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A critique of EU trade policy

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Published

February 2019

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Freihandelsverträge der EU (2019)
EU free trade agreements (2019) Datastat [Public domain], via Wikimedia Commons

Since 2015, the EU’s trade policy has been guided by the motto “trade for all”. However, in light of the content of the 20 or so trade agreements that—with a great deal of energy and visible urgency—the European Commission is currently seeking to negotiate, the credo should be more like “free trade with all”. But strictly speaking, even that does not go far enough. Because what is at stake in these negotiations goes well beyond mere trade policy agreements. It is about clinging to a neoliberal approach to globalization in which the large EU member states, with their mercantilist line—and Germany is front and centre here—are not just seeking to secure burgeoning trade surpluses in their interactions with the rest of the world, but also want to retain full control when it comes to setting the rules on trade and economic policy, and to lock these in for as long as possible. But the playing field has been shifted by recent developments, which reached an initial climax in the widespread resistance to TTIP (the Transatlantic Trade and Investment Partnership between the EU and the USA) and TISA (the Trade in Services Agreement), and which in the wake of the US President’s “America First” mantra are now revealing new conflicts on trade policy. The free trade strategy that was previously in place now finds itself at the edge of a precipice, which is why the European Commission is currently scrambling to cement as many free trade deals as possible before variants of more protectionist policies begin to gain sway around the globe.

This is about much more than trade, the aim is to entrench neoliberal economic policy

The new paradigm—which according to the European Commission places increased emphasis on effectiveness, transparency and values—was announced in 2015. Essentially, however, it conforms to an outline that the EU had already sketched out back in 2006 under the moniker “Global Europe”. In 2006, the European Union’s trade policy was aimed at making the EU the “most competitive economic region in the world”, and this remains the case today. But the export strategies underlying this can only work if free trade and market liberalization are adopted across the world as economic policy dogma.

In the face of the stalling tactics with which developing countries resisted trade liberalization, the World Trade Organization (WTO), which was specifically created in 1994 to act as a kind of global liberalization agency, proved to be increasingly unsuited to this task. In response to this, a process was set in motion whereby the creation of so-called mega-regional agreements (such as TTIP or the Transpacific Partnership, TTP) were supposed to help to establish global standards—in part also against growing competition from the so-called BRICS states (Brazil, Russia, India, China and South Africa)—that would serve the interests of the US and the EU around the world.

 

This strategy ground to a provisional halt with the inauguration of Donald Trump as President of the United States, because the Trump administration’s rigorous deployment of an aggressive policy of protectionist tariffs is attempting to reshape the existing multilateral trade regime so as to benefit the US, and transform the trade doctrine previously consensually pursued by the G7 countries into an “America First” system of free trade. As the renegotiation of the North American Free Trade Agreement (NAFTA) shows, Trump is in no way interested in any kind of progressive reform of the multilateral trade regime, but exclusively in the continuation of the existing system under overt American domination. This amounts to nothing other than neoliberalism with the addition of the political submission of its trade partners to US interests.

This threatens to put an end to an era in which boosting exports and achieving current account surpluses was the supreme objective of foreign trade policy. It is also poised to end the efforts at transforming the global economy into an arena in which corporations are able to operate profitably and without restrictions. Yet the situation has evidently motivated the European Commission to put together a whole “new generation” of free trade agreements, as many as possible as quickly as possible, with the broadest scope and the longest possible duration. The primary goals of these wide-ranging agreements are the following:

  • The consolidation of a liberal economic order in which access to the market for foreign companies is comprehensively guaranteed, in particular through the removal of tariff barriers, the repealing of restrictions on government procurements and in relation to services and agricultural markets, as well as the extensive commercialization of both infrastructure and areas of public service provision.
  • The unification of economic standards and the removal of “non-tariff barriers to trade” that block “regulatory cooperation”. In other words: the precipitous and preferential involvement of transnational corporations in the drafting of new statutory regulations.
  • The safeguarding of profit expectations for foreign investors by contractually guaranteeing special litigation rights or creating a multilateral investment court.

The so-called “ratchet clauses” generally included in these kinds of agreements provide one indication that the intention is to use the agreements to achieve a long-term opening of the economies of non-European countries for an EU export offensive that would be virtually irreversible. This means that while further rounds of tariff reduction and privatisation can be carried out at any time, once tariff reductions or privatisations of public service provision have been agreed upon, they are unable to be reversed.   

In the future, the role that access to oil used to play might be taken over by the digital provision of services and the control of data

In addition to regulatory cooperation and special litigation rights, which have already aroused significant public attention and been the target of widespread criticism, alarming trends are beginning to emerge in EU trade policy in e-commerce, on the services market, and in the trade in so-called environmental goods. These trends are particularly concerning in light of the issue of global access to energy and raw materials.

When it comes to trade in energy sources and raw materials, the aim seems to be to stick to business as usual as much as possible. This applies in particular to the efforts to maintain stable supplies of raw materials on the global market and to keep prices down. The former is to be achieved in no small part through the “ban” on export taxes laid out in the economic partnership agreements (or EPAs), and the retention of the pre-existing global division of labour. The latter will be realised in part by way of so-called “conflict resources” (coltan from the east of the Democratic Republic of the Congo, “blood diamonds” from Zimbabwem, or crude oil put on the global market by the Islamic State). It is by no means true that the EU Conflict Minerals Regulation—something that had been long demanded by civil society organisations and which came into force in June 2017—simply prevents the purchase and use of natural resources from specific regions. Were that the case, extraction in the conflict regions would quickly come to a standstill. Rather, by being classified as minerals that have been extracted under dubious circumstances in conflict regions the products are de facto made illegal, driving down their price. The resources continue to be traded regardless—usually passing through the hands of a string of intermediaries, who in turn help to conceal their true origins.

Another highly sensitive class of commodities for which the EU is seeking to keep the global market open by all means necessary are “rare earth” minerals, which are often used in high-tech products in the minutest quantities but are crucial for their functioning. Rare earth metals comprise 17 elements: scandium, yttrium, and lanthanum, along with the 14 metals that follow lanthanum in the periodic table known collectively as lanthanides. The extraction of these substances is highly complex and often goes hand in hand with considerable environmental damage. Ever since China—with its global market share in rare earth minerals of approximately 97 per cent—heavily reduced its exports in 2010, the industrialized nations have been on red alert, feverishly searching for new regions to explore and exploit. However the best outcome with respect to environmental concerns and resource preservation would consist in a drastic improvement in recycling rates; but as things stand, more than half of all electrical waste in Germany is not recycled at all.

When it comes to the future of trade, a new buzz word is doing the rounds with increasing frequency and euphoria: e-commerce. The recently released 2018 World Trade Report from the WTO, for example, bears the enticing title: “The Future of World Trade: How digital technologies are transforming global commerce”. Fears that soon enough, the GAFAs of this world (Google, Amazon, Facebook and Apple) will know everything about everyone and will use big data platforms to transform not just trade but the world more generally have sparked action from civil society right around the world. In that sense, given the otherwise reliably neoliberal orientation of the European Commission the European Data Protection Regulation that came into force on 24 May 2018 is an astounding and thoroughly positive step forward. But that should not make us think for a minute that the struggle over the gathering and retention of data, its unregulated, transnational transfer and the implementation of bans on the transfer of sensitive data (such as obligatory localization for information that is relevant to health care or social security) is anywhere near over. The major internet corporations are already using all the means at their disposal (those of regulatory cooperation) to prevent comprehensive government regulation of the kind that could be reached through measures such as “safeguard clauses” in trade agreements, or through the imposition of taxes on online goods and services.

There are two further aspects that are central for future divisions of labour in the structure of global commerce that can only be mentioned briefly here. The first is the fact that the growing trade in goods and services on the internet has triggered an explosion in the demands being placed on national and regional logistics networks. This is often associated with an “Uber-ization” of the sector, which involves the recruitment of thousands of highly precarious service providers (drivers, delivery and dispatch personnel in gigantic logistics centres) who have to be constantly on call, ready to be dispatched at any moment, without any kind of social safety net, and without whom the extremely tight delivery times—which are a major drawcard of e-commerce—would be impossible to achieve. The second is the growing shift of the control of transnational manufacturing chains towards the locations where the core technological components are designed and developed, and from which production and operations are digitally managed. It is control over the core technology that determines who is a producer and who is a supplier—and therefore, who is subjected to the pricing pressure that producers often exert upon suppliers. So if production and the establishment of production standards for electric motors is relocated to the automotive industry in Asia (since electric-powered vehicles will soon make up the bulk of car sales in Asia, primarily as a result of government regulations), and if the leading software developers for self-driving cars are located primarily in North America, it could well be that the proud automotive manufacturers of Germany soon find themselves downgraded to the role of suppliers.

The mere fact that in a white paper released back in March 2017 the Trade Department of the Federal Ministry for Economic Cooperation and Development attempted to harmonize the EU’s programme for supporting the expansion of trade infrastructure with the UN’s Sustainable Development Goals (SDGs) reveals that environmental concerns will play a growing role in future trade relations. However the efforts of the EU and other WTO members to seal a plurilateral Environmental Goods Agreement (EGA) as an initial regulating framework for the reduction of barriers to trade in environmentally friendly goods have been on ice ever since Donald Trump’s inauguration.

In this area, the aim is to establish a list of goods for which future tariffs are to be significantly reduced and ultimately completely removed. These goods are not, as one might be forgiven for thinking, things such as fresh air, clean water, unspoiled countryside, healthy forests, or flourishing fish populations in our oceans, but rather a variety of products and services with thoroughly dubious environmental effects that, according to the Swiss Federal Statistical Office, “serve to protect the environment or the retention of natural resources”. These could be gas heating systems and building insulation materials as well as bicycles, timber products, chemicals and micro-organisms(!) that might promote the breakdown of plastic refuse, for example, but which themselves—as artificially created life-forms—are by no means unproblematic. One aspect that could be particularly significant for the trade of many developing countries is that the category of “environmental goods” might also cover the production processes of commodities. Under the General Agreement on Tariffs and Trade (GATT), which has been carried over into the framework of the WTO, the manner in which products are manufactured has never played a role in their classification. This means there is no consideration of their environmental impact or whether or not they are made using child labour, for example. Introducing environmental and social standards in relation to the production of goods so as to determine the conditions under which these goods can be traded is tantamount to the introduction of non-tariff barriers to trade. As mentioned in relation to the sanitary and phytosanitary standards (SPS) that the EU sets for the importation of fresh meat, for instance, these can lead to barriers to participation in trade with the EU for countries from the Global South.

In all of these areas—sketched out only briefly here—EU trade policy is highly ambivalent. On the one hand, it serves to protect industries that have a long history in the EU and to secure these industries’ supplies of natural resources, to safeguard profit-making and liberalisation endeavours among emerging players in e-commerce, as well as the attempt to raise environmental standards for products—with the added aim of neutralizing emerging competitors from the BRICS countries. On the other hand, however, these measures and objectives not only serve the profit interests and expansionism of capital, but also seek to respond to the interests of the people of the EU to retain jobs, to have more ecologically friendly products, and to maintain global social standards. This is a major motivator in the EU’s quest to seal as many EU-friendly free trade agreements as possible.

The goal is a worldwide network of free trade agreements; however negotiations have been arduous, and the outcomes have either fallen short of expectations, or have turned out to be pyrrhic victories

The heated discussions that have been going on for some years now around the destructive long-term effects of widening current account imbalances—and trade imbalances in particular—have grown even hotter. One of the main reasons behind this is the increasing polarization within the EU and above all within the Eurozone, in which the so-called southern countries (in particular Greece, Spain, Portugal and Italy, with some also nowadays including France in this group) are increasingly marginalized, while “world export champion” Germany and the Benelux states are extending their developmental lead. Around the world, however, resistance to unconditional free trade is growing. Looking at the whole picture, it is not impossible that the era of a free trade fuelled by neoliberal policies might be drawing to a close, making way for a resurrection of more nation-state-based growth and industrial policies, combined with increased government regulation of international economic relations. Because of this, the EU is rushing to create as much irreversible infrastructure as possible, in as many areas as possible (e.g. in the liberalization of public procurement systems)—with mixed results.

The EU more or less brought one important setback upon themselves. When resistance began to snowball in the lead-up to the signing of CETA (the Comprehensive Economic and Trade Agreement) between the EU and Canada, the European Commission asked the Court of Justice of the European Union (CJEU) for an opinion on whether this agreement had to be submitted to the EU member states for approval. In its official finding the CJEU pointed out that investments always fall within the purview of the member states, meaning that whenever free trade agreements also include investment protection clauses (so-called investor-state dispute settlement agreements, or ISDS), the treaties have to be submitted to the parliaments of the individual member states to be ratified. As a result, these kinds of ISDS clauses will probably disappear from EU free trade agreements in the future in order to avoid delays in their implementation and ratification by the European Parliament. Incidentally, the newly negotiated agreement between Mexico, the US, and Canada (USMCA or NAFTA 2.0) also largely removed ISDS clauses, because in the minds of Trump and his inner circle they generally disadvantage American companies. 

In Asia, in the wake of the de facto failure of the agreement with the ASEAN group, the EU is currently only negotiating bilateral agreements with Vietnam, Indonesia and Singapore. In July 2018, however, the JEFTA agreement with Japan was sealed with the two parties comprising more than 30 percent of the world’s gross domestic product according to EU figures. Although this free trade agreement is less problematic because the two parties have a comparable level of development, it includes a whole series of questionable stipulations that could significantly compromise the freedom of the participating governments to determine factors such as the provision of public services.

Looking towards the ACP states (the former colonies of Belgium, France, Great Britain, and Portugal in Africa, the Caribbean, and the Pacific), following the foundation of the WTO in 1994 and the sealing of the Cotonou Agreement in 2000 the EU attempted to shape economic relations with these countries on a basis that conformed to WTO doctrine. In other words: free trade. Although marathon negotiations extending over more than 15 hours (and involving massive, extortionate pressure from the European Commission) eventually led to the drafting of economic partnership agreements (EPAs), very few of these have actually been implemented to date. The Caribbean EPA (CARICOM) has been in force since 2007 and the SADC-EPA (for Southern Africa) since 2016, albeit in a limited form. However, in the wake of German Chancellor Angela Merkel’s concession in the lead-up to the G20 in July 2017 (and in the face of massive public protests) that the EPAs with Africa were “not right” in their current form and might need to be renegotiated, the European Commission’s eagerness to force the implementation of the EPAs has also waned significantly. Evidently, the EU is now concentrating its energies on the renegotiation of the ACP-EU agreement (the Post-Cotonou Agreement), for which discussions have been on-going since September 2018. 

In Latin America—looking at Mexico and Mercosur in particular—it has been a similar story. The agreement with the Mercosur states (Argentina, Brazil, Uruguay, and Paraguay) has stalled. Agricultural and food trade is of particular importance because the majority of the EU’s agricultural and food imports already come from the region. In this context, the quota demands of the Mercosur countries with regards to meat exports (especially beef) to the EU are particularly important—not just for the producers in the EU, but also in terms of the worrying environmental impact of mass meat production in Latin America. The negotiations for a sweeping agreement with Mexico—ranging from trade in commodities to services and SPS measures—have likewise hit a snag, presumably in part because of the pressure from Donald Trump and the US administration to force the renegotiation of the NAFTA agreement. Whether Mexico’s central objective of diversifying its markets can be reached with a free trade agreement with the EU remains to be seen. The EU’s free trade agreement with Peru and Colombia was provisionally implemented in 2013. Ecuador joined this agreement in November of 2016.

It is impossible to evaluate the EU’s global trade strategy in the different regions of the world without acknowledging that the global implementation of free trade agreements at all costs—even with shrewd negotiating tricks and political and diplomatic manipulation—can only be achieved in ways that are limited in scope and duration. Resistance to these deals is growing visibly, and not just on the left. It is also growing within the US administration, formerly an unshakeable ally. In the escalating trade conflict with the USA, the EU is now trying to salvage the Western alliance and its adherence to the doctrines of free trade with the help of a common enemy: China.

Society, Economics, Trade: What Really Matters from a Left-Wing Perspective

“Free trade is the protectionism of the powerful” (Vandana Shiva). In actual fact, today’s free trade advocates never practiced free trade during their ascent to becoming industrialized nations. And even today they fail to practice it, as is revealed all too clearly with a quick glance at the EU’s cleverly structured tariffs regime—wherever there is a hint of undesired competition, restrictions to market access are immediately tightened.

Critics have argued time and again that the defences of free trade are hypocritical—though without much success. The ubiquitous demands for fair and/or just (or more accurately, more fair and more just) global trade have been similarly unsuccessful. For in the international arena, “just” is generally understood to mean whatever has been (legally) agreed upon. And fair refers merely to the notion that the rules that have been agreed upon apply equally for all—in the eyes of an arbitrator or a court. Governments in the EU and beyond are quite comfortable with these kinds of demands for increased justice and fairness, and are even able to position themselves as “leading the way forward”.

What is required is a fundamental critique of the EU’s trade doctrine that is just as all-encompassing as the doctrine itself and its attempt to permanently engrain a neoliberal model of economics. A critique of this doctrine has to first of all be focused on (re)situating trade in its true position in economic relations based on divisions of labour. Trade is not the vehicle for implementing an economic regime, but rather a means of boosting the efficiency and sufficiency of an economy. Its effects are thus not (solely) aimed at increasing productivity, but also at improving living standards of everyone.

For this reason, the mutual benefit of trading parties should become the criterion by which the scope and nature of mutual trade relations are determined. Yet in some cases, when it comes to promoting causes that are necessary for survival—such as the social and ecological restructuring of society—this must entail the deliberate eschewal of structural advantages which are often only acquired through (colonial) violence in the first place, and then strengthened by “free” competition among unequal parties.

On top of this, trade agreements need to be easier to modify. The virtually irrevocable enshrinement of protected and liberalized economic sectors as is included in the EPAs, for example, ultimately blocks potential sources of development that might result from future technological changes or shifts in the global economy. Instead of keeping space open for change, there is an attempt to perpetuate the one-sided advantages of the status quo. Similar trends can be discerned in e-commerce. Worldwide use of the advantages of e-commerce suggests that sooner or later a global redistribution of production locations needs to occur that is based on technology transfer, rather than trying to deliver millions of tiny packages to customers right around the world in just a few hours by way of sophisticated logistics. The only way for all products to be made available everywhere with unified standards in an environmentally sustainable fashion is if the production locations are moved closer to the consumers.

In closing though, it is worth pointing out that “free trade” as such is a chimera that has never truly existed in a historical sense. Even in the classical justification of free trade theory by David Ricardo, it is connected with underlying conditions that are totally unreal today: balanced trade relationships, no international mobility of capital, and voluntary specialization in comparatively beneficial products. If states are to trade with each other to the mutual benefit of both parties, then they need both space for independent strategies in industrial policy (and this extends to the deliberate sealing-off of sectors of the economy) and they need to have control over the necessary balancing mechanisms in terms of currency policy, in particular in relation to exchange rates.

These insights are not new, but evidently they are difficult to mobilize voters around. That is partly down to the fact that changes in the current international economic order have unavoidable consequences for jobs and industrial structures, and thus for the conditions under which people live. This is also why blanket demands for more justice and fairness are so in vogue right now, both in politics and among the broader populace. What is required, however, is greater readiness to practise solidarity with subjugated communities in both the North and the South. Ultimately, the future of everyone depends on it.

Arndt Hopfmann is the head of trade and economics policy at the Rosa-Luxemburg-Stiftung and works in the RLS office in Brussels. Translated by Joel Scott for Gegensatz Translation Collective.

Literature

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Running commentary on the website of the RLS office in Brussels: www.rosalux.eu/topics/global-power-and-resistance/.