The future EU trade policy – what have we learned from the European Parliament hearings?

On October 2, a Commissioner-Designate for the DG Trade Phil Hogan has presented a list of strategic priorities for the next 5-year term in the office. Accordingly, one of his main focus areas will be to reform the WTO and sustain a stable, predictable and rules-based global trade system. Mr Hogan has also highlighted the increasing necessity to manage relationships with the EU trade partners to create greater market openness for citizens and businesses. Commission-Designate also wants to strengthen the implementation and enforcement of existing trade agreements by creating a Chief Trade Enforcement Officer position. During his opening remarks, he also called attention to the necessity of creating tools that enable fair and open trade and provide a level playing field for all participants. He did not forget to mention that the EU must be able to pursue its values for a sustainable economy and meet the climate-neutrality goals set up by the Commission President, Ursula von der Leyen.

We have asked ECIPE experts about their first impressions of Mr Hogan’s hearing. Below you will find some comments, questions and suggestions on how the next EU Trade Commissioner can make Europe a global trade leader.

On the reform of the WTO, we asked Roderick Abbott, Senior Advisor at ECIPE and a former Deputy Director General at the WTO.

Commissioner Hogan mentioned many aspects of the WTO activity during his hearing, but for me, there are two principal subjects, which indeed are interconnected.

The most important issue is, I believe, the reform of WTO procedures and practices, including its rules, and the impact on the dispute settlement system following American blockage of further appointments to the Appellate Body. On reform, one should distinguish two types of issue. First, there is the ongoing work in progress of reviewing the way that WTO works, and modernizing and improving its performance in its core areas of activity. This is how the calls for reform were initially interpreted, by the EU and Canada in particular in mid-2018. Modernizing the structure of an organization that takes new decisions by consensus was never going to be a rapid affair, and takes much patience. The second issue is more specific and urgent and has a more direct impact on WTO. Since mid-2017 the USA has consistently refused to renew the mandate of members of the Appellate Body or approve new appointments. As a result, there are currently only 3 members which is the minimum required to deal with an appeal. Most observers expect the appeal system to become non-operational by the end of this year unless the USA backs off some of its demands and agrees to some form of compromise.

Beyond that, EU relations with China and with the USA are both important within the EU trade policy framework. China and the USA are the two main trade partners of the EU, and in several ways, the EU relationship to both is connected to the way they conduct themselves in the WTO. The rapid acceleration of unilateral – and many would argue illegal – tariff measures, aimed principally at China but also threatened against the EU (on cars) does little to encourage a positive view of world trade in the next year or so. 

Hogan acknowledged that Europe is working closer with China than the USA on WTO reform, but said he will engage with the USA “to restore a level playing field under WTO”.

On the future of the EU-US trade relations, Elena Bryan, Senior Fellow at ECIPE and a Managing Director at Pilot Roc Global Strategies, and a former Senior Trade Representative at the U.S. Mission to the EU.

The U.S. and the EU have long been allies but also competitors. Hogan acknowledged the importance of the Trans-Atlantic relationship in shaping the global order over the past 70 years but also recognized things have changed. He noted, in particular, that “willing partners” are necessary to resolve trade disputes. Engaging productively with the U.S. on trade disputes has always been challenging, but will be even more so in light of the coming U.S. imposition of tariffs related to the WTO Airbus dispute. The next eight months or so, until the WTO arbitrator is expected to announce the decision on a value of tariffs the EU can apply to U.S. trade of the parallel Boeing dispute, could be a productive time for settlement negotiations if, as Hogan hopes, both parties are willing.  

The U.S. is only one potential partner in the EU’s plan to expand its slate of free trade agreements. The U.S. withdrawal from TPP gave the EU an opening to progress work in negotiations with several countries. Hogan recognizes the opportunity to move ahead on these negotiations and to up standards on social and environmental policies and practices while the U.S. focuses on limited agreements with a few countries.  

His comments on working together with other major players – Japan and the U.S. – on the relationship between security technology and trade is important and will likely be an important element of his term and also for other commissioners.

On the trade and investment relations with China, Philipp Lamprecht, Senior Economist at ECIPE

The proposal of investments screening, especially those coming from China, and establishing a new position of trade enforcer could be well suited to face countries in breach of WTO rules. It is necessary to deal with key concerns that have long been expressed by the EU, such as forced technology transfer, issues related to intellectual property rights, and subsidies. Seriously addressing these concerns is also a necessary step to take forward the process and discussions on WTO reform. These are closely linked with underlying trade frictions between the USA, EU, and China in particular.

On Brexit, David Henig, Director of the UK Trade Policy Project and former Assistant Director at the Department for International Trade (DIT), UK

It is assumed that Hogan would be responsible for talks with the UK on an FTA or another future trading arrangement if and when Brexit happens. The rejection by the current UK Government of existing level playing field terms in the Withdrawal Agreement was mentioned and is an early sign that a post-Brexit arrangement will be no easier to agree than Brexit has been. UK Government and media remain convinced that they can get a special deal from the EU which preserves as much as possible of existing trade relationships while losing the parts of the EU they didn’t like. Unless this changes, it is hard to see an easy path for a future UK-EU agreement.

On services and the future of trade policy, Erik van der Marel, Senior Economist at ECIPE and lecturer at the ULB.

Green trade, Chinese trade and Airbus trade are all very important, but where, in Phil Hogan’s hearing, is the future of trade? The next 5 to 10 years will be marked by an increasing share of intangible trade such as services, digital trade and ideas on which we have so far not heard much. That’s a shame because the EU has a strong position in these issues and should use them in its advantage when dealing with other countries in the world for setting trade rules.

Oscar Guinea, Senior Economist at ECIPE and a former Economic Advisor at the Scottish Government took stock of Ms Sylvie Goulard’s hearing about her single market and industry portfolio. While Ms Goulard’s was rejected by the European Parliament, her hearing provides good lessons for her successor.

Technology has married traditional services and digitalization; it has opened the space for the jobs of the future, and it has made the revision of the services directive completely unavoidable. Yet, Ms Goulard lacked a grand vision of the future European economy and the concrete steps to achieve this vision. It´s simple: if Europe wants to develop its knowledge economy, it needs a single market in services for investments in digital technology to payoff. That is a blueprint for an industrial strategy. As Ms Goulard said in her hearings, ‘Europe excellence is the best form of protection’. To gain the trust of the European Parliament, Ms Goulard´s successor must be bolder and more ambitious.