October 24, 2019

The EU as a Trade Superpower: Distinguish Protectionism from Protection

Seminar on EU trade: defending free trade in an increasingly protectionist world
Seminar on EU trade: defending free trade in an increasingly protectionist world

Protectionism is not in the EU’s best interest. It is however also important to distinguish protectionism from protection. Defending the rights and interests of the EU by getting tougher with trading partners in a trading environment whose stability and predictability is now challenged does not equate to abandoning free trade for protectionism.

This was one of chief messages in a seminar on EU trade on 24 October 2019. To find out how the EU as a trade superpower can defend free trade in an increasingly protectionist world, the Estonian Foreign Policy Institute (EFPI) at ICDS welcomed Piotr Rydzkowski (European Commission), Jüri Seilenthal (Estonian Ministry of Foreign Affairs), and Pawel Zerka (European Council on Foreign Relations) to provide their expertise and thoughts. The event was moderated by Kristi Raik, Director of the EFPI at ICDS.

EU unity absolutely critical

Piotr Rydzkowski, Deputy Head of Unit, Trade Strategy at European Commission, began with a quote. “The trade imbalance between the United States and China continues to soar. Calls for a trade deal from the corporate world are getting louder, while the public grows worried about foreign competition. Chinese officials complain about Western meddling, and ordinary American businesses are caught in the middle”. Rydzkowski revealed that the quote, which at first glance appears to report on current global trends, actually was published in 1841 just after John Tyler assumed the US presidency.

Rydzkowski noted that the trading environment which Europe occupies is now facing broad challenges ranging from digitization and emerging technologies to climate change, demographic challenges (specifically ageing populations), and the increasing multipolarity of the international system as countries like China rise on the international stage. Further, he explained Europe also faces trade-specific challenges, including the needs to preserve fair and open competition, maintain popular support for global trade, and ensure stability and predictability in the face of hostile trade policies because “trade can only flourish in a predictable environment.”

To address these challenges, Rydzkowski identified four priorities:

  1. The importance of preserving the rule-based trading system and the WTO.
  2. The creation of opportunities for the EU by opening markets. However, Rydzkowski noted that negotiating alone will be insufficient, as effective enforcement and implementation of rules are just as important, likening the relationship to a three-legged stool.
  3. The international community should ensure trading markets are kept fair and open.
  4. Trading arrangements could contribute to advancing climate and sustainability issues.

Rydzkowski emphasized that EU unity is absolutely critical to maintain and closed with a tweet from Professor Henrik Enderlein from the Hertie School reflecting on Politburo Member Yang Jiechi’s speech at the 2019 Munich Security Conference, “Europe advocates for multilateralism and believes in it, the US advocates for unilateralism and believes in it, and China advocates for multilateralism but doesn’t believe in it at all.”

Has the priest lost the faith?

Jüri Seilenthal, Director General of the External Economic and Development Cooperation Department of the Estonian Ministry of Foreign Affairs, noted that today many misconceptions about the current international trade world order exist such as US President Donald Trump’s assertion that trade wars are easy to win (when the US raises tariffs on China, China lowers tariffs with others like the EU). The US’s apparent rejection of its previously established stance of free trade and Trump’s turn to more protectionist trade policy with the EU (a trade policy whose scale is dwarfed by Trump’s trade war with China) raises the question “has the priest lost the faith”? After all, the US wins more trade disputes than it loses and built the current international trading system. Therefore, it may appear illogical to see current system as disadvantageous to the US.

While Seilenthal said he remains optimistic about EU prospects, it is entirely possible that in the future Trump either wins re-election, that Trump’s replacement is equally protectionist, or that China continues with specific plans that would be anti-free trade.

Radical changes

Pawel Zerka, Policy fellow and programme coordinator of the European Power programme at the European Council on Foreign Relations, addressed the radical changes that are upending our conventional understandings of trade.

Zerka identified three visible transformations:

  1. trade increasingly associated with foreign policy and security,
  2. trade used to advance progressive agendas, and
  3. the increasing democratization of trade.

First Zerka provided examples where trade policies intersecting with security goals. Such examples include the US instrumentalizing trade through secondary sanctions in an effort to influence the EU’s relationship with Iran in light of the US withdrawal from the JCPOA and whether Chinese investment in Hungary is only about economics or if it will provoke security concerns.

In light of these developments, Zerka noted some of the proposed actions Europe could take such as retaliatory measures to sanctions, better state control (the European Council could block foreign direct investment in member states if it weakens or threatens security), and addressing Europe’s dependency on US dollar vulnerability. He also highlighted the ECFR “Strategic sovereignty” report and Ursula von der Leyen letter to Phil Hogan for further reading.

Secondly, Zerka noted that trade instruments can be used to promote labour and environmental standards and mentioned proposals made by Ursula von der Leyen for the creation of a Chief Trade Enforcement Officer and a carbon adjustment tax to account for creative carbon accounting.

Thirdly, Zerka touched on the democratization of trade. Zerka noted that trade is perceived in Brussels as critical to EU legitimacy and how the backlash against trade affects the appearance of the European government. (For example, a majority of European citizens polled said their national governments would do a better job with trade)

To address widespread disillusionment with free trade, Zerka noted that Europe needs to regain public trust in trade if it hopes to address ambitious goals like labour and climate change. “Trade is not a means to itself,” he later added.

Zerka pointed out a few risks and obstacles including overpromising and “window-dressing” by the EU commission, resistance from some European capitals (such as those with a strong trans-Atlantic identity), overlooking the details or changes made to them, and uncertainty over the extent Europe is willing to accept inconvenient truths and trade-offs. Zerka closed by saying that Europe needs to do its internal homework – like Eurozone Reform – to achieve its external goals.

Series of seminars “Engaging with Europe of Tomorrow”

The EFPI at ICDS together with the Friedrich Ebert Stiftung are exploring with experts from Estonia and abroad at a series of seminars titled “Engaging with Europe of Tomorrow” the rising topics in the EU during this autumn.

The first seminar on 25 September was about safeguarding the rule of law. At the second seminar on 24 October the focus was on the EU trade policy. The topic of the third and final seminar on 26 November is crucial, but also dividing – climate policy.


Filed under: Events