The EU trade strategy: Where is the “strategic” part?

Compared to the attention the negotiations on the Transatlantic Trade and Investment Partnership (TTIP) has received, the new EU trade strategy, published late in 2015, has gone widely unnoticed by the broader public. There were a few pieces in some national newspapers, but without a proper debate or any more detailed follow-ups, mentions of the official document died down directly after the publication.

This is a pity. Critics of the EU Commission as an opaque and incorrigible institution, promoting only the interests of large corporations at the expense of customers, the environment and underdeveloped countries, should have taken a closer look: the Commission has tried very hard to react to all kinds of criticism brought forward during the TTIP negotiations.

Among the main goals outlined in the document titled “Trade for All” are a number of improvements which seem directly aimed at tackling the fears of centre-left sceptics of trade agreements. According to its own statement, the Commission will aim in future at making trade negotiations much more transparent, in line with the improvements over the past months in transparency of the TTIP negotiations. Investment protection clauses, one of the most disputed issues in the TTIP negotiations, in the future will include long-demanded features such as a clear protection of “the right to regulate” and the creation of an international investment court. Measures to support human rights, sustainable development, environmental protection, fair and ethical treatment and anti-corruption rules will be included in future trade negotiations.

In addition, of course, there are also more traditional aims. The commission wants to make trade “more effective”. Here, it is all about making trade agreements more valuable for European companies, by updating trade agreements with rules for supply chains, the digital economy or services and to increase the mobility of experts, with the clear aim to expand markets for EU firms and create economic growth.

Moreover, the EU Commission promises to “shape globalisation” by both “reenergising multilateral negotiations” and opening bilateral agreements to new parties as well as starting new negotiations about free trade agreements with countries in Asia and Oceania, such as New Zealand, Australia, the Philippines and Indonesia.

Yet, even though these individual goals are laudable, the strategy has a serious shortcoming – by all usual definitions, it is not really a strategy at all, but just a list of principles. Management textbooks usually underline that a strategy in economic or business environments consists of defining a clear long-term goal and then identifying a set of rules which can help reach this goal.

When looking at the European trade “strategy”, the problem starts already with the first element, the long-term goal. What does Europe really want to achieve with its trade strategy? Does it want to create economic growth? At home, in developing countries or globally? Does it want to strengthen political allies in parts of the world? Does it want to foster human rights, protection of the environment or maybe the international, liberal, rule-based trading system which is based on the principle of non-discrimination?

Claiming that one wants to reach all of the above at once and without any priorities is not very convincing, as there are clearly trade-offs. Non-discrimination in international trade means that one gives concession to all partners, rendering trade policy unable to be used as a tool supporting other goals of foreign policy. In free trade agreements, especially with poorer countries, the question is often whether the terms will be formulated more towards meeting the interests of the rich country or those of the weaker partner. The EU is not very credible when it at one moment claims that the trade agreements aim at creating mutual benefits and at the same time boasts in a related document that the FTA with South Korea has led to the “long-standing EU trade deficit [having turned] into a surplus” and that the “EU’s share of South Korea’s imports increased form 9% to 13% while the US remained stable and Japan lost 2%”. This is mercantilism, not pushing for a liberal global trade order.

Also, the strategy does nothing to really resolve the inherent conflict between the multilateral WTO-system and bilateral trade negotiations. Even opening TTIP in principle for other, further members who are “willing to follow the high degree of ambition” will not solve the problem that such an agreement carves out rules for companies in the US and the EU (30 percent of world trade) which are inherently different for the rest. Moreover, creating such preferential rules might actually make it harder to come to a conclusion of multilateral negotiations later. A free trade agreement creates winners whose gains would be eroded and devalued were the agreement later extended to other partners. Just promising to push for an advancement of global rules here simply is not a good enough answer.

But, one might ask, why should the EU have a strategy and not just a list of principles? The answer is public support and legitimacy. The liberalisation of global trade since World War II has already come extremely far. Even the complete elimination of all tariffs globally would now only bring marginal benefits (the OECD speaks of a one-time effect of 0.5 percent of GDP). Any other “deeper” liberalisation – such as the opening up of service sectors or introducing common standards – means some loss of domestic sovereignty, while the economic benefits still might be small and slow to materialise. In order to convince the public that the EU needs to negotiate such new trade deals, the Commission hence needs a more convincing story than promising fractional increases in average GDP with uncertain distributional effects among sectors and countries.

The EU trade commissioner Cecilia Malström sometimes seems to argue that she does not have to look after public opinion on trade as she does not get her mandate from the broad European population, but from the member states. While she is formally correct, this will not help her goal of promoting trade. At the moment she runs the danger that her efforts to conclude the ambitious TTIP negotiations and have the treaty ratified might be eventually defeated by public resistance in (some) member states. Without a convincing, real trade strategy, she risks this fate being repeated over and over again with other trade agreements over the coming years, rendering the EU a powerless player in the global trade arena.