March 5. 2024. 2:16

The Daily

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Politicisation as a boost for EU trade

While free traders generally lament the politicisation of trade for its undermining effect on the multilateral trade order, the more geopolitical tensions might give some EU trade deals the impetus they need to get over the line.

Free trade agreements had a difficult time in the past decade, with CETA, the EU trade deal with Canada, just about scraping over the line, and TTIP, its EU-US pendant floundering altogether.

They fell victim to a renewed politicisation of trade as activists and politicians criticised them for undermining social and environmental norms and, in some cases, even democracy itself.

Trump’s trade war with China, followed by the Biden administration’s continued disregard for WTO rules, seemed to spell further doom for global trade relations.

Nobody really put their heart into defending free trade anymore. It was a tired, leftover piece of ideology from another era.

Now, however, it looks like exactly this more politicised dynamic that ran roughshod over the principles of multilateral trade is providing momentum for the conclusion and ratification of new trade deals in Europe.

“To strengthen the EU’s resilience and diversify our supply chains, we will push for full ratification of trade agreements,” the EU Commission’s work programme for 2023 reads.

“Diversifying supply chains” and “strengthening resilience” these are the buzzwords that frame trade as issues of European security – a much more potent political argument in today’s environment than economic models praising trade as an efficiency-enhancing positive-sum game.

Especially the need for critical raw materials like Lithium underpins the case for new trade deals with Chile, Mercosur, and Australia, where large quantities of this resource can be found.

On these trade deals, the traditionally pro-trade EU Commission can rely on security and environmental arguments that it previously did not have on its side.

It is also mainly due to political considerations that the arch-protectionist India and the EU are currently negotiating a trade deal.

Of course, if EU trade with China falls due to political tensions, the trade might decrease even if new markets are opened up through free trade agreements. However, trade data still shows increasing trade between China and the EU.

We do not know where the renewed politicisation of trade will lead other than that it will certainly not look like the past decades, but there is no reason for trade enthusiasts to become too gloomy just yet.

One year ago, Russia started its full-scale invasion of Ukraine, which Ukraine could resist remarkably well, also thanks to the support Ukraine received from countries that see themselves as part of “the West”.

A look at the support commitments given by partner countries between 24 January 2022 and 15 January 2023, however, shows which country undoubtedly leads the effort to support Ukraine: The United States.

Even if you add up all commitments made by EU member states and EU institutions, the EU would still only have committed roughly two-thirds of the support that the US has committed.

If we look at who supports Ukraine most relative to their economic power, European countries make a better impression, especially the Baltic countries of Estonia and Latvia. Both issued support commitments for Ukraine that amount to more than 1% of their GDP.

A notable laggard is France, which supports Ukraine significantly less than Germany, while the Germans seem to be at the receiving end of much of the criticism.

According to the data compiled by the Kiel Institute for the World Economy, Switzerland is the least generous of all the European countries relative to its economic strength.

European Parliament tells ECB to go for a more balanced approach. Last Thursday (16 February), the EU Parliament adopted a report including their annual recommendations to the European Central Bank. Since the ECB has no real lever on energy prices in the short term, the EU lawmakers argued for a less hawkish approach in the ECB’s fight against inflation. They also urged the ECB to study how climate change affects its ability to maintain price stability.

EU wants to adapt WTO rules to industrial policy needs. Ahead of the World Trade Organisation’s General Council in early March, the EU Commission presented a paper arguing for more deliberations on how the WTO should treat state subsidies and environmental challenges.

French NGOs take BNP Paribas to court over climate inaction. Friends of the Earth France, Notre Affaire à Tous and Oxfam France announced on Thursday (23 February) they would take commercial bank BNP Paribas to court on the grounds of climate inaction, due to the bank’s heavy investments in fossil fuels and “significant participation” in climate change, according to a press release. This is the first formal legal action taken against a bank on climate matters in France. In a response, BNP highlighted the work it had already done to divest from coal, claiming that 80% of its energy investments will go towards low-carbon technologies by 2030.

TotalEnergies to cap fuel prices to €1.99 in 2023. French energy mogul TotalEnergies announced on Thursday (23 February) it would cap French fuel and diesel prices to just under €2 from March 2023 to yearend to “protect clients from extremely high prices”, CEO Patrick Pouyanné said. The multinational had been criticised over record-high profit levels in 2022 – and Emmanuel Macron had asked that TotalEnergies make an effort. The company already reduced fuel prices by 20 cents from September to November and down to 10 cents in December.

Bulgaria hopes for a maximum 6-month Eurozone delay. Bulgaria now aims to enter the Eurozone from 1 July 2024, half a year later than the initial set date, said Finance Minister Rositsa Velkova, noting that her country could reduce its inflation to the level needed to enter the group. Read more.

Chances of taxing digital giants ‘slim’, says French minister. French Economy and Finance Minister Bruno Le Maire said that negotiations on taxing digital giants like Google, Apple, Amazon, and Facebook are being blocked by the US, Saudi Arabia and India. Read more.

Netherlands calls for EU sanctions enforcement headquarters. The EU should set up a body to tackle mass circumvention of the bloc’s sanctions against Russia centrally from Brussels, Dutch Foreign Minister Wopke Hoekstra said on Monday. Read more.

Austria, Finland united in opposing new EU joint debt. Austria and Finland locked shoulders in opposing new EU joint debt ahead of the Munich Security Conference amid growing calls to up EU spending to face competitors like the US. Read more.

Is Europe failing on import diversification? Bruegel’s Lennard Welslau and Georg Zachmann find that for all the talk of trade diversification, this is not yet visible in the import data. EU imports are sourced from an increasingly limited set of suppliers, they write.

Hungary, Poland and the EU: It’s the money, stupid? In this analysis, Camino Mortera-Martinez and Sander Tordoir of the Centre foe European Reform evaluate the effectiveness of the EU’s strategy of withholding EU money to put pressure on Poland and Hungary.

Countering China’s coercive diplomacy: Researchers from the Australian Strategic Policy Institute have mapped China’s economic coercion attempts over the recent years and they find that Europe has been the target of many of those attempts.

[Ukrainian] Reforms in the war year: Nine areas that underwent the most change in 2022: Yelizaveta Dorontseva of Vox Ukraine takes stock of the most significant reforms that have been undertaken in Ukraine over the past year.