Summary
The EU consultation note on the revision of its trade policy in light of recent developments, has introduced the concept of ‘Open Strategic Autonomy’ as a model for the design and future implementation of EU trade policy. This concept is designed to allow the EU greater policy space in defending EU economic and trade interests, while allowing the EU to more forcefully pursue its long standing policy of preferentially opening up 3rd country markets to EU exports. This is to be realised through the activities of the newly established EU Chief Trade Enforcement Officer. This approach could carry serious implications for the implementation of the ACP EPAs, agreed with the EU as long ago as 2007. It could limit the active use of established trade policy measures in support of post Covid-19 recovery. This despite the relevance of the initial Strategic Autonomy concept to the post Covic-19 socio-economic recovery needs of ACP counties. Current realities in ACP countries require the maintenance and expansion of policy space for measures to reduce the economic vulnerability and enhance the economic resilience of ACP countries. This suggest a need to subordinate the definition and enforcement of EPA commitments to the strategic autonomy needs of ACP countries, defined in light of their specific Covid-19 revealed vulnerabilities.
The EC has launched a consultation on a revision of its trade policy. This takes place against the background of: the profound economic disruptions generated by the Covid-19 pandemic, which has heightened EU concerns over the security of its supply chains, mounting strategic concerns over the state supported unfair business and trading practices by Chinse companies; and mounting trade disputes with the United States.
While acknowledging developing countries have been severely affected by the Covid-19 pandemic, with this being seen as an issue which requires ‘particular attention’, the consultation document focusses on EU trade and wider economic concerns.
The specific stated aim of the review is 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, while assisting in building ‘a stronger EU’.
This focus needs to be seen against the background of the importance of trade to the EU and the impact which the Covid-19 pandemic has had on the EU economy (-7.4%) and global trade (between -10% and -16%) (1).
The consultation note issued by the EC on 16th June 2020 highlighted 6 areas of concern:
- The need to build a more resilient EU economy and less vulnerable patterns of trade.
- The need to support socio-economic recovery and growth.
- The importance of supporting SMEs given their critical economic role and their vulnerability to profound economic disruptions, as experienced during the Covid-19 pandemic.
- The importance of supporting a green transition and making trade more sustainable and responsible.
- The need to support the digital transition and technological developments.
- The need to ensure fairness and a level playing field (1).
This gave rise to an important new shift in EU policy, namely the development of the concept of ‘Open Strategic Autonomy’, as the model for the design and future management of EU trade policy. This would involve, where necessary, the creation of new policy instruments to reduce the EU’s strategic vulnerabilities and enhance the resilience of the EU economy to disruptive developments at the international level.
The experience of the Covid-19 pandemic has led the EC to emphasize the importance of having an understanding of the EU’s dependencies so that vulnerabilities can be reduced through the deployment of the ‘right tools…to protect ourselves from unfair practices’. It is held ‘trade policy should aim to stabilise our strategic engagement with key trading partners in accordance with our values, interests and objectives, while helping to diversify our relationships and create alliances with like-minded countries’ (1).
The concept of ‘Open Strategic Autonomy’ represents a transposition into the trade sphere of the concept of Strategic Autonomy articulated in the EU’s May Covid-19 Recovery Programme into the trade sphere (see box on this evolution). The EC’s ‘Open Strategic Autonomy’ model focusses strongly on ‘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.’ Significantly it extends into the investment sphere, with it being held ‘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’ (1).
This concept of the ‘Open Strategic Autonomy’ model for trade policy design and management also sought two accommodate to other major external trade policy concerns, namely the need to increasingly focus on the effective enforcement of trade policy commitments, through the Office of the newly created Chief Trade Enforcement Officer and the integration of sustainability and climate change standards into trade agreement, on an enforceable basis, so as to promote the green transition globally and prevent ‘carbon leakage’.
| The EU’s Strategic Autonomy Model
The EC has acknowledged the Covic-19 pandemic has thrown into sharp relief European concerns over the vulnerabilities of EU international supply chains to disruptions. This has led to an appreciation of the need to ‘bring home’ certain technologies and supply chains, which are seen as of strategic importance in the new trading context created by the Covid-19 pandemic. This saw the elaboration in the EU’s May 2020 Covid-19 Recovery Plan of the concept of ‘Strategic Autonomy’, with Covid-19 recovery related investments being focussed on strengthening the resilience of the EU economy and promoting ‘strategic autonomy across technologies and value chains’. In the June 2020 EU trade policy review consultation document this concept of ‘Strategic Autonomy’, had been tweaked to be become the ‘Open Strategic Autonomy’ model. This tweaking was an attempt to reconcile the EU’s implicitly protectionist new global supply chain strategic concerns with its established agenda for the promotion of preferential trade liberalisation by 3rd countries towards EU suppliers. This new ‘Open Strategic Autonomy’ model however, neglects the wider relevance of the ‘Strategic Autonomy’ model to developing countries such as those in the ACP, who in light of Covid-19 economic disruptions have their own strategic concerns linked to revealed supply chain vulnerabilities and an absence of economic resilience. |
While this concept of Open Strategic Autonomy’ has been developed in isolation from the EU’s trade relations with the ACP and other developing countries, some aspects of this approach have very real implications for ACP exporters. This is particularly the case in regard to the emphasis placed on improving the resilience of supply chains by shortening these supply chains and encouraging greater sourcing from domestic producers. This could well change the market conditions facing a range of ACP agri-food exporters, depending on how this policy of improving the resilience of supply chains is applied in practice (1) (for what this can mean see companion epamonitoring.net article, ‘Nestlé Move Away from Cane Sugar Compounds Wider Sugar Sector Demand Trends’, 11 August 2020).
Another aspect of this resilience issue is the emphasis placed on strengthening external resilience by supporting ‘stability and predictability’ in trade relations and ensuring rules-based trading arrangements. Supporting the establishment of ‘stability and predictability’ in trade relations is also seen as an important means of supporting post Covid-19 socio-economic recovery, by avoiding the risks of heightened levels of protectionism and the use of competition distorting state aid. This concern needs to be seen in light of the increased role of the state in the economy in response to Covid-19 related trade and wider economic disruptions.
This aspect of promoting ‘stability and predictability’ in trade relations cannot be separated from the emphasis placed on the future role of the EU’s newly appoint Chief Trade Enforcement Officer, who will begin activities in October 2020.
Significantly the EC also wants to see its future trade policy incentivize trade partners to ‘improve their domestic business environment and ensure that EU companies are not discriminated against’, with this prevention of discrimination against EU businesses being seen as an important aspect of the work of the Chief Trade Enforcement Officer (1).
Indeed, the EC explicitly underlines the need for a growing focus on the ‘proper implementation of the commitments made by our trading partners in bilateral and multilateral agreements, be it on market access or sustainable development’ (1). This potentially carries implications for the future implementation of the EPAs which ACP governments have concluded with the EU. This could carry important consequences for the trade policy tools available to support agri-food sector development in ACP countries.
While this is a particularly important issue in EU trade relations with Africa, where given rapidly growing food demand EU exporters are increasingly eyeing African markets (particularly in the face of the increasing risk of Brexit related disruptions to EU agri-food exports to the UK), it is also an issue in the Caribbean in light of the food price inflation pressures which have arisen as a consequence of Covid-19 related food supply chain disruptions.
The final area of potential impact on the ACP where significant developments in EC trade policy thinking is underway is in regard to the use of trade policy tools in combatting climate change and supporting a green transition internationally. The EC emphasises how while a range of international agreements have been supported and promoted, there is now a need to focus on ‘enforcement and implementation’ of these commitments. This would in part be achieved through the new EU Carbon Border Adjustment mechanism, and in part, not surprisingly through the work of the newly created Chief Trade Enforcement Officer.
This is to be complemented by a stronger focus on promoting ‘responsible business conduct and transparency in supply chains, via the establishment of ‘due diligence’ regulatory requirements. This is seen as forming an integral part of efforts to operationalise international commitments. However, such ‘due diligence’ schemes are also to be seen ‘as a tool to strengthen resilience’ of the EU’s economic and trading system (1).
| Comment and Analysis While the EC consultation note seeks to situate the trade policy review in the context of the economic trauma caused by the Covid-19 pandemic and proposes the new Strategic Autonomy model for trade policy management as an appropriate policy response, the EC also wishes to see a return as soon as possible to ‘business as usual’ in regard to the implementation of EPA commitments which some ACP governments entered into as early as the end of 2007. Beyond passing references to the need for ‘particular attention’ to be paid to the impact of the Covid-19 pandemic on developing countries, the EC’s consultation note singularly fails to recognise the profound and ongoing economic impact which the Covid-19 pandemic is having on ACP economies. These serious and ongoing economic consequences range from the breakdown and disruption of food supply chains, which is seeing high levels of food price inflation; through the profound disruption of passenger flight based air freight services which has transformed the economic situation of ACP exports of short shelf life fresh products; to the collapse of the tourism sector which shrunk demand for locally sourced goods and services across a wide range of tourism dependent ACP economies in the Caribbean. More significantly, the EC fails to recognize the relevance of its Strategic Autonomy model of trade management in response to supply chain vulnerability concerns (which have been heightened by the impact of the Covid-19 pandemic) to the challenges now facing ACP governments as they seek to map their way out of the current economic chaos. Rather the EC now wants to see the Strategic Autonomy model applied in support of economic recovery in Europe and the defence of EU business interests, while returning as quickly as possible to the promotion and enforcement of its preferential trade liberalisation agenda in favour of EU exporters; an agenda which has been established but not yet fully operationalised under the various EPAs the EU has concluded with ACP governments. This approach singularly ignores the damaging economic consequences generated by the Covid-19 pandemic, which are more severe than those generated by the 2007/08 financial crisis, and which has created a new economic reality. It needs to be recognised the Covid-19 pandemic has generated a very different economic reality to that which existed at the time of the negotiation of the CARIFORUM-EU EPA, with these new economic realities needing to be accommodated in the future implementation of the EPA commitments, which were agreed under very different economic circumstances. A simple return to ‘business as usual’ in the implementation of EU trade agreements with developing country partners in the ACP is simply not a viable option in the long term, since this will leave ACP countries as vulnerable as ever to unforeseen international disruptions. The opportunity to use post Covid-19 recovery strategies to enhance the overall economic resilience of ACP economies will have been lost. There is a certain irony in this, given reducing vulnerabilities and enhancing resilience through ‘bringing home‘ certain supply chains is seen as central to the EU’s new post Covid-19 trade policy. Against this background there is a need to tone down the emphasis placed on the role of the newly created Chief Trade Enforcement Officer, since the rigorous application of existing commitments entered into by ACP governments under their various economic partnership agreements could constrain the trade policy space of ACP governments in ways which would inhibit the creation of more resilient and sustainable ACP economies. This is a particularly important issue in the agri-food sector not only in Africa where domestic demand is growing at an extremely fast pace, but also in the Caribbean where supply chain vulnerabilities have recently been highlighted. This suggests a need to subordinate the definition and enforcement of EPA commitments to the Strategic Autonomy needs of ACP countries defined in light of their specific Covid-19 revealed vulnerabilities. In the agri-food sector the critical issue is how to reconcile the Strategic Autonomy approach to trade policy management with EPA commitments? The answer to this would appear to lie in the conduct of detailed dialogues on how commitments are to be interpreted and applied in the changed and challenging post Covid-19 context, where returning to business as usual is not an option given the scale of economic disruptions which have been generated. Such detailed dialogues, based on local realities would also appear to be essential in the elaboration and implementation of ‘due diligence’ requirements, whether these relate to deforestation, climate change or ending child labour. To be effective in the long term, such measures need to be rooted in local realities and need to get to grips with the issue of revenue distribution along the supply chain. If deforestation is to be averted, child labour ended and only climate friendly production practices are to be pursued, then it is essential that such patterns of production be encouraged through the provision of financial incentives to producers, which allow farmers and farming communities to work their way out of poverty through respecting environmental, climate and social responsible farming practice requirements. However, it needs to be recognised that this will need to involve European consumers paying higher prices and the establishment of effective transparent mechanisms to ensure the delivery of a higher proportion of the final price to primary producers whose activities need to change if environmental, climate and child labour objectives are to be met. |
Sources
(1) EC, ‘A renewed trade policy for a stronger Europe Consultation Note’, 16 June 2020
https://trade.ec.europa.eu/doclib/docs/2020/june/tradoc_158779.pdf