Summary
The EC sets out 3 core trade policy objectives: Supporting the recovery and fundamental transformation of the EU economy in line with its green and digital objectives’; ‘Increasing the EU’s capacity to pursue its interests and enforce its rights, including autonomously where needed’; ‘Shaping global rules for a more sustainable and fairer globalisation. Difficult operational choices will be faced in reconciling these three objectives, with this revolving around the question of who pays for the costs of more sustainable and socially responsible production processes, which at the same time delivers decent and more sustainable livelihoods for developing country producers? Care will need to be taken in ensuring the pursuit of EU interests and enforcement of EU rights does not become the dominant pillar of the EU’s new trade policy.
Objectives and Modalities
In mid-February, the EC published a communication entitled ‘Trade policy Review – an open, sustainable and assertive trade policy’. The EU summarises its three-core medium term trade policy objectives as:
- ‘Supporting the recovery and fundamental transformation of the EU economy in line with its green and digital objectives.’
- ‘Increasing the EU’s capacity to pursue its interests and enforce its rights, including autonomously where needed.’
- ‘Shaping global rules for a more sustainable and fairer globalisation.’
In support of these three core objectives the EU will support actions in six areas:
- Strengthening ‘the EU’s focus on implementation and enforcement of trade agreements, and ensure a level playing field.’
- Strengthening ‘the EU’s regulatory impact.’
- Supporting ‘the green transition and promote responsible and sustainable value chains.’
- Strengthening ‘the EU’s partnerships with neighbouring, enlargement countries and Africa.’
- Supporting ‘the digital transition and trade in services.’
- Reform of the WTO (1).
In this latter regard, the EC is also looking to strengthen a rules-based trading system. The EC emphasises the importance of a ‘stable, rules-based trading framework’, to boosting post-Covid economic recovery. For the EC reforming the WTO is seen as a ‘key geopolitical EU interest’. This places EU support for WTO reform firmly in the context of broader EU trade priorities, which includes ensuring the effective pursuit of the EU’s European Green Deal agenda does not undermine the position of EU businesses on global markets.
Overall, the new trade policy aims to support the attainment of ‘both domestic and external policy objectives.’ This includes promoting ‘greater sustainability’ in global production and facilitating the post Covid-19 global economic recovery (1).
Wider concerns Behind the EC Trade Policy Review
In placing the trade policy review in context, the EC highlights 4 salient areas of development
- Global uncertainty, fuelled by political and geo-economic tensions, with this being compounded by the rise of an increasingly globally ambitious China. This is seen as creating a more hostile environment to rules-based trade relations.
- A process of development of global value chains which in addition to fuelling growth in many parts of the word has left other regions facing ‘permanent losses in living standards, employment opportunities’ and deteriorating wages and living conditions, with this leading to calls for de-globalisation and ‘the rise of inward-looking and isolationist reactions.’ It is emphasised how the ‘risk of trade-restrictive measures cutting developing countries off from global value chains should not be underestimated.’
- Growing concerns around the accelerating pace of climate change and biodiversity loss, with the European Green Deal constituting the EU response to these challenges. While this is primarily internally focussed, aiming for a climate neutral EU economy by 2050, this includes an external trade dimension which seeks to avoid carbon leakage and promote more climate friendly production processes.
- The need to support post-Covid economic recovery, in ways which ‘build back better’, including through promoting greater social equity, including eliminating the ‘decent work deficit’ in global supply chains (1).
The Covid-19 pandemic is seen as having ‘accelerated and focussed attention’ on these existing areas of concern and highlighted concerns about the ‘risk of a breakdown of global cooperation and trade.’ The pandemic is also seen as raising ‘questions regarding the right policy mix in terms of diversification of domestic and external sources of supply and the build-up of strategic production capacities and reserves.’ Serious economic challenges are seen as lying ahead as post-Covid recovery gets underway.
The EC maintains ‘EU trade policy has to take into account these global trends and challenges to reflect the political ambition of a stronger Europe in the world’ as set out in the political guidelines for the European Commission for the 2019-2024 period (1).
| Specific References to Africa
In specific regard to EU trade relations with Africa, the EC trade policy review highlights how the EU is ‘a major destination for exports from low-income countries – in particular from Africa.’ It is argued the EU has a strong interest in the ‘enhanced integration in the world economy of vulnerable developing countries’ and should use the ‘strength provided by its openness and the attractiveness of its Single Market’ as an integral part of promoting this enhanced integration (1). The EU is looking to deepening its engagement with the African continent and African states. The view is expressed that ‘stability and prosperity in Africa is critical for the EU’s stability and prosperity and needs to be supported by closer economic integration of the two continents, driving the green and digital transitions jointly with Africa.’ Linked to this, around WTO issues the EU is looking to ‘build alliances with like-minded partners’, particularly those linked to the EU through its broad network of trade agreements. It is maintained ‘the EU’s free trade agreements (FTAs) are platforms for enhanced cooperation pursuing our values and interests’ and are ‘the basis for engagement with important markets and countries around the world’ (1). |
- Promoting a Green Post Covid Recovery
While a key objective of EU trade policy is to ‘help restore growth and job creation post-COVID-19’, it is maintained trade policy also needs to ‘fully support the green and digital transformations’ of the EU economy. Indeed, trade is seen as ‘critical for the EU’s green recovery from the COVID-19 economic slump.’ In this context the EC is seeking to place ‘sustainability at the heart of its new trade strategy’ (1).
While central to this is the transformation of the EU into a carbon neutral economy, there is an international dimension involving the promotion of stronger global rules on sustainability requirements (2). Indeed, the EC wants to ensure ‘trade tools accompany and support a global transition towards a climate neutral economy.’ This includes ‘promoting responsible business conduct and the respect of environmental, human rights and labour standards’ and ‘creating the conditions and opportunities for sustainable products and services’ (1).
Under its bilateral trade agreements, the EC wants to ‘support the diffusion of clean and more efficient production methods and technologies and create market access opportunities for green goods and services.’ The EC sees it bilateral trade agreements as providing a platform for promoting biodiversity, the circular economy, anti-pollution strategies, and the wider adoption of clean energy technologies. In future the EU will propose ‘respect of the Paris Agreement be considered an essential element in future trade and investment agreements.’
The EC ‘will also prioritise effective implementation of the Convention on Biological Diversity in trade and investment agreements’ (1). This can be seen as an integral part of the policy focus on strengthening the EU’s regulatory impact, with the EC now seeking to capitalise on what is referred to as the “Brussels Effect” (2). The EC is proposing a much more systematic approach to exploiting the commercial benefits of the EU’s role as a global regulatory standard setter.
While the EC expresses the believe that ‘tackling climate change and other environmental challenges can only be done through openness, global engagement and cooperation’, it will be taking unilateral actions as well. The EC is planning to ‘put forward legislation addressing deforestation and forest degradation.’ In this regard an important element in ensuring ‘supply chains are sustainable and responsible will be the Commission’s proposal on sustainable corporate governance, including mandatory environmental, human and labour rights due diligence.’ While these mandatory requirements are being set in place the EC plans to provide ‘guidance to assist EU business in taking the appropriate measures already now in line with international due diligence guidelines and principles’ (1).
EU imports will be required to ‘comply with relevant EU regulation and standards’, related to ‘certain production requirements’, with the EU endeavouring to ensure WTO rules are further developed in ways which fully permit such measures. According to the EC ‘the legitimacy of applying production requirements to imports is based on the need to protect the global environment or to respond to ethical concerns’ (1)
In terms of EU bilateral trade agreements, the EC emphasises how ‘trading partners need to make sure their rules reflect the commitments they have signed up to…on …. sustainable development provisions that ensure respect for social and labour conditions, and environmental standards.’ In regard to sustainability commitments the EC emphasises the EU’s role as the world’s biggest provider of ‘Aid for Trade’ support (3).
Overall, the EC concludes: ‘the EU’s trade policy has to adapt and reflect the challenges of our times and the expectations of our people’ and needs to ensure ‘it serves to pursue the EU’s interests, helping it achieve its ambitions and safeguarding its position in the world, today and for future generations.
It is seen as essential that the EC ‘reorient the EU’s trade policy toward the objectives of supporting the fundamental green and digital transformation of the EU economy, building a more sustainable and fairer globalisation based on modernised rules, and stronger enforcement action.’ It is maintained that it is ‘only by doing so that we can generate in a responsible and sustainable manner the opportunities that EU citizens, workers and businesses expect, and the planet needs’ (1).
| Comment and Analysis The EC’s core objectives will require careful definition, elaboration, and operationalisation, if tensions are not to rapidly emerge between the different core trade policy objectives. Central to reconciling different core objectives, will be getting to grips with the issue of who, within specific supply chains, will bear the costs of adjustments required to production processes to attain greener and more sustainable patterns of production, while at the same time promoting better working conditions and higher living standards throughout agri-food sector supply chains. Achieving in parallel the EC’s ambitious objectives will inevitably give rise to higher costs for consumers if more climate friendly and environmentally sustainable production processes are to be promoted alongside better working conditions and higher living standards. If the new EU trade policy is to be effective in achieving all the underlying objectives set out, the promotion of responsible businesses practices which respect the environment, human rights, and labour standards through the establishment of mandatory ‘due diligence’ requirements, will not be able to side-step the issue of fairer more socially and ecologically sustainable prices along supply chains, such those in the banana and cocoa sector. Both of these supply chains are characterised by huge inequalities in the distribution of revenues along the supply chains. In the case of bananas, retail prices are grossly insufficient to cover production costs. In the cocoa sector, prices give rise to endemic levels of acute poverty in cocoa farming communities. Simply establishing mandatory ‘due diligence’ requirements, without addressing revenue levels and revenue distribution issues, will simply pass the burden of compliance and enforcement down to the primary producer level. This will do nothing to get to grips with the ‘decent work deficit’ and living standards issues which the EC wants to see addressed as part of its new trade policy. For example, if in the cocoa sector ‘due diligence’ requirements are to ‘move the dial’ on the use of child labour and the promotion of more sustainable farming practices, the issue of substantially improving the net farm gate price received by cocoa farmers needs to be addressed. In 2020 this issue was raised by the President of Ghana in a letter to European Commission President, Ursula von der Leyen following the concerns she expressed over the use of child labour issues in the cocoa sector. However, this issue needs to be seen in a context where there has never been a worst time economically to be advocating for proposals involving a 10-cent increase in the price of a candy bar (see epamonitoring.net article, ‘Growing Importance of Raising the Farm Gate Price of Cocoa to the Elimination of Child Labour in Cocoa Supply Chains Recognised, but Strong Headwinds Faced’, 19 November 2020). Nevertheless, these livelihood issues will need to be central to the design and implementation of any sustained efforts to address environmental and child labour issues. The issues of more sustainable farm level prices and net farm incomes cannot be left to ‘Aid for Trade’ support to boost productivity, public policy exhortations or the application of trade sanctions for non-compliance with production process regulatory standards. At some point EU trade policy is going to have to get to grips with core sustainable livelihood issues, by addressing total revenue (consumer prices) and revenue distribution issues (strengthening the functioning of supply chains to the benefit of primary producers). Initiatives such as the cocoa sector ‘living income differential’ scheme will need to become central to carefully modulated approaches to the phasing in of legally enforceable due diligence requirements. The emphasis needs to be on financially incentivising through the market the production of child labour free and environmentally sustainable production, while having available legally enforceable mechanisms to systematically remove non-compliant production from European supply chains. Only by the adoption of an approach which places the emphasis on financially incentivising the necessary actions at the local level can EU policy ‘square the circle’ of potentially competing objectives (see epamonitoring.net article, ‘EU Led Sustainable Cocoa Initiative Formally Launched’, 13 October 2020) However, it needs to be recognised that in the harsh economic environment generated by the Covid-19 pandemic, pursuing initiatives which raise consumer prices or depress the profitability of European agri-food enterprises is going to be extremely difficult to sell politically. This raises the question: How in practice will the EC seek to operationalise its sustainability, climate change mitigation and green transformation commitments in regard to behind border requirements placed on ACP exporters, while at the same time operationalising its social justice and corporate responsibility commitments in ways which generate decent, sustainable livelihoods for ACP agricultural producers? Just how in practice the EU’s new trade policy is to deal with farm gate price issues in value chains where the climate effects and production process issues are matters of concern, will be a critical test of the coherence of the EU’s ambitious trade policy objectives. |
Sources:
(1) EC, ‘Commission sets course for an open, sustainable and assertive EU trade policy’, Communication Brussels, 18 February 2021
https://trade.ec.europa.eu/doclib/docs/2021/february/tradoc_159438.pdf
(2) ‘The Brussels Effect: How the European Union Rules the World’, Anu Bradford, Oxford University Press, Financial Time Review, 27 January 2020
https://www.ft.com/content/82219772-3eaa-11ea-b232-000f4477fbca
(3) EC, ‘An open, sustainable and assertive EU trade policy: Implementation’
https://trade.ec.europa.eu/doclib/docs/2021/february/tradoc_159435.pdf