What’s left of 2020: 3+1 things to watch in EU trade policy

1. The fate of the Mercosur deal

The EU’s trade deal with the Latin American Mercosur bloc continues to be slammed by national governments, NGOs and farmers’ associations. Complaints range from deforestation in Brazil to alleged unfair competition and difficult economic circumstances in the European agricultural sector. The ratification of the agreement has been put on hold, as several countries including Ireland, Austria and France have pledged to veto it. Even German Chancellor Angela Merkel has voiced concerns, in spite of the lucrative market which Mercosur offers the EU, particularly German car manufacturers. Faced with such strong opposition, stakeholders in favour of the deal will need to up their game if they want the agreement to survive. Addressing some misperceptions on Mercosur countries’ sustainability credentials would be a first step.  For example, did you know that Brazil’s renewable energy credentials are better than the EU’s? Over 45% of Brazil’s energy consumption comes from hydro and biofuel, which is much higher than the EU’s.

2. EU – China Investment Treaty: Now or never?

The EU-China Comprehensive Agreement on Investment received a significant political push at the recent EU-China Summit on 14 September. It is a priority for Germany’s Council Presidency, which hopes to tap into the growing Chinese market. The fact that the European Commission’s Director General for Trade moved the China unit to the investment directorate is a sign that the agreement is important for EU-China trade relations. However, the EU is not in a hurry. Major business associations, including the European Chamber of Commerce in China, urged the EU to prioritise substance over speed, even as China has been one of the first countries to see positive economic growth in 2020. At the same time, the window is closing to seal the deal. Traditionally business-friendly German politicians, even from the centre-right CDU, are increasingly critical of China’s domestic policies, and an inescapable ally like the US remains the elephant in the room. The negotiations’ future will depend on who will be the next US President. If Trump gets reelected, the EU might be more lenient towards China, and brace for Atlantic storms. Biden as President might reignite transatlantic cooperation on China – something which would be much welcomed in Brussels.

3.  Change in the White House

Four more years of President Trump would likely mean more tariffs, more confrontation and the demise of the multilateral trading system. A Biden win could offer some relief in the Berlaymont, as his central foreign policy goal is to revive old alliances, especially with Europe. One senior adviser even confirmed that Biden would end the “artificial trade war” with the bloc.  However, tensions in transatlantic trade did not start under Trump. Growing US suspicion of the role of the WTO and discontent over agriculture and diverging regulations go back decades. More recently, the EU’s recent policies to regulate big tech companies (which are almost exclusively American) have drawn criticism from Democrats and Republicans alike. A Biden Administration might even avoid confirming new judges at the WTO Appellate Body, for the simple reason that there are numerous pending cases (mostly related to Trump’s aluminum tariffs) that the US is likely to lose. These differences are not unbridgeable but require much negotiation. It might take years, no matter who sits behind the Resolute Desk.   

3+1. Brexit

Apart from governance (can you trust the UK with international law?), there is little new to watch in the EU-UK negotiations. It is like a broken record player, repeating the same tunes: fisheries, level-playing field commitments and the overall structure of the future relationship. There is speculation that Boris Johnson’s government has made up its mind to crash out of the EU without a deal while also backtracking on the Withdrawal Agreement, the rules governing its exit from the EU. However, fresh impetus in the recent days suggests that a deal is possible, and the UK is softening its position recognizing it needs a deal. Regardless, as London seeks to chart its way in the international arena, third countries could be understood for thinking twice before concluding agreements with Boris Johnson. The UK government has made so many U turns – from 5G to the coronavirus –that it suggests a less than reliable negotiating partner. Furthermore, its recent dismissal of the international law does not breed confidence. For outsiders, making sense of British politics has become nigh on impossible, creating even more uncertainty for individuals and businesses alike.

These are just some of the main upcoming milestones. There are many other ongoing developments, such as how the EU will balance free trade with strategic autonomy in its new trade strategy or how it plans to make its trade policy greener with a carbon border adjustment mechanism. One thing is clear: Dombrovskis will not have an easy time ahead.