Europe’s trade genie is out of the bottle
A placard reads ‘Stop CETA — it’s enough’ during an anti-CETA protest in front the Walloon parliament | Bruno Fahy/AFP via Getty Images
Last-minute agonizing over an EU-Canada trade pact after Belgium’s Wallonia region held up its ratification raises the wider question of whether Europe’s common trade policy — one of the historic achievements of decades of integration — is on the rocks.
Canadian Trade Minister Chrystia Freeland was right to ask with whom the EU could reach a trade deal if not with like-minded Canada, a country proud of its socialized medicine and public services that is governed by Justin Trudeau’s center-left, environment-friendly administration.
European Council President Donald Tusk dramatized the stakes when he said at last week’s EU summit that the problem went far beyond the Comprehensive Economic and Trade Agreement (CETA) negotiated with Ottawa.
“If you are not able to convince people that trade agreements are in their interests … we will have no chance to build public support for free trade and I’m afraid that means that CETA could be our last free trade agreement,” Tusk said.
What is clear is that something needs to change to rebuild a broad consensus in support of trade, which has been a driver of the European Union’s prosperity.
The near-fiasco with Canada has undermined the conduct of a common external trade policy, in which the European Commission had extensive powers as sole negotiator on behalf of member countries and the European Parliament was the ratifying authority.
Opening the deal to ratification by 38 national and sub-national parliaments, as European Commission President Jean-Claude Juncker felt obliged to do in July, was an invitation to a hostage-taking, which duly occurred when Wallonia’s Socialist-led regional government raised a raft of objections.
This was part political muscle-flexing within Belgium’s complex federal system, part survival tactics by a Socialist party facing a growing challenge from the anti-globalization hard-left, part classical protection of agricultural interests, and part principled concern about the risk of tilting the balance of regulatory power from states to corporations.
“We should have written from the start that while regulatory convergence makes sense, we will guarantee that your level of precaution will be preserved, and standards will only go up, not down, in any negotiations,” — Pascal Lamy, former WTO head
Even if Wallonia is ultimately bought off with money, assuaged by clarifying declarations or smothered in love by Europe’s Socialist grandees, the genie is out of the bottle. Trade is in trouble without a major revamp of the way the EU handles negotiations.
Several longer-term trends brought us to this point and cloud the way ahead:
— A broad Left-Right European consensus in favor of trade liberalization embracing a coalition from the social democratic Left to the conservative Right with the main trade unions and business groups is crumbling at both ends of the political spectrum, under pressure from anti-globalization activists, and nationalists claiming to represent the losers of globalization. Europeans are not alone in fearing more open trade, as the protectionist rhetoric of U.S. Republican candidate Donald Trump and the trade caution of Democratic candidate Hillary Clinton illustrate.
— The rules-based multilateral commercial system embodied by the World Trade Organization is paralyzed by the opposition of emerging economies such as China and India to the Western, liberal rules of the game. That leaves bilateral or regional trade deals as a less idealistic, second-best way forward.
— International organizations such as the International Monetary Fund and the Organization for Economic Cooperation and Development are alarmed at a slowing in world trade growth, although some economists say their figures fail to reflect a surge in the global digital economy. OECD chief economist Catherine L. Mann said last month: “While weak demand is surely playing a role in the trade slowdown, a lack of political support for trade policies whose benefits could be widely shared is of deep concern.”
— Modern trade deals among advanced economies such as the EU and Canada or the United States go beyond the traditional agenda of tariffs, quotas and market access to cover regulatory, environmental, social, health and technological issues that reside beyond the exclusive legal competence of the European Commission. That brings national ratification into play, with watchdogs like Germany’s constitutional court vigilantly asserting national veto rights.
— The U.K.’s Brexit referendum amplified a long-term challenge to the Commission’s authority by member countries seeking to take back power from Brussels or hand it to supposedly more independent and less politically influenceable bodies. CETA was a collateral victim of the backlash against Brussels in the aftermath of the June 23 British vote.
— Britain and like-minded free-trading states continue to block efforts by industry, trade unions and most member governments to toughen the EU’s anti-dumping duties and give Europe trade defenses equivalent to those that the United States uses against predatory pricing by competitors like China in fields such as steel or solar panels. This makes the EU look like a soft touch in the eyes of its critics.
— Opposition to freer trade has spread from traditional pressure to protect domestic producers to consumer and lifestyle issues such as “Frankenstein foods,” health and safety concerns, environmental and labor standards, data privacy and the power of corporations to use arbitration panels to defeat national regulation.
These trends need not spell an end to trade deals, but they will require the EU to change its secretive, top-down “we-know-what’s-best-for-you” approach to negotiating agreements.
Pascal Lamy, who was EU trade commissioner from 1999-2004 before heading the WTO from 2005-2013, argues that governments and the EU need to pay more attention to the losers of globalization and engage more with consumer and environmental groups before embarking on ambitious negotiations such as the stalled U.S.-EU Transatlantic Trade and Investment Partnership.
“The whole consumer constituency is now agitated,” Lamy told POLITICO in a telephone interview. Activists in traditionally pro-trade countries such as Germany, Austria and Belgium had created a formidable coalition spanning hardline anti-globalization groups and consumers afraid that governments are sacrificing precaution on the altar of commerce, he said.
“We should have written from the start that while regulatory convergence makes sense, we will guarantee that your level of precaution will be preserved, and standards will only go up, not down, in any negotiations,” said the French Socialist, who set out his philosophy after leaving the WTO in a book entitled “The Geneva Consensus.”
“There is a lot of rhetoric but no serious protectionist development in the short term” — Pascal Lamy
Lamy says the OECD and the IMF are wrong to cry wolf about a supposed downturn in trade. “There is a lot of rhetoric but no serious protectionist development in the short term,” he said. On the contrary, globalization was accelerating through digitalisation, creating more disruption that made many citizens more wary of trade deals.
Given the rising public concern, “we need more transparency, sensitivity, openness and time” to build public support for trade, Lamy said, arguing that opposition should not be caricatured as merely “Trotskyists or old-fashioned protectionists.”
“It’s a huge political mistake to cry wolf now. We just have to work harder to gain public legitimization for trade in the growing pressure,” he said. “Trade opening works because it hurts, and it hurts because it works.”
Paul Taylor writes POLITICO‘s Europe at Large column