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Trade Free-For-All

The European Union is swooping in to claim the free trade spoils abandoned by London and Washington.
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In his “State of the European Union” address, EU Commission President Jean-Claude Juncker outlined an expedited free trade rush that would fill a gap left by the United States and possibly bypass troublesome national parliaments. Is it feasible?

© REUTERS/Christian Hartmann

“Europe has always been an attractive economic space,” Jean-Claude Juncker, the president of the European Commission, told the European Parliament in his annual State of the European Union speech on Wednesday. “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.”

It was an unambiguous reference to the fact that last year the world’s two greatest champions of free trade, the United States and United Kingdom, turned inward.

US President Donald Trump was elected in November on a protectionist, anti-globalization platform. He has already torn up an almost-completed Asian trade pact – the Trans-Pacific Partnership, or TPP – frozen developments on the Transatlantic Trade and Investment Partnership (TTIP) with Europe, and is in the process of scrapping the North American Free Trade Agreement (NAFTA).

Meanwhile, the UK’s Brexit vote is tearing Britain apart from its biggest trading partner while simultaneously making it nearly impossible to strike new free trade deals around the world. Though British Prime Minister Theresa May has insisted that Brexit will mean more free trade with the UK’s former colonial possessions, the reality is that London is forbidden from even starting such negotiations until it leaves the EU customs union. That will be 2019 at the earliest.

Perhaps then it is no coincidence that in his speech Juncker said he wants to strike a host of new EU free trade deals by 2019. He wants to reach deals with Australia and New Zealand, the UK’s top free trade targets, by that year – and by 2018, Juncker wants the EU to have agreed on new trade deals with the Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay) and Mexico. This would come on top of the free trade deals agreed with Canada and Japan this year.

Popular Resistance

It is clear why the EU27 would want to wrap up these trade deals so rapidly – the bloc can take advantage of the current weakness of London and Washington while it lasts. By 2020, the Anglo-American world may have recovered with a new election in the US and the possible finalization of Brexit. The question remains, though: as much as Juncker might want these deals to close quickly, can he get them?

Just one year ago, people were declaring free trade in Europe dead. The free trade deal with Canada was nearly killed by the renegade Belgian province of Wallonia, whose far-left government sympathized with popular resistance across Europe. The resistance was largely based on opposition to the “investor state dispute resolution mechanism” contained in the pact, which opponents said made governments subservient to corporations.

Exactly one year ago, Canadian Prime Minister Justin Trudeau had to cancel a visit to Brussels at the last minute. He was meant to attend a ceremonial signing, but Wallonia was still blocking the pact. Trudeau lashed out. “If, in a week or two, we see that Europe is unable to sign a progressive trade agreement with a country like Canada, well then with whom will Europe do business in the years to come?” he asked. “In this post-Brexit situation where there are a great many questions about Europe’s usefulness, if Europe cannot manage to sign this agreement, then that sends a very clear message, not just to Europe but to the whole world, that Europe is choosing a path that is not productive for its citizens or the world. And that would be a shame.”

In the end, Wallonia was convinced to relent – largely because the Belgian government promised goodies which had nothing to do with the trade agreement. But the near-death experience prompted some to call the deal the last free trade deal the EU would ever sign. If an agreement with popular Canada was provoking resistance among the European public, surely free trade deals with the likes of the US, Japan, or Australia would never fly.

The election of Donald Trump has changed that thinking, but the fact remains that wariness over free trade still remains among the European public.

And so Juncker had to calm those nerves with his speech. “We are not naïve free traders,” he insisted. “Europe must always defend its strategic interests. This is why today we are proposing a new EU framework for investment screening. If a foreign, state-owned company wants to purchase a European harbor, part of our energy infrastructure or a defense technology firm, this should only happen in transparency, with scrutiny and debate.”

London and Washington would call this protectionism. But this isn’t London and Washington’s world any more. Paris, Berlin, and Rome all welcomed the proposal to give governments a tool to intervene.

“I’ve heard your concerns,” Juncker seemed to be saying, “But I don’t think you want to abandon free trade entirely. So we will do it in a new, more European way. We will not mimic the Anglo-American model of free trade.”

The Wallonia Bypass

But the Commission still needs to find a way to solve the “Wallonia problem,” which spooked potential trade partners, especially Australia. It seemed outlandish that a tiny region could potentially derail a deal that had already been agreed on by all 28 national EU governments. An entity of 3.5 million people was about to unilaterally kill a trade deal supported by the other 509 million. It would be as if the city of San Francisco were able to veto a trade deal between the US and Japan.

Though EU member states give the European Commission exclusive competence to negotiate free trade deals on behalf of the EU, those agreements must then be ratified by the 28 national governments. However, because of a quirk in Belgium’s constitution, all three of its federal regions must agree before the national government can sign off. It is the only EU country in which this is the case.

Today, following the state of the union speech, the European Commission announced a new system of approving free trade deals, that would split them up in a way so as to avoid the need for ratification by every national government.

A recent decision by the European Court of Justice made a distinction between those areas of free trade deals that need national approval and those that do not. The idea is to take the controversial investor-state dispute mechanisms out and subject them to a separate vote by national parliaments. That way, even if that part of the trade deal is rejected, the rest of it will be passed as long as it is approved by the European Parliament.

“We need to make sure not only that we can launch trade negotiations, but also that we can conclude them,” EU trade commissioner Cecilia Malmström told journalists today. The first test cases for this new system will be the agreements with Australia and New Zealand, which will only need approval by the European Parliament in order to take effect. “This is the way we make decisions most of the time in the European Union, and no one has said that is not fair or transparent,” Malmström said.

Brexit Implications

Even if the two-track negotiating method may speed up EU trade deals to the detriment of the UK’s ambitions, there is good news for London in this potential plan.

The British are hoping to work out a post-Brexit trade deal with the EU that would give it access to the single market without its being in the bloc. But the Wallonia veto experience highlighted just how difficult it would be to get such a deal approved.

Any Brexit deal that is seen to be giving privileged access to the British would be extremely unpopular with EU citizens across the bloc. Why should the Brits get special rights? Even if such an arrangement could be approved by the European Parliament, it would still need the assent of 27 national parliaments – and three Belgian regions.

Someone, somewhere, would object. Maybe Wallonia, or maybe tiny Malta, as a final act of revenge against its former colonial overlord. Or maybe Spain, as a threat to wrest Gibraltar from the British. Or maybe France, keen to finally rid the EU of British influence. Under the proposed change, only the European Parliament could veto.

Surely, the main aim of these changes is to quickly give the EU a free trade advantage. But at the same time, they could also have the effect of saving Brexit.