The EU Stuck Between Trade Openness and Strategic Autonomy

The European Union’s new trade policy motto of Open Strategic Autonomy is defined as ‘EU’s ability to make its own choices and shape the world around it through leadership and engagement, reflecting its strategic interests and values’. A vague definition, which suits the various sensitivities across EU member states. Yet, deeds not words are what will define EU’s Open Strategic Autonomy.

The EU policymaking machine has been busy churning regulations in pursuit of this vision. Examples of these policies are the anti-coercion instrument, the international procurement initiative, the Carbon Border Adjustment Mechanism (CBAM), the foreign subsidy regulation, the corporate sustainability due diligence, the enforcement regulation for trade disputes and the deforestation initiative.

Risk of protectionism around the corner?

These regulations are at different stages of development and there are merits to each of them, although together they will make the EU more inward-looking. Many of these instruments have been created as retaliatory measures against coercion and unfair trade practices by partner countries. Some of these are presented as a deterrent, while others will become a regular requirement when trading with the EU. Access to the common market is the main policy lever, as the EU aims at regulating non-EU companies unilaterally.

Along with the EU traditional market access agenda, these new policies will shape the future of the European international trade policy. The EU has so far been a champion of trade liberalisation, signing bilateral trade agreements with multiple countries. The EU concluded 48 bilateral free trade agreements (FTAs), dwarfing the number of agreements signed by the US (14). In the last decade, the EU ratified trade agreements with sizable economies such as Japan and Canada. As to the pipeline, the EU has agreed (though not yet ratified) an Association Agreement –including a trade/political agreement – with Mercosur countries. Moreover, EU is currently updating its trade agreements with Mexico and Chile, while negotiating other ones with New Zealand and Australia.

So far, EU’s FTAs have also included multiple, non-trade objectives. Having grown in relevance over the years, these have ended up stealing the thunder from trade liberalisation.

However, the upcoming enactment of several specific trade-related regulations dealing with human rights, the environment and climate change, may take some pressure off from the EU’s market access agenda. As the EU is planning to unilaterally legislate on environmental and human right standards, to be fulfilled by foreign suppliers, it may be argued that FTAs could finally go back to focus on market access, rather than on pursuing other goals. If such hypothesis is true, once these autonomous measures (gathered under the Open Strategic Autonomy) become part of the Union’s acquis, we will expect the EU to take a much more active approach towards the ratification and conclusion of FTAs.

The EU adopts a unilateral approach

The above view, though, could be dismissed as Eurocentric wishful thinking. At the end of the day, the EU is unilaterally imposing a cost on other countries. Policies imply trade-offs and the Open Strategic Autonomy is no exception: going unilateral reduces the scope for going bilateral.

Autonomous measures are ‘one-size-fit-all’, as they need to be applied to all countries equally to comply with the multilateral trading rule of non-discrimination. This is in stark contrast with the philosophy of bilateral (and multilateral) trade deals, where countries negotiate until they reach an agreement on rules to govern their international exchanges – rules that both parties use to advance their economic relation through regulatory dialogue. As EU’s autonomous measures are part of its own regulatory acquis, they will be approved without any negotiation with the trading partners. It is true that some of these measures were built upon processes of exchange with foreign actors, to ensure that the new regulatory requirements would be met. However, this is very different from a conversation on market access rules negotiated and agreed among peers. For instance, the proposal for a regulation on deforestation-free products sets mandatory due diligence rules for companies selling into the EU market, without taking into account exporters’ national legislation, or their efforts to fight deforestation.

EU’s bilateral trade negotiations will be harder to conclude if the EU unilaterally reduces what it can offer in return for concessions from its trading partners. However, some may argue that, by reducing its own policy scope, the EU could gain additional leverage in trade negotiations. For instance, the EU used its own data protection rules (GDPR) during its negotiations with Canada and Japan to nudge these two countries towards its favourite solution on data privacy. Nonetheless, the same data protection rules are currently a hindrance to advance trade liberalisation with other trading partners, such as the US.

Open Strategic Autonomy as a double-edge sword?

Since many of the upcoming regulations composing the Open Strategic Autonomy represent a direct cost to EU’s trading partners, it is difficult to see how such regulations could encourage anybody to start trading in the common market. If defensive trade measures hindered EU’s market access policies, signing and ratifying trade agreements would be a problem. Such a scenario may play against EU’s efforts to cut trade dependencies – by diversifying its sources of imports – and to access additional key raw materials, which are badly needed for its digital and energy transitions.

These choices may bring the Union’s trade policy onto a new, self-imposed narrowed path through an unknown territory, thus the EU should trot carefully. Defensive and offensive trade policies are not separate tools. Any trade policy implemented to furnish the Open Strategic Autonomy will have an impact on the EU market access agenda as well. The EU has decided to raise new fences around the continent, expanding its defensive trade policies. Yet, with 85% of economic growth expected to come from outside and the urgency to reduce its strategic dependencies, the EU must not forget to put more resources and political capital to further its trade liberalisation agenda.

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This commentary piece was originally published by ISPI and can be found here. It is part of a dossier of short pieces on trade and globalisation.