New European external trade policy: integration’s perspectives and realities

The European Commission has set out a new vision of the Union’s future external trade strategy, which reflects a concept of open strategic autonomy contributing to the economic recovery through support for green and digital transformations. Besides, the strategy includes a renewed focus on strengthening global multilateralism and reforming world trade rules to ensure fair and sustainable practice. In perspective, the EU will take a more assertive stance in defending its interests and values in the world through several new tools. However, in implementation, the new strategy is going to face some stumbling blocks…

Officially, European external trade is the EU’s exclusive competence: that means only the EU institutions can decide on the member states trade’s perspective directions. Hence, the EU is responsible for the trade policy of the member countries and guiding negotiates through all global agreements for the states. Thus, “speaking in one voice”, the EU carries more weight in international trade negotiations than each individual member state would imagine.

However, each agreement is unique and includes various clauses, e.g. on tariff reductions, rules on intellectual property or sustainable development and human rights, to name a few. The EU also gets input from the public, businesses, and non-government bodies in the states when negotiating external trade agreements and rules.

The EU foreign trade makes a substantial impetus into the European growth: thus, for the previous decade up to 2010, the EU foreign trade has doubled and presently accounts for over 30 percent of the EU’s GDP. (1)

The EU’s “Trade statistical guide-2019” contains selected tables and graphs that outline the current state of and recent developments in the EU’s foreign trade, i.e. its trade with the rest of the world; it has been compiled for the Commission’s Directorate-General for Trade’s policymakers, DG Trade. (2)  

Important to notice that the EU is presently the biggest trader in the world: trade supports 35 million jobs in the EU or one in six jobs; besides, generally, foreign trade is a better-paid job and about 12 percent higher than average. However, in the next decade, about 85 percent of global growth will take place outside the EU.

 

Strategy’s core objectives

Addressing one of the biggest global challenges and responding to the expectations of its member states, the Commission is putting sustainability at the heart of the new trade strategy, and in this regard supporting the fundamental transformation of the national economies towards a climate-neutral. The strategy includes a series of headline actions that focus on delivering stronger global trading rules and contributing to the EU’s whole economic recovery.

Hence, the strategy includes some main perspective reforms in the World Trade Organization, e.g. global commitments on trade and climate, new rules for digital trade, reinforced rules to tackle competitive distortions, as well as restoring the WTO’s system for binding dispute settlement. (3)

In general, the new external trade strategy intends to address such modern global challenges, which would support the EU’s economic recovery, necessary efforts for combating climate change and tackling environmental degradation, as well as reducing growing international tensions and greater recourse to unilateralism, with all its consequences for the global multilateral institutions.

This strategy would integrate into the EU’s trade policy into the Union’s political and economic priorities, e.g. reflected in the Green Deal and the European Digital Strategy, specifying trade’s role in the post-COVID economic recovery and support the pursuit of the EU’s geopolitical ambitions.

Besides, it will support the EU’s “open strategic autonomy”: the concept of Open Strategic Autonomy, OSA reflects the EU’s desire to chart its own course on the global stage, shaping the world through leadership and engagement while preserving European interests and values. OSA foresees making the best possible use of the opportunities of EU’s openness and global engagement, while assertively defending European internal and external interests.

 

There are three core objectives in the new strategy:

= Supporting the recovery and fundamental transformation of the EU economy in line with its green and digital objectives;

= Shaping global rules for a more sustainable and fairer globalisation; and

= Increasing the EU’s capacity to pursue its interests and enforce its rights, including autonomously where needed.

To deliver on these three objectives, the Commission will focus on: reforming the WTO; supporting green transition and promoting responsible and sustainable value chains; promoting digital transition and trade in services; strengthening the EU’s regulatory impact in the world; deepening the EU’s partnerships with neighbouring countries and in other regions; reinforcing the EU’s focus on implementing and enforcing trade agreements, and ensuring a level playing field for EU businesses.

The EU will develop tools to confront new challenges and protect European companies and citizens from unfair trade practices, both internally and externally.

The EU has a strong network of trade agreements in the world: 46 deals with 78 partners, which secure a substantial trade surplus. In the EU-27, about 35 million jobs depend on trade; many are high-quality jobs; besides, gains from global trade have increased wages by 12 percent. There are strong potentials to build on the already existing strong foundation; however, external factors dominate as about 85 percent of global growth in the next decade will take place outside Europe.

Given the importance of stakeholder dialogue and to encourage concrete collaboration on key questions, the Commission will deepen its engagement with civil society on the basis of the Civil Society Dialogue review study launched in 2020. The strategy will exert a stronger focus on gaining full value from existing trade deals for businesses, especially SMEs; for example, by exploring options for export credits to support business in the states.

The EU’s prosperity builds on the openness and attractiveness of its Single Market and its active trade with partners around the world. With most future growth taking place outside the EU, trade policy also has an important role to play in supporting the transition of the EU economy to be climate-neutral and more competitive in a well-regulated digital market. All these priorities require an updated, fit-for-purpose global rulebook.

 

Sustainability: green transition in the EU’s trade policy

For the first time, sustainability becomes an explicit and central pillar of the Union’s external trade policy. The EU is committed to leveraging its global power and strong trade relationships to support more sustainable and fair trade, and to increase the ambition of its trading partners to address global challenges like climate change. Use the full potential of the EU trade and investment agreements as platforms to engage with partners on all aspects of the European Green Deal, including biodiversity, sustainable food policy, pollution and the circular economy; to make the Paris agreement an essential element in all future trade agreements; develop new online tools to support EU businesses, in particular SMEs; strengthen the EU’s tools to protect European companies and citizens from unfair trade practices, including via the preparation of an anti-coercion instrument; explore options for an EU strategy for export credits. A common strategy would improve coordination between different EU-level external financing instruments, in order to better support EU policy priorities such as tackling climate change and helping EU firms to better compete in the world. (4)

 

Two examples in the Baltic Sea region

Most striking examples visualize disparities in foreign trade among the member state, e.g. in the Baltic Sea region. Thus, in Germany, as the driving motor in the EU’s growth, the trade balance has been always positive: presently, it is at about 6 billion USD, or about 6 percent of GDP.

Exports of goods and services (% of GDP, 2018) at 41,2 are dominated by automobile and pharmaceutical items,  with consumer and capital goods at 47,4 account for about 75 percent of the total. Main exporters are: China with about 10 percent, Netherlands with 8 percent, US and France with 6 percent each, and Italy with 5,5 percent; hence about 20 percent of export is within the EU’s single market.

In German imports dominated by petroleum and natural gas, these two items occupy 65 percent of the total import followed by intermediate goods (21 percent) and raw materials (9,6 percent). Main import partners are the US and France with 8-9 percent each, followed by China, Netherlands and the UK (with 6-7 percent each), i.e. half of import comes from inside the EU member states. (5)  

On the contrary, in Latvia, which is one of the low-income countries in Europe, the situation is dramatically different. Total volume of foreign trade exports includes the following flows of goods: goods which were exported for sale abroad; goods which were exported for processing abroad, undertaking liabilities regarding re-importation; imported goods which were exported abroad after processing, and re-exports, i.e. goods imported to Latvia for consumption which were exported back abroad.

Total volume of foreign trade imports includes the following items: goods which are declared for consumption in Latvia; goods which are imported for processing, undertaking liabilities regarding re-exportation, and exported goods which were imported after processing abroad. (6)

In 2019, Latvian foreign trade turnover reached € 28.52 billion, which is €14.7 million less than in 2018. The exports reached € 12.8 billion (an increase of € 52 million or 0.4 %), whereas the imports value – € 15.73 billion with a drop of € 66.7 million.

Main changes in exports during 2018-19: increased exports of vegetable products by € 31 million, or 43.3 %; exports of prepared foodstuffs up by € 21 million or 22 %; exports of machinery, mechanical appliances and electrical equipment up by € 10.1 million or 5.9 %. Some export items were down: i.e. exports of wood and articles of wood – down by € 19.2 million or 11.2 %; and exports of mineral products down by €10.4 million or 18.5 %.

Besides, imports of vehicles and associated transport equipment in 2019 increased by €124.1 million or 70.7 %; imports of machinery and electrical equipment was up by €15.2 million or 5.6 %; imports of prepared foodstuffs up by €10.9 million or 10.5 %; imports of basic metals and articles of basic metals down by € 21.9 million or 21.6 %, and imports of mineral products down by € 10.6 million or 10.7 %. (7)

In 2020, Latvian main export partners in trade were among the EU countries: Lithuania (16.4 % of total exports), Estonia (11.4 %), Germany (6.1 %) and Sweden (5.6 %); a well as the main import partners were Lithuania (16.2 % of total imports), Germany (10.9 %), Poland (8 %) and Estonia (7.1 %). Hence, main Latvian export-import partners are from the EU internal market, with export at 67,4 percent and imports at about 72 percent.

Russia was the main Latvian external partner in trade: its share in total Latvian exports accounted for about 10 percent, whereas Canada was the main partner in imports with over 12 percent of total imports. The rise in the exports of cereals in 2019 was facilitated by an increase in the exports of wheat by € 28.3 million or 2.4 times. In turn, reduction in exports of mineral fuels, mineral oils and products of their distillation was mostly influenced by decrease of exports of electricity by € 7.9 million or 45.5 %.

Thus, Latvian main export commodities presently are (in %): wood and articles of wood incl. wood charcoal -15; electrical machinery and equipment -10,7; mechanical appliances -7,1; beverages, spirits and vinegar -6,2; cereals -5,9; vehicles and other railway -4.2; mineral fuels and oils – 4,1; pharmaceutical products -3,5; furniture -3,2; articles of  steel -2,6. 

 

Conclusion

There are three key words for a new direction in the EU’s foreign trade: open, sustainable and assertive; an open, because trade must work for people and states’ economies; sustainable, because trade policy must work for our planet; and assertive, because the EU must have the necessary tools to defend its values and interests.

The world of trade is changing fast; in recent years the following trends have appeared: escalating global tensions, deepening paralysis of the World Trade Organisation, continued rise of China and Asia (and more generally, a widespread level playing field and unfair trade issues), as well as a general trend in the global trade policies following various geopolitical purposes, etc.

European approach to global trade is based on the idea of “Open Strategic Autonomy”, which is composed of some vital elements: e.g. including the EU’s commitment to open, fair and rules-based trade as a real economic and political necessity. Before the pandemic, the EU exported yearly over €3.1 trillion worth of goods and services and imported €2.8 trillion worth, with a substantial trade surplus. (8)

The rule-based trade means that the EU global partners play by the “common rules”, not only on market access, but also regarding the EU’s commitments to sustainable development. Noteworthy, it is only through dialogue and cooperation that the EU can build alliances to exert influence at the global level.

Hence, open, fair and resilient global trade requires proper global rules: thus changes in the WTO rules are inevitable. Therefore, the EU has revealed a detailed agenda for reforming the WTO including: tackling the effects of the Covid-19 pandemic; supporting environmental and social sustainability; updating the rules for digital trade; and addressing unfair trading practices. As to sustainability, it is for the first time that the Commission is explicitly putting sustainability at the heart of foreign trade policy. Already, a new global coalition for climate action is starting to take shape and a growing number of G20 states are making climate neutrality as an explicit economic goal.

On the digital issues, the global trade must step up with the EU’s strengthening its regulatory impact and the EU’s ability to shape new regulations and standards, in line with European democratic values. The EU has been traditionally good at exporting these standards, thanks to the strength of the European single market. Due to ongoing geopolitical shifts, the EU’s perspective success will depend on the EU institutions’ ability to cooperate with like-minded partners, including the US: “Brussels-Washington effect” will be decisive in shaping the future technological standards to ensure that they comply with the European norms and values, including the respect for human rights.

Assertive trade policy could only be strong as soon as there are certain tools for implementation and enforcement: hence there is a need to strengthen capacities in creating a level playing field, defend EU interests, and controlling that the EU partners play by the commonly accepted rules. Therefore, the EU is preparing, first, certain anti-coercion instruments; second, some legal instruments to address distortions by foreign subsidies in the EU internal market; third, the EU is launching a feasibility study concerning the EU’s strategy for export credits; and finally, the EU will continue to push for an International Procurement Instrument (IPI) to open third country procurement markets.

The EU will continue to press ahead with the idea of the European “autonomous measures”; with this in mind, the Commission will: first, protect regional security through FDIs screening and export control; second, protect the member states against unfair competition through the use of trade defence, new legal instruments on foreign subsidies in the internal market and the IPI; third, to defend and promote human rights and core labour standards (through, e.g. due diligence legislation); finally, the new EU Global Human Rights Sanctions Regime will enable the EU to target individuals and entities committing human rights abuses worldwide. (9)

Finally, it seems that in order to formulate “common European external interests” for possible implementation in the EU’s common commercial policy, it is logical to have at hand the national priorities and interests of the so different EU-27 member states. Just two examples of the almost polar trade policies in Germany and Latvia are showing all the specifics in implementing “national interests” in the common commercial policies. But the Commission’s intention is definitely a noble and positive pursuit in the right direction! 

 

References and notes:

  1. More in: https://europa.eu/european-union/topics/trade_en
  2. Source: https://op.europa.eu/en/publication-detail/-/publication/2f189e99-b1aa-11e9-9d01-01aa75ed71a1/language-en/format-PDF/
  3. More in: https://ec.europa.eu/commission/presscorner/detail/en/IP_21_644
  4. More in the Commission press-release: https://ec.europa.eu/commission/presscorner/detail/en/QANDA_21_645 . As well as in the following Commission’s websites: = Key facts and figures; = SMEs; = Sustainability and climate; = Open Strategic Autonomy; = Digital trade; = WTO reform; = Implementation and enforcement.
  5. More in: https://wits.worldbank.org/countrysnapshot/en/deu
  6. Source: https://www.csb.gov.lv/en/statistics/statistics-by-theme/foreign-trade/foreign-trade-aggregated/tables/metadata-foreign-trade-goods.
  7. More statistics in: https://www.csb.gov.lv/en/statistics/statistics-by-theme/foreign-trade/foreign-trade-aggregated/search-in-theme/2633-foreign-trade-latvia
  8. Comments on “strategic autonomy” see in: https://www.iai.it/en/pubblicazioni/european-strategic-autonomy-what-it-why-we-need-it-how-achieve-it
  9. More in: https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_21_817   

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