EU emerging as new champion of free trade

JON VAN HOUSEN and MARIELLA RADAELLI

Feeling fit after years in the economic doldrums, the European Union has become the Western world’s champion of free trade. As the U.S. continues to scrap international agreements, the world’s largest trading bloc is now holding talks with an expanded range of countries to ink bilateral deals that could remove tariffs and further expand exports.

In a landmark “State of the Union” speech last month, EU Commission President Jean-Claude Juncker called for more bilateral trade agreements. Negotiations are now underway with Australia, Argentina, New Zealand and others while deals are mostly complete or renegotiated with Japan and Canada. The efforts come as U.S. President Donald Trump questions the future of the 23-year-old NAFTA agreement that lifted trade barriers between the U.S., Canada and Mexico.
EU new free trade
Japanese Prime Minister Shinzo Abe, EU Council President Donald Tusk and EU Commission President Jean-Claude Juncker before a meeting on free trade in Brussels.

Trade has become a top priority for Juncker, a native of Luxembourg who views international commerce as an important engine of growth. But in tradition-bound Europe, many residents are wary of imports made under different regulatory regimes or that undercut their own foods and goods.

To a farmer in France, Asia is indeed a world away, a region stereotyped as teeming with masses producing hastily made goods, but Junker and other leaders know the Orient fuels the majority of global growth. EU executives are holding up a 2011 deal with South Korea as an example.

“The numbers speak for themselves,” says EU Commissioner for Trade Cecilia Malmström. “The evidence of our agreement with Korea should help convince the unconvinced that Europe benefits greatly from more free trade. When our companies can export more easily, or when money saved from scrapped customs duties can be reinvested in company development, it spurs European growth. It safeguards and creates jobs. This gives us many reasons to roll up our sleeves and conclude all other pending EU trade deals that are on the table.”

She says EU exports to South Korea increased by 55 percent since the trade deal was signed and European companies have saved 2.8 billion euros in duties. Bilateral trade in goods between the EU and South Korea has since grown every year to reach a record level of more than 90 billion euros in 2015. The previous EU trade deficit with South Korea has been turned into a surplus.

Yet Carlo Petrini, founder of the Slow Food movement that promotes local agricultural production, says “international free trade agreements do not work and are not useful if they do not help increase production standards and protect the interests of small producers”.

“Signing free trade agreements means giving up the regulatory and addressing functions that must be the prerogative of governments and private decision-makers as well,” says Petrini.

But as always in vocal Europe, there are a range of voices. John Clarke, director of International Policies at the European Commission on Agriculture, says he hopes all EU free trade agreements now under discussion will come into full force by 2030. Many focus on promoting European agri-foods through high-level missions aimed at opening up emerging markets.

The EU has now concluded 30 agreements with other countries, while 43 are provisionally in force and 20 are under negotiation. The food sector is one of the most important: in 2016, the EU exported food products valued at 125 billion euros to become the second largest exporter following the U.S.

Junker says now is the time for newly robust Europe to act. “Europe has always been an attractive economic space, but since last year, I see that our partners all over the world are knocking at our door in order to sign trade agreements with us,” he said in his address. He wants to ink a number of agreements by late 2019 when his mandate as president ends.

Yet he stresses that EU members are “not naive supporters of free exchange”.

“Europe has always got to defend its strategic interests,” says Juncker. “Europe is open to trade, yes, but there has to be reciprocity.”

Another part of his vision on trade is a framework to screen foreign investment to shield strategic or culturally valuable companies from foreign acquisition. The call comes after Chinese purchase of iconic brands such as Volvo, Pirelli and Syngenta as well as a range of football clubs including Inter Milan and AC Milan.

Globalization might be forcing an international outlook by leaders, but on the ground in Europe, the view is often very local. Hundreds of cheeses alone have protected geographic status and each producer holds his process sacred. In an ancient land, something made in the next province might be resisted, let alone one made on the shores of the South China Sea.

Despite the challenges, the EU may be pulled into the vacuum left by U.S. President Trump’s “America First” policies. Following WWII, the U.S. assumed a much more an international role as the only robust Western democracy left standing.

In a less dramatic way, it could be similar for Europe. Already changing as a result of the flood of refugees that arrived over the past decade, traditional Europe seems to be propelled by forces that will make it an even greater global crossroads whether it likes it or not.

In a less dramatic way, it could be similar for Europe. Already changing as a result of the flood of refugees that arrived over the past decade, traditional Europe seems to be propelled by forces that will make it an even greater global crossroads whether it likes it or not.

A version of this story appeared in the Khaleej Times of Dubai.