EU trade: What are the challenges ahead?

    Friday, 31 October 2014
    This is an opinion article by an external contributor. The views belong to the writer.

    In September 2014, Mr Jean-Claude Junker, the new President-elect of the European Commission, presented Ms Cecilia Malmström as the new Trade Commissioner. With complex issues on the agenda, such as the EU-US TTIP, other bilateral and multilateral negotiations in a context of increased global protectionism, the pending modernisation of the EU’s trade defence instruments and the review of China’s non-market economy status, the new EU Trade Commissioner faces five busy years ahead. Mr Juncker presented his Commissioners-designate in mid-September.  Ms Malmström, currently EU Commissioner for Home Affairs, is in line to take over the External Trade portfolio.  The nomination of the Swedish liberal came as a surprise to many as the German Commissioner for Energy, Günter Oettinger, initially seemed Mr De Gucht’s likely successor.  Before Ms Malmström and the other Commissioners can take office, the EU Parliament must vet the nominees and formally approve the new Commission. 

    As part of the organisation of his new Commission, Mr Juncker has proposed a substantial restructuring of the Commission’s current modus operandi, setting up 20 portfolios that are overseen by seven newly introduced Vice-Presidents: the First Vice-President (in charge of better regulation, inter-institutional relations, the rule of law, and the Charter of Fundamental Rights), the High Representative of the Union for Foreign Affairs and Security Policy, and five Vice-Presidents that are each in charge of a specific competence area (budget and human resources; digital single market; energy union; euro and social dialogue; and jobs, growth, investment and competitiveness). 

    Mr Juncker’s Mission Letter to Ms Malmström asks her, in particular, to “contribute to projects steered and coordinated by the Vice-President for Jobs, Growth, Investment and Competitiveness [Mr Jyrki Katainen is the present nominee], as well as to the work of the High Representative of the Union for Foreign Affairs and Security Affairs/Vice-President [Ms Federica Mogherini is the present nominee]”.  For “other initiatives requiring a decision from the Commission”, she is “as a rule” to “liaise closely with the Vice-President for Jobs, Growth, Investment and Competitiveness”.

    Further, Mr Juncker’s asks Ms Malmström to focus on six core areas during the next five years:

    ·         Continuing to engage fully in the World Trade Organisation and multilateral trade processes.

    ·         Working towards a reasonable and balanced Transatlantic Trade and Investment Partnership (TTIP), which neither threatens the EU’s safety, health, social and data protection standards, nor jeopardises            the EU’s cultural diversity; and enhancing transparency during the negotiations.

    ·         Taking forward pending bilateral and regional trade negotiations and considering whether new negotiations should be launched.

    ·         Developing a strong foreign direct investment policy.

    ·         Taking stock of the use of the EU trade defence instruments (TDIs) to decide the best way forward.

    ·         Working towards strengthening the EU’s strategic partnership with Africa.

    Certainly one, if not the most, challenging task will be the continuation of the TTIP negotiations.  So far, the EU and the US have mainly tried to establish the framework of the negotiations.  Nevertheless, the TTIP has already earned heavy criticism on both sides of the Atlantic.  EU stakeholders express concern about the lack of transparency and a possible investor-state dispute settlement mechanism (ISDS), and fear a lowering of product, health and social standards under the TTIP.  As a result, there is a real threat that Member States and/or the EU Parliament could block any agreement reached with the US.  As the successful conclusion of the TTIP is one of the Commission’s highest priorities, Ms Malmström will have to offer true improvement not only to multinationals but to EU citizens more generally.  

    The controversies surrounding the TTIP also affect other ongoing free trade negotiations.  For example, the adoption of the EU-Canada Comprehensive Economic and Trade Agreement has been in peril because that agreement also contains an ISDS.  It is likely that in future free trade negotiations, the Commission’s negotiating agenda will be under much tighter scrutiny by the European Parliament, Member States, NGOs and other stakeholders, than in the past. 

    There also seems to be a changing public perception towards free trade:  the view that free trade is an end in itself, which was rising in the first decade of the 21st century, appears to be losing support.  Increasingly, free trade is perceived as one (of many) means to an end, i.e. the maintenance and increase of employment, living standards, innovation and national prosperity.  Accordingly, during the recent financial and political crises, protectionism raised its head, from “buy America” to China’s export restrictions on raw earths. 

    With her mandate to develop a strong foreign direct investment policy, Ms Malmström will have to re-evaluate the meaning of free trade in the changing global environment.  In doing so, she must be careful not to push EU foreign investment and market access at the cost of stability and growth at home, which are also declared targets of Mr Juncker.  Indeed, as Italy emphasised in its policy priorities for the current Council presidency, the shrinking production cost gap between developed and many developing countries offers opportunities to bring production back to the EU. 

    However, this can only be achieved if companies rediscover the advantages of investing in the EU.  The EU holds many opportunities but also requires substantial commitments.  The EU has the highest global standards on product safety, social security and environmental protection, which directly translate into additional costs for business.  Particularly in that environment, investors that consider relocating to the EU will need some assurance that a level competitive playing field in the EU market will be maintained in the face of imports that are State-subsidised or dumped. 

    In this regard, the EU TDIs (anti-dumping, anti-subsidy and safeguards) have been less popular and perceived increasingly by some as an obstacle to trade in recent years.  However, in the changing global economy, they are helpful, and sometimes essential, tools to ensure balanced free trade, especially for SME’s which are key to the growth of EU employment, innovation and a sustainable low-carbon economy.  The pending TDI modernisation proposal offers an opportunity to address stakeholder concerns and to allow TDIs to function more precisely and effectively as tools to restore fair competition on the EU market.

    In this context, an important decision that the new Commission will face is how to address the 2016 change in China’s WTO Accession Protocol, including the question whether to grant China market economy status as of December 2016.  Contrary to some stakeholders’ views, China’s WTO Accession Protocol does not require WTO Members to recognise China as a market economy in 2016.  If the EU considers granting China market economy status before China meets the EU’s market economy criteria, this would be a purely political decision with critical implications for EU industry, not one required by legal considerations. 

    Ms Malmström will be the first female Trade Commissioner to serve a full term.  Looking back at her previous roles and her diplomatic skills, she might bring a fresh impetus to the traditionally male-dominated portfolio.  Trade liberals that seek an expansion of market access in third countries may be in favour of her appointment, but for a balanced trade policy and an attractive environment for investment in EU jobs and growth, especially for SME’s, she will also need to show that she equally values the maintenance of a level playing field for EU industry at home.