Introduction: Current state of play at the geopolitical level

Since World War II, Europe’s geopolitical landscape has been relatively stable, emerging as a hub for international trade and economic collaboration. However, recent global events have disrupted this stability, particularly impacting international trade. The COVID-19 pandemic and the Russia-Ukraine conflict impacted global interconnectivity, leading to a surge in commodity prices. The geopolitical tension further escalated in October 2023, with the attack by Hamas on Israel, which raised serious concerns about the potential economic spill-over effects. Moreover, the strategic moves of Beijing’s ambitions add complexity to the global power dynamics, particularly when viewed from the perspective of the geo-strategic rivalries between China and the US.

In this context, a critical question arises: where does Europe stand amidst these multifaceted challenges? For this discussion, we can simplify the EU’s external action into three main facets: foreign policy, defence policy, and the EU trade agenda. While the aspects of foreign and defence policy could still, to some extent, be encapsulated by Henry Kissinger’s famous remark “Who do I call if I want to speak to Europe?”, it is the EU trade agenda that emerges as a pivotal element in steering through these turbulent times.

This opinion aims to focus on the trade component of the EU’s external action. It will briefly present an overview and recent developments in the EU’s trade agenda and comment on them.

Although the European Economic Security Strategy, which outlines steps to mitigate the EU’s supply chain vulnerabilities and reduce its exposure to economic coercion, is a crucial piece of this complex geopolitical mosaic, it will be addressed in a future discussion for reasons of brevity. The same applies to the need for de-risking our supply chains to reduce critical dependencies on non-EU countries for our strategic technology production, as mentioned by President von der Leyen in her 2023 State of the Union Address.

Overview of the EU trade agenda

The EU’s common commercial policy, an exclusive EU competence1, is managed by the European Commission’s Directorate-General for Trade, alongside other Commission’s services, the European External Action Service, the Council of the EU, and the European Parliament.2

Trade agreements are central elements in the EU’s economic growth strategy. The Commission reports that, as of 2022, the EU stands as the world’s second-largest exporter and importer of goods. The importance of these agreements is underlined by the remarkable growth in trade with the EU’s top 20 trade agreement partners, which saw an increase of nearly 30% in 2022. This surge boosted the value of EU trade through free trade agreements to over €2 trillion, showcasing the critical role of these agreements in the EU’s economic landscape.3

A significant accomplishment in the EU’s trade strategy is the free trade agreement with New Zealand, concluded in June 2022. This agreement is notable for including explicit provisions for trade sanctions in cases of non-compliance with sustainability commitments. Scheduled to enter into force in 2024, it is expected to boost bilateral trade by up to 30%, potentially increasing EU exports by up to €4.5 billion and EU investment in New Zealand by up to 80%. The agreement is set to eliminate tariffs on key EU exports, open New Zealand’s service markets, and enhance investment opportunities. It is a model of the EU’s new approach to trade and sustainable development, incorporating aspects such as sustainable food systems, trade and gender equality, fossil fuel subsidies reform, liberalization of green goods and services, and high standards for intellectual property rights.4

Nonetheless, the EU’s trade agenda is not without its challenges. Negotiations with Australia, expected to conclude by mid-2024, have encountered significant roadblocks. The EU’s hesitancy to open its market to Australian agricultural products jeopardises the deal, risking access to crucial minerals like lithium and copper, essential for the EU’s digital and green transitions.

Similarly, the Mercosur5 agreement, signed in principle since 2019, is mired in uncertainties due to reservations from several EU Member States6. If ratified, the EU-Mercosur Agreement would become one of the largest EU free trade zones, potentially saving over $4.4 billion in tariffs and enhancing access to essential minerals for renewable energy applications. The agreement represents more than just commerce; it would mark the EU’s strategic positioning in Latin America, a region that has gained importance in the global geopolitical shifts. Failure to conclude the EU-Mercosur agreement would entail significant implications for both regions. For the EU, it would mean losing a crucial opportunity to reinforce its influence in Latin America, to the advantage of other non-EU players. For Mercosur, internal challenges are significant, such as Uruguay considering an independent trade deal with China and the fluctuating political dynamics within Argentina and Brazil adding to the uncertainty surrounding the agreement.

Reflecting on EU trade policy

Reflecting on the EU’s trade policy, three key elements emerge as impediments to its full potential.

Firstly, the EU has shown its capability to conclude strong agreements with « like-minded countries. » However, it encounters challenges when dealing with « unlike-minded partners, » mostly developing countries. The EU’s push to raise environmental and climate standards, expecting non-EU countries wanting to trade with the bloc to meet these standards, has complicated numerous trade deals. A notable example is the mentioned negotiation with Mercosur, which contrast with the successful deal reached with New Zealand.

The second major issue is the role of protectionism in EU trade policy. The failed trade deal with Australia is a clear example, where EU protectionism obstructed the agreement. This also raises concerns that sustainability objectives might be used to effectively close off the EU market, which contradicts the principles of free trade. Addressing these concerns requires respecting international commitments and supporting third countries in adhering to EU standards.

The third element is the role of public concerns and the certain political discourses, which might fuel protectionist fears and significantly shape the direction of trade policies. This is why it is important to remember that negotiations can provide opportunities to remedy and compensate for less favourable aspects of a deal, addressing specific concerns through constructive responses. An important example of this was the response to the 2019 Mercosur accord. Concerns were raised in some European countries about the impact of South American agricultural imports on the level playing field and consumer protection within the EU. To address these worries, the former EU Agriculture Commissioner announced €1 billion in financial support and common market organisation support to mitigate market disturbances upon the implementation of the agreement.

This highlights the essence of negotiations, which inherently involve compromise, i.e. giving and taking. Thus, excessive worry that leads to stalling critical agreements may not always be warranted. While concerns about sustainability are valid, it is important to note that current EU legislation, including the deforestation regulation and the upcoming due diligence directive, already comprehensively addresses environmental and social issues in trade. However, focusing solely on these legislative aspects, without accompanying supply-side actions, could impair EU competitiveness. Therefore, the EU must prioritise the external dimensions of this legislation, building trust and strengthening relationships with third countries, and ensuring that sustainability is not misused as a cover for protectionist goals.

Even high-ranking officials in the Commission underscored the necessity for the EU to broaden its network of free trade agreements beyond just liberal democracies. The « west against the rest » strategy is not viable as the group of liberal democracies is too small to provide sufficient trading partnerships. The EU must therefore engage with a diverse range of partners, going beyond a limited focus on “like-minded countries”7.

Certainly, prioritising partnerships with countries sharing our values remains crucial, but requires a pragmatic approach. Being genuinely committed to mitigating risks in our supply chains and to ensuring the success of the green and digital transitions means engaging with reliable partners. Given Europe’s limited resources, particularly essential raw materials like lithium, cobalt, and nickel for the twin transition, this becomes even more imperative.

This means, in conclusion, that the EU must progress on a broad spectrum of international instruments, aiming to conclude trade agreements that offer new market access and investment opportunities for European companies. This includes aligning trade and technology policies with the United States, and concluding deals with Mercosur, Mexico, Chile, CELAC8, India, and Indonesia.

All these efforts should aim for balanced relationships with all trading partners, including China, while protecting EU interests and achieving mutual benefits. The EU, as BusinessEurope highlights, represents only 6% of the global population and must seek economic and political strength through global engagement, especially since 85% of future economic growth is expected to occur outside the EU. Therefore, turning away from international collaboration is not an option for a stronger EU on the global stage9.

Francesco Fiaschi
Adviser European Affairs for FEDIL