The Covid-19 pandemic has added a massive shock to global markets that were already strained by trade tensions. Going forward, we must contend with a trade landscape where business face significant uncertainty, and governments are looking to minimise the economic fall-out on citizens.
An effective and successful EU trade policy should support trade, investment and jobs creation. It should drive sustainable growth, competitiveness and decent jobs, and support successful agriculture and better consumer choice both abroad and in Europe.
Positive economic development needs a strong combination of different policies. Trade policy is only one part of the solution. It cannot resolve social inequality, but it can support the right kind of development.
This is why rethinking trade matters. This is why the EU must differentiate between temporary and Covid-19-related action from permanent changes before making any final decisions based on the new EU trade policy strategy.
In recent months, after decades of positive development, globalisation took a step back amid growing tensions between superpowers like the US and China, and the increased pressure from more assertive protectionism, regionalism and nationalism.
In this context, global markets risk moving towards trade blocs, creating new challenges for the global economy, for global value chains – and for Europe as well.
Fortunately, the digital and green economy is setting a new tone. Massive stimulus packages are supporting its rapid development in many countries.
However, since the digital and climate-neutral economy does not recognise national borders, there is no time to waste to shape new modern global rules.
An open economy, free trade and fair competition can only work well from a European perspective if they are based on predictable, modern global rules and bilateral trade deals. In a sustainable global economy, we should no longer favour any free riders who benefit from illegal state aid, carbon leakage, corruption, human rights or labour abuses, or other action against international standards.
The EU must work for a rules-based, open economy, free trade and fair competition. It must improve market access and ensure a level playing field from a European perspective. It must open new markets for European goods and services in third countries. But it must also create more of a level playing field for Europeans both in third markets and within the EU’s internal market.
Europeans have better opportunities to trade, invest and join public procurement procedures in third countries, when mutually imported goods and services from third countries respect EU internal market standards.
The EU must now focus on two issues. Firstly, the modernisation of the World Trade Organisation (WTO) and multilateral trade agenda should remain at the core of the EU action since over 60 percent of EU external trade is based on general WTO rules.
The modern WTO agenda will cover issues related to traditional and digital trade as well as sustainability, the climate and labour in order to ensure a level playing field. If the 164 WTO members can agree on a reform of the organisation and its agenda, the whole global economy will benefit.
Secondly, the smart use of bilateral EU free trade agreements (FTAs) can improve market access and ensure a level playing field for EU actors. Modern EU FTAs should always reflect European values and international standards. They must support our interests, from trade to digitalisation and sustainability, so as to change the global business environment, including value chains.
For example, the EU must assess its economic dependence on the rest of the world and how EU trade and industrial policies with EU FTAs can support companies by providing solid and fair business conditions for exports, imports and investments. The diversification of supply chains may be an important step towards strengthening the EU’s resilience.
With 46 FTAs with 78 countries, the EU has the world’s largest network of trade agreements. It is strategically important that the EU continues to strengthen this unique EU FTA network by updating old deals and signing new ones.
We should not be naïve.
Although the EU is now the most important trading partner for over 70 countries around the world, by 2024 about 85 percent of the world’s GDP is expected to be generated outside the EU.
At present, the EU may have the strongest negotiating power, but the situation may change. This is why the EU must smartly use offensive and defensive trade policy in a way that supports European interests in the short and long term.
Last but not least, the EU and its 27 member states must improve stakeholder engagement and cooperation in trade policy from preparation to enforcement, as that will surely help to better anticipate and deal with the upcoming changes on the ground, from geopolitics to human rights, and from the climate to high-tech tools like artificial intelligence.