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EU sets out a more sustainable and assertive approach to trade

Author: ICAEW Insights

Published: 11 Mar 2021

11 March 2021: A strategy recently adopted by the European Commission paves the way towards a greener trade policy, accompanied by a push for reform of global trading rules. It makes clear the EU’s determination to take a tougher approach towards enforcing trade agreements and dealing with unfair trade practices.

Following a broad consultation process, the new EU new trade strategy outlines a series of headline actions centred around the concept of ‘open strategic autonomy.’ According to the Commission, open and rules-based trade can help underpin the post-pandemic recovery but must also enable the EU’s green and digital transition. 

The outlook for trade remains mixed. World Trade Organisation figures suggest that while growth in trade in 2021 will rebound after a 9% fall last year, it will likely remain below pre-crisis trends. In 2019, the EU exported over €3.1tn in goods and services and imported €2.8tn, with two-way trade accounting for 43% of the EU’s GDP. 

Supporting sustainability

Sustainability is an explicit central pillar of the EU’s trade policy, with the Paris Agreement to become an essential element of all future EU trade deals. For G20 countries, commitment to climate-neutrality will be sought as a basis for concluding trade negotiations. The EU will push the WTO to promote a specific trade and climate initiative. 

The Commission will evaluate all sustainable development chapters in existing trade agreements to ensure proper implementation and enforcement, while leveraging such agreements to engage on all aspects of the European Green Deal, including biodiversity, food production, pollution and the circular economy. Consideration will also be given to enhancing understanding of the gender equality implications of trade policy. 

Central to such efforts will be concurrent work on a proposal for an EU carbon border adjustment mechanism to avoid carbon leakage, as well as forthcoming legislative proposals on sustainable corporate governance, including mandatory due diligence on environmental, human and labour rights. In the interim, until binding legislation is adopted more guidance will be provided to assist EU businesses to act in line with international due diligence guidelines and principles. 

The digital drive

As the world’s largest trader of services, the EU wants to update the existing framework of international rules to better address the implications of new technologies, including AI, and to deal with issues relating to cross-border data transfer and the prohibition of data localisation requirements. This is seen as going hand-in-hand with EU regulatory approaches to digital policy, particularly data privacy. The Commission wants to see stronger frameworks for cooperation on trade-related digital issues with like-minded partners. 

Reinforcing global trade

The new strategy sets out an agenda for WTO reform across all its functions. Key measures include efforts to mainstream sustainability, a greater focus on sustainable development and stronger rules against distortions of competition due to state intervention. The EU wants to make it easier for large subgroups of members to come together and negotiate agreements on important issues. 

Attention is also centred on the need to find a lasting solution to the impasse surrounding the WTO’s system of binding dispute settlement. Greater transparency over countries’ trade practices and enhancing the WTO’s committee work are also on the Commission’s radar. 

The Commission also proposes a more strategic approach to regulatory cooperation, making no bones about the fact that the ability to influence the development of global regulations and standards is an important competitive advantage. With the emergence of new regulatory powers and rapid technological development, a more proactive approach to promoting EU regulatory approaches in strategic competitive areas is envisaged. Such steps include strengthening the EU-US relationship and using outlets such as the EU-US Trade and Technology Council.

The EU also wants to deepen its partnerships with neighbouring countries and Africa, encouraging better integration into supply chains and fostering more investment. Efforts will also be directed at trying to create the right conditions to conclude and ratify pending agreements in Central and Latin America as well as the Asia Pacific. 

Acting against unfair trade

Building on recent measures, the Commission aims to continue to further strengthen its ability to autonomously enforce EU rights, confront new challenges and defend EU companies – particularly SMEs – and citizens from unfair trade practices both internally and externally. 

Measures to ensure a more level playing field for EU businesses include making full use of the Chief Trade Enforcement Officer’s role as well as existing trade defence instruments. EU countries are called to fully set up and enforce the FDI Screening Regulation to address cases where acquisition or control of a specific business, infrastructure or technology would create security or public order risks in the EU. A similar focus is on the effective implementation of the updated Export Control Regulation. Legislative proposals on a new anti-coercion instrument will also follow. 

Options for a potential common strategy for export credits for EU businesses will be explored further by the Commission. Such a strategy could improve coordination between different EU financing instruments to better support policy priorities, including tackling climate change. 

Trade Policy Review - An Open, Sustainable and Assertive Trade Policy