2020 Trade Agenda
By Cesar Guerra, Director of Trade Policy at Euraffex
This year is full of challenges in the trade agenda. Some have been predicting the end of globalization era, as several very telling facts have proved that important changes are required in order to continue with a “free trade” policy in certain regions of the world.
Let’s start with the US. Presidential elections will take place early November this year. President Trump has launched a unique practice for engaging in trade negotiations. First, by increasing tariffs on steel and aluminum, and then on a wide range of products targeting China. By taking these decisions, the threat to impose tariffs on vehicles to affect important trading partners was credible. It doesn’t matter if national security concerns by the US was the right argument to justify the measure at the WTO, no country was ready to remain silent on the US moving forward with this idea.
Instead, Japan and the US have announced an agreement that grants concessions to US farmers, that are basically those the US had negotiated with Japan in the TPP, for example on beef and pork. Japan’s final objective was reached by securing being classified in a different basket in case the US decides to impose measures on vehicles.
In the case of Mexico, the intimidation not only came from the announcement on possible US measures to affect sales of vehicles in its most important market, but the risk of having the US quitting from NAFTA was even more concerning. In simple terms, in exchange of accepting a terrible rule of origin on vehicles for non-American auto makers established in Mexico and stricter labor commitments, the US accepted to continue having a free trade agreement and to grant preferential treatment in case there is a decision to impose measures on vehicles.
The US and China have announced an agreement on the first phase of their settlement. Far away from being a free trade agreement, the most important element coming out from this arrangement is not the partial reduction on tariffs, but that both countries are able of finding common ground and it certainly calmed down the markets. Being an election year, President Trump will use this deal for good or bad reasons.
With a new Commission in charge, the EU will face very interesting tests this year. As the US reached agreements with almost every important trading partner, the EU remains as the only pending negotiation to “rebalance trade”. A negotiation like this for the EU entails not only an internal major challenge of getting every Member State with different concerns on board with a common position, but also that it is a model of trade agreement that breaks with core principles the EU has been enacting in other trade negotiations.
For example, the US is not part of the Paris Agreement and it is difficult to think about President Trump joining again just to please EU’s Green Deal trade agenda; as government procurement is not part of the negotiations, the EU is de facto abandoning requests at sub-federal level; and regardless of whether agriculture is part of the discussion on market access, the EU is giving up on Geographical Indications (GIs) with the US. In other words, if the EU and the US engage in a minimalistic approach to save vehicles from US measures, the EU is taking a very pragmatic approach given the opponent but surrendering on crucial traditional issues that have patented in other processes.
On the other hand, FTAs that have the EU blueprint are not clear for ratification in the European Parliament (EP), but as well, approval by Member States looks difficult. EP’s International Trade Committee (INTA) vote on Vietnam’s trade and investment agreements with the EU in February will show the appetite of the new Parliament for free trade pacts. Moreover, the longs standing trade agreement with Mercosur has received a lukewarm welcome in some Members States, to say the least. A rejection of any of these agreements that contain special treatment for EU’s sensitivities and commitments on issues that the US is not even ready to discuss – environment, GIs – will pose a dilemma for the EU on how to approach future negotiations.
With all that in mind, we have not even mentioned what is perhaps the most difficult challenge, the WTO reform. Serious engagement by all WTO members is urgent to recover the well-functioning of the only organization that balances out and enforces rights and commitments on trade for 164 countries. A weak WTO only favors those that attempt to bully others, looking for more leverage and reelection.
The year has only just begun, but the 2020 trade agenda is filled up already.