Brussels redoubles its commitment to trade agreements pressured by the war in Ukraine and the strength of China

The President of the European Commission, Ursula von der Leyen, closed July in Manila with the announcement that the EU and the Philippines are going to resume negotiations to reach a free trade agreement after more than six years of standstill. Just a couple of weeks before, the German had shown the renewed commitment of most European countries to ratify once and for all the trade pact with Mercosur (Argentina, Brazil, Paraguay and Uruguay). Days before, Brussels was left with honey on its lips: it hoped to close a similar agreement with Australia, but it could not be. There will be a new opportunity in August or September. Yes, the negotiations with New Zealand were successful: the text was presented on July 9.

This carousel of business appointments in just three weeks makes Brussels’ renewed commitment to trade agreements very clear, one of the historical hallmarks of the European Union, with 41 agreements signed with 71 countries. “While one of the EU’s main trading partners, the US, has completely halted trade deal negotiations, the EU has very recently signed deals with New Zealand and Kenya and is very close to signing deals with Chile and Mexico,” analyzes David Kleiman, from the Bruegel Institute, the largest Brussels think tank.

In this general scenario, Brussels considers, explains a spokeswoman for Trade of the European Commission, that before the end of the year the negotiations with Australia and Mercosur have been completed. Community officials also trust that the agreement reached with Chile last December will be signed throughout this year; and that shortly after the same thing happens with that of New Zealand at the beginning of 2024. At the same time, the open negotiations (Indonesia and India) must continue and those of the Philippines and Malaysia must be launched.

The ultimate goal is to strengthen “economic security, among other things, promoting and finalizing trade agreements,” explains the European Economic Security Strategy presented in June. It also announces that it seeks “to minimize the risks caused by certain economic flows in a context of increasing geopolitical tensions and accelerating technological changes.”

Diversify supply chains

With a clearer and less diplomatic language, it is developed by Colette van der Ven, lawyer and founder of the consultancy Tulip, specialized in sustainable trade. “The interest of the EU is to diversify supply chains and make them more resilient. The urgency of this has been increased by the Russian invasion of the Ukraine. Now the EU’s dependence on China is worrying, particularly with regard to the raw materials necessary for the ecological and digital transitions”, says this lawyer. “Consequently, the EU is trying to enter into free trade agreements with most of the Indo-Pacific countries to diversify their supply chains and counter China’s influence in the region,” she concludes.

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What each of these agreements contributes is developed by Van der Ven by email. For example, he points out that Australia is the world’s leading lithium producer, more than China and Chile combined, and that most of this mineral goes to China for processing, in which the Asian giant is the leader. If he talks about the Philippines, he points out that the EU will seek to minimize its risk in supply chains and improve access to raw materials once human rights concerns that existed during Rodrigo Duterte’s presidency have subsided.

For the socialist MEP Inmaculada Rodríguez-Piñero, commercial spokesperson for her group in Parliament, the geostrategic explanation is important, without neglecting that of internal politics: “(Until recently) the letter of introduction on this matter from this Commission for next year’s elections was very poor”. This critical analysis was also delivered a few months ago by a senior leader of the European People’s Party in an off-the-record meeting with journalists. The position of countries such as France, Belgium or Austria has influenced these difficulties in closing agreements.

Rodríguez-Piñero elaborates on the direction in which official documents and statements by European officials point: “This is a time when Europe needs to have more allies.” And, furthermore, he adds that the times in commercial agreements are always very slow, even after the pacts have been closed (translations, legal reviews…). And that is why this socialist MEP demands more speed in her negotiation.

Kleiman, from the Bruegel institute, does not believe that the process of negotiating trade agreements is slowing down: “Viewed in this context, the EU negotiations and the ratification of finalized agreements create an impression of remarkable continuity in policy making. foreign economy of the EU in the last 15 years”, he defends after reviewing the dates of various treaties reached between 2016 and 2019.

The promotion of bilateral agreements is also related to the fact that the reform of the World Trade Organization (WTO), which has been stuck for years, has not fully come together. The United States does not show great interest in it despite the gap of that international organization. Neither the Administration of the Democrat Joe Biden nor that of the Republican Donald Trump appointed judges to unblock the appeals body of the WTO that resolves disputes between its 164 partners, which has caused the organization to be inoperative. For this reason, Federico Steinberg, from the Elcano Royal Institute, the largest Spanish study center, points out the existence of a European push for the bilateral route. This is explained by the little hope in the development of the multilateral.

Another element that Steinberg adds is more connected to a classic argument: “The economies that grow the most and are going to grow the most are outside the EU.” And trading with them is a way to take advantage of their drive. Although this professor of Economics also clarifies that the European approach is now “less naive than before”. It says so due to the approval of the border carbon adjustment mechanism, which imposes a tax on products sold in the EU manufactured outside with less demanding emission standards, the response instrument to coercive economic actions by third countries or the directive against the entry of goods from deforested areas. The three trade tools have recently been approved by the Twenty-seven and what are seen from Brussels as measures that help guarantee reciprocity are seen from outside the EU as protectionist policies.

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