Recent developments in EU trade policy: the Shift from Liberalisation to Defence

Niall Moran (Dublin City University)

A broad overview of developments in EU trade policy over recent years should cover two main areas: EU measures that liberalise trade (broadly speaking) and measures that strengthen trade defence. Had I written such an overview in 2015 when I had recently started working for the EU Commission, the emphasis undoubtedly would have been on the former area. My unit was working on the finishing touches to the EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the conclusion of the EU-US Transatlantic Trade and Investment Partnership (TTIP), both of which were top priorities for the Juncker Commission. Since 2016, however, the emphasis of EU trade policy has decisively shifted in the direction of the latter area.

The outbreak of war in Europe and Russia’s invasion of Ukraine in February 2022 was the latest blow to that former mindset. Brexit and Trump were the first such blows in 2016, followed by the U.S.-China trade war in 2018, and Covid-19 measures in 2020 (and this is without mentioning the 2019 demise of the Appellate Body of the World Trade Organization (WTO), a major blow to its institutional structure).

The EU has had to adapt its trade policy to adjust to a reality beset by institutional dysfunction at the WTO and shifting momentum away from the rules-based order towards a power-based order in international trading relations (even if much of the rules-based order remains). As the international trading system has been shaken, EU trade defence instruments (broadly conceived) have increased in prominence.

Recent initiatives in these areas have included inter alia the expanded use of sanctions, an anti-coercion instrument (ACI), rules on foreign subsidies and procurement, a proposed Directive on due diligence requirements for large EU companies, rules on co-ordinated FDI screening, and the EU’s Carbon Border Adjustment Mechanism (CBAM).

Since the invasion of Ukraine, the EU has adopted ten far-reaching sanctions packages and has recently agreed an eleventh package aimed at countering sanctions circumvention. To date, sanctions have targeted the Russian banking system, commodities such as oil and gas, sectors such as aviation and luxury goods, as well as sanctions on diplomats, high-profile individuals and entities including Rosneft and Gazprom Neft. Sanctions in these areas progressively escalated over the course of the first sixteen months of the war and enforcement has been stepped up and in some instances extended to operators in third countries.

The text for the EU’s anti-coercion instrument was agreed in March 2023. This instrument will allow the EU to levy tariffs or take other measures where political interference and coercive pressure is exerted on a Member State or States from foreign actors. The EU Commission has been at pains to emphasise that any intervention under the ACI would be consistent with international law. It has also stated that having this instrument will mean that the need for its use will be less likely (i.e. that foreign powers will be less likely to try to exert (economic) pressure on Member States). This is just one EU initiative that seeks to tackle unfair practices of other WTO Members, with new rules on foreign subsidies and procurement, as well as due diligence requirements for companies also falling into this category.

The CBAM Regulation entered into force on 17 May 2023. It is a climate measure that complements the EU’s Emissions Trading Scheme and aims to prevent carbon leakage, i.e. that carbon intensive production be moved to countries with laxer standards. Carbon leakage undermines global climate efforts as emissions are merely transferred outside the EU. The CBAM regulation initially applies to imports of steel, iron, aluminium, cement, electricity and hydrogen.
CBAM is a nuanced measure combining defensive and liberalising elements. It is a defensive measure in the sense that it imposes additional costs on imports from countries with less stringent climate policies and protects domestic industries from unfair competition. However, CBAM could also be seen as a measure that liberalises trade in that it ensures a level playing field for those observing environmentally friendly practices and prevents carbon leakage. CBAM may perhaps best be described as a sustainable trade measure.

These, as well as the other above-mentioned policies, represent a shift in emphasis for EU trade policy towards a strengthened trade defence toolbox. The cumulative effect of a series of measures such as these may be a shift inwards, where more production will take place within the EU and certain imports decrease. This may seem like a positive outcome, but there are still unknowns such as how other WTO Members will react to these measures and what their own versions of them may look like. The acceptability of these measures will depend to a certain extent on their design and implementation and the EU must make particular efforts to ensure the final texts for these measures are WTO compatible.

While these defensive trade measures have received most of the headlines in 2022-23, the EU has also taken measures furthering trade liberalisation. In particular, it has concluded trade agreements with Chile and New Zealand as well as agreeing to the Windsor Framework with the United Kingdom. Its efforts at the multilateral level have also been noteworthy; the EU has shown great leadership at the WTO, demonstrating that a two-tier dispute settlement system can function for those Members that still wish to see one in place. The MPIA issued its first award in December 2022 and Japan joined this initiative in March 2023. EU leadership was also on display at the WTO’s 12th Ministerial Conference (MC12) where an agreement on fisheries subsidies was reached as well as Declarations on food security and preparedness for future pandemics. Looking ahead to 2024, it is hoped EU trade policy will continue this trajectory of leadership at the multilateral level, including in its support of Ukraine, and strike a balance between trade liberalisation and strengthened trade defences.


Photo credits: © European Union – 2023

The views expressed in this blog reflect the position of the author and not necessarily that of the Brexit Institute Blog.

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