The New EU Strategy for Trade and Development

There are some interesting ideas and proposals in the European Commission’s new Communication on trade and development. After a decade as leader of aid for trade, the EU now wants to reform its aid component in trade policy by concentrating it on the Least Development Countries (LDCs). Even if the proposals that are presented in the new strategy will not amount to a radical overhaul of current policy, they are important signals that the Commission now stands ready to spearhead reforms of its own as well as member states’ donations to trade capacity building. For inside-Brussels beltway observers, there are also some interesting nuances in the Communication. The language on a development package in the Doha Round negotiations, for example, differs from previously published strategies in so far as a development package is not explicitly conditioned on success in other negotiating areas.

Finally, the Communication also puts emphasis on some critical aspects of trade and development that often are neglected – for instance the inarguable fact that trade openings by the EU or other economies will not translate into many new trade gains for LDCs unless they reform their economic policy and institutions to a much greater degree than they have done so far. Furthermore, it points out that in many instances, it is not a specific developing-country aspect of trade policy that will help boost these countries’ trade. What many (but not all) developing countries would benefit from are exactly the same trade reforms that other countries favour other countries to undertake: reduced or eliminated market-access restrictions combined with a growth-friendly regulatory environment based on transparency and predictability.

Yet there are few things in the Communication that will catch the attention of key policymakers in developing-country capitals or make a difference in those countries’ efforts to grow their economies through trade. If the ambition with the Communication was to put forward a new component in EU trade policy, exclusive to only developing countries, it is difficult to reach any other conclusion than that the Commission has failed. Rehearsing many strategies form the past six years, since the launch of Global Europe, the Communication rather confirms that specific development aspects of trade policy are low on the agenda and that the EU is not planning to promote them.

This is not surprising. Nor should it necessarily be seen as a deliberative disinterest in promoting development through trade. Events in the past years have pushed the EU to give higher priority to other objectives with trade policy. Four year of crises in the EU – to be followed by what at best looks like anaemic economic growth for the rest of this decade – have strengthened those in the EU that favours a trade policy of mercantilist (if not protectionist) bent. Together with the collapse of the Doha Round, these crises have provoked the other and less defensive wing of EU membership to give higher attention to bilateral trade deals with other big economies – trade deals that could help the EU itself to expand trade and economic growth to a significant degree.

I have four concerns with this communication. First and foremost, it fails to include reforms of EU policy that would have a beneficial effect on developing-country export to the EU. Prime among these absent policies is agriculture. The EU is already operating a one-way free trade policy for the LDCs as far as tariffs are concerned. That is a good policy, and the Communication rightly claims that the so-called Everything-but-arms initiative has had a discerning effect on LDC export to the EU. But developing countries that are not in that LDC group would also benefit from similar access to the EU market – an access that probably not would have eroding effects on export from LDCs. And those developing countries, especially the big and populous ones, have more poor people than the LDCs. Furthermore, there are many other restrictions than tariffs in the agricultural sector. In agriculture or horticulture sectors, it is not always tariffs that present the biggest problems for potential exporters. Non-tariff barriers that are onerous and arcane tend to have a considerable trade-depressing effect. And the EU has not been shy in expanding its NTBs in the agricultural sector. Sanitary and phyto-sanitary (SPS) NTBs have proliferated, not seldom through food-safety regulations. This is not to say that such regulations are unjustified. The problem, however, is that many of them have been designed in an overly trade-restrictive manner (e.g. recent bans of Brazilian meat and Egyptian seed) and that the risk-management process leading to new regulations, or application of regulations, is not very transparent. Moreover, the expansion of the SPS NTBs has led to too high compliance costs for many developing-country exporters.

Second, and following on the last comment on NTBs, the EU fails to understand that many of the new sustainability criteria it has introduced in especially farm, food and forestry sectors have disproportionate effects on many developing countries that cannot comply with the new standards. This is not a black-and-white issue – and several developing countries should take greater responsibility for sustainability. But the issue here is rather that the EU has or will use ham-fisted restrictions to its own market as tools to either force through changes in developing countries or, as in the case of biofuels, help protecting local production in Europe at the expense of foreign producers. As far as the Communication has anything to say about new sustainability standards, it presents them as development-friendly. That is a distortion of facts – and several developing countries have already “called the bluff”. But the question remains: will the EU uphold and establish new sustainability standards (as planned) even when they limit production in and export from developing countries?

Third, the EU’s specific trade policy towards Africa is limited to concluding the remaining Economic Partnerships Agreements (EPAs). Judging by previous attempts to negotiate EPAs, that is an ambition which may prove impossible. I think the configuration of EPAs was flawed from the start, but it may be too late to change that now. What the EU can do, however, is help design a beyond-EPA trade policy, which could include, for instance, ambitions to promote regional trade integration in Africa in selected areas like services.

Lastly, the flagship reform in the Communication – a reform of the Generalised System of Preferences (GSP) – is disingenuous. It fails to convince anyone. It is not grounded in good economic analysis of the role of trade for development. The reform is sold on the premise that export to the EU from countries that will be disqualified from GSP will be substituted by export from LDCs. That is a very dubious proposition. The GSP reform rather looks as a suspicious attempt to put pressures on middle-income developing countries to conclude new Free Trade Agreements with the EU. I am in favour of such agreements, but the GSP system is not the right place for exerting such pressures.

It is understandable that a system of preferences adjusts itself to differences between developing countries. It is also understandable that the EU, like many other countries, are grappling with how to differentiate between developing countries with a small role in the global economy and developing countries with a systemically important role in the global economy. But adjustment by increasing tariffs on those countries that have enjoyed a good economic development (but still have a large share of the population living in poverty) will have negative consequences – for them as well as for the EU.