Program at the Carnegie Endowment for International Peace
In many ways trade policy and competition rules are what the European Union does best. It’s easy to forget, amid what seems like endless wrangling, that the Lisbon Treaty has successfully pooled the trade strategies of 27 sovereign nations. And if the United Kingdom decides to strike out on its own that is hardly the fault of DG Trade, which can boast a string of free trade agreements, including recent deals with Canada and Japan.
The rhetorical salvos this week between Washington and Brussels, however, are a reminder of how difficult further transatlantic progress may be. The Trump administration may have turned more confrontational on trade, but both sides will need to find ways to cool tempers. What has made the TTIP talks so difficult is that tariffs are already low and the negotiations center around different regulatory approaches, legal systems, and traditions. Emotional exchanges over chlorinated chickens, for example, are less rooted in different economic interests than in the fact that most American mothers tend to teach their children to abhor germs, while European mothers tend to stress the evils of chemicals in their food. Without lowering the political temperature, how can there possibly be progress on the U.S. attachment to government procurement preferences when Europeans still cling to protections for parmesan and feta?
Pierre Vimont | Senior fellow at Carnegie Europe
Faced with President Trump’s challenge to multilateralism and his appetite for protectionism, Europe made the right choice. It stuck to trade liberalism with a renewed impetus in its current negotiations (for example, with Mexico, Mercosur, and Japan), while looking for new trade agreements with partners like Australia and New Zealand. This has been in stark contrast to Trump’s decision to drop the United States’ trade partnership with Pacific countries and to threaten Canada and Mexico with ending NAFTA.
Europe was also right in maintaining its commitment to the traditional liberal approach. It offered the West an alternative to America’s protectionist vision and a counterbalance to China’s efforts to shape the global economic order according to its own interests. European steadiness in trade affairs seems to be getting its reward as we witness a gradual softening in the U.S. positions on TTP and NAFTA and a renewed interest for reciprocity, as seen in Trump’s recent intervention at Davos.
Yet Europe still has to win over its trade partners with a vision of mutual trade benefits based on reciprocity, transparency, and open competition. This is an ominous task, particularly when discussing with China possible cooperation on the “Silk Road” initiative. More crucially, European leaders face an uphill struggle of convincing their own populations about the merits of such trade agreements, when the perception of being left behind and not benefiting from these deals is gaining momentum in many EU countries and stirring up strong domestic opposition to them.