7 minute read

The Future of EU Trade Liberalisation

Power Through Trade    7 minute read

The Future of EU Trade Liberalisation

A closed economy is self-sufficient. It relies solely upon its own resources to serve consumer needs, with no trade activity conducted outside its borders. Each of its domestic industries has the chance to develop without a threat from exporting countries. Following incessant years of conflict in Europe, trade became a tool to promote peace in Europe and hence its economies increasingly opened themselves up to each other. They developed their own competitive advantages and dependencies on one another. A combination of globalisation and free-trade agreements (FTAs) has since enlarged this effect.

The discourse in recent years, however, has begun to question the real benefits of trade liberalisation. Is it advantageous for governments and civil society alike? The rise of populist movements promoting protectionist measures suggests not. It suggests instead that a conflictual relationship has developed between part of civil society and ‘the establishment’ leading to a meltdown in a major prevailing worldview. The following collection of articles will examine to what extent trade liberalisation benefits the EU as a political entity rather than the citizens of its member states.

Trade is the EU’s oldest and most successfully integrated policy sector. Yet how did the EU obtain its leadership in the multilateral trade agenda?

The EU’s Trade History

From the end of the Second World War until the 1970s, the United States led the multilateral trading system. Since its economic stagnation and the progression of European integration, however, the EU has essentially emerged as an equal partner in this leadership. Many academics had been concerned that the EU may adopt a protectionist ‘fortress’ trade policy as its regional integration advanced and serious recessions in the 1970s and 1980s led to numerous academic movements (particularly in France, Germany, and the United Kingdom) that advocated the implementation of higher trade barriers.

Yet, in the late 1980s, when protectionist policies were seen to be discredited, European policymakers abandoned their belief in them. The Single European Act (SEA), established in December 1992, produced an alternative to a protectionist policy in external trade: ‘trade liberalisation’.

The SEA henceforth made liberalisation the essence of European integration, both internally and externally. With the completion of the single market, member-states lost their ability to maintain effective national trade barriers for intra-EU imports and external EU imports alike. The external trade policy ‘status quo’ changed from protectionism governed at the national policy level to liberalisation via transhipment, with little hope of re-establishing protection at the supranational EU level due to the bias of decision-making against them.

Although national sovereignty was weakened, this integration made the EU a formidable power in global trade with a significant stake in its governance. Its gradual membership from nine to twenty-five member states has further increased its economic importance. Although, some academics still fear the implementation of an EU ‘fortress’ trade policy today due to the consequential negative effect it would have on the worldwide economy.

Today’s EU

Trade liberalisation accounts for a significant part of growth within the EU today, with €1bn of exports equating to more than 14,000 jobs across the EU in 2011. Indeed, in 2011, 50 million EU jobs depend upon EU exporting industries. Economic growth, investment, and efficient and competitive production make up only a part of the multitude of inherent benefits linked to trade liberalisation.

Studies support the existence of these benefits, showing that, during the 1950-1998 period, countries that liberalised their trade experienced growth rates 1.5% higher than prior to liberalisation, and investment growth rates between 1.5 to 2% higher. Trade has also been used as a weapon with which to fight against the current European economic crisis as it brings in earnings, takes pressure off public finances, and supports new innovation and entrepreneurship.

With the European Commission expecting most worldwide growth to happen outside the EU in the future (with EU employment supported by extra-EU exports steadily increasing over time), the furthering of trade liberalisation to promote connections with new global growth centres, and the abolition of tariff and non-tariff trade barriers are seen as essential in maintaining the EU’s economic position and that of its member states.

Sample means for growth before and after liberalisation. (Source: Wacziarg & Welch (2008), The World Bank Economic Review)

This is of particular importance because in recent years, the leadership of both the EU and the US has been challenged by the rise of influential emerging and developing countries (new global growth centres) who have provided resistance against the deep trade agenda and altered the balance of power within the multilateral trading system.

Today, although the EU and US are still necessary for progress, alone, they are no longer sufficient decision-makers. In order to maintain their current standing, the EU feels forced to undergo further trade liberalisation – as seen by its plans to sign FTAs with Singapore and Vietnam and its current proceedings with CETA regarding the liberalisation of EU trade with Canada.

Power Through Trade

The EU now enjoys its status as not only a ‘formidable’ power in trade, but also a power through trade. Using its influence in trade, the backbone of its normative power, the EU has developed political powers to influence both international change and the domestic policy of its trading partners.

This power has increased under increasing trade liberalisation. For example, the EU has enhanced international environmental and labour standards by granting a special incentive arrangement for developing countries practicing sustainable government and good governance, the ‘Generalised Scheme of Preferences+’ (GSP+). 13 countries are beneficiaries of this arrangement today. This has also aided developing countries in expanding their economies.

Another agreement, coined ‘Everything but Arms’, provides even greater market access for the least developed countries with 49 beneficiaries currently gaining full duty-free, quota-free access to the EU market on all products except arms and ammunition.

LEDCs who are beneficiaries of the ‘Everything But Arms’ agreement. (Source: Wikipedia)

Moreover, it has used several bilateral and pluri-lateral agreements – for example, the Contonou and Euro-Mediterranean partnerships – to encourage democracy and respect for human rights in the economies with which it trades. The EU, however, has been slow to enforce the conditionality clauses of these agreements in several instances, and may need to re-evaluate its ‘power through trade’ as emerging economies challenge its power in trade.

Furthering trade liberalisation, and thus its political influence, may help to re-establish its leadership in both. Yet, could the concessions that will arise from the pursuit of further trade liberalisation compromise EU policies? Indeed, the free flow of data being currently negotiated in the Trade in Services Agreement (“TiSA”) would compromise EU individual privacy policies and promote dissatisfaction in civil society, yet the lack of freedom in data exchange is seen as a trade barrier to the EU by participating countries, like the US. This is one of the trade concessions (‘power to trade’) that may have to be made to secure the continuation of EU’s power in trade.

Concluding Thoughts

Furthering trade liberalisation will provide a strong net benefit to the EU’s economy, and strengthen its political power through trade for itself as a political entity and its member states. However, the implementation of these FTAs will certainly cause a concerning degree of disruption to trade and harm to certain industries and to its current policies and regulations (power to trade).

However, if these net benefits are not felt by its member states and its civil society too, they will certainly not be sustainable.

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