Future of EU’s trade policy and non-trade objectives

Photo: Harbour with Skyline

Non-trade issues such as labour standards, political and civil rights and environment protection have become important objectives in the design and implementation of the European Union’s (EU) trade policy. Almost two thirds of the EU trade agreements currently in force feature provisions on human rights and about one third of them covers labour issues. About two thirds also mention the environment, like the recent trade agreement with Japan which includes a novel provision on the implementation of the Paris climate agreement.

Moreover, the EU Generalized Scheme of Preferences (GSP) offers preferential access to the EU market conditional on principles pertaining to human rights, economic, social and cultural rights, environmental protection, public health and control of corruption.

In this post I argue that the future of non-trade objectives in EU trade policy looks relatively bright. However it is an open question whether and how non-trade issues can be effectively addressed with trade policy instruments. More research is required for us to answer and – in a world of informed policy action – for the future Trade Commissioner to act.

The growing emphasis of non-trade objectives

„It is clear Europeans want trade to deliver real economic results for consumers, workers and small companies. However, they also believe open markets do not require us to compromise on core principles, like human rights and sustainable development around the world or high quality safety and environmental regulation and public services at home.“ With these words Cecilia Malström, the incumbent European Commissioner for Trade, introduced in October 2015 the trade policy strategy that goes under the name of „Trade for all“. One of its pillars consists in confirming and strengthening the proposition that trade policy should not care only about trade („our interests“), but also about internationally recognized principles, such the protection of human rights or the promotion of sustainable development, subscribed in the EU’s Lisbon Treaty („our values“).

Before any assessment of the validity of this strategy, one should recognize that reversing direction could be easily read as equivalent to the statement that EU trade policy should care less about our values which, in a world of quick and approximate communication, would give pause even to the most naïve or reckless social media manager. For this reason, the expectation of a similar or even amplified emphasis on non-trade objectives in trade policy by the future Commission looks like a sensible one.

A largely unknow effect

But what do we know about the effects of this strategy? Is trade policy effective in achieving non-trade objectives? Does trade policy have the appropriate instruments in its toolbox? Or is it the case that loaded with non-trade issues it becomes less effective in promoting trade and investment?

Taking a journey through the realm of theory one will not find conclusive answers to these questions. There are indeed mechanisms that predict contrasting effects and heterogeneous impacts across stakeholders. The important point here is that while there exists a strong ethical support for promoting human rights, a robust, homogeneous and unconditional theoretical support does not exist for using trade policy to do that.

Like with every theoretical ambiguity, this is where good empirical evidence could be very helpful. The bad news is that identifying the causal effects of having non-trade objectives in trade policy is very hard. The good news is that recent research projects are taking up the challenge. One of them is the RESPECT (Realizing Europe’s Soft Power in External Cooperation and Trade) project, a consortium of ten research institutions financed by the EU under the Horizon 2020 programme with the purpose of assessing the impact of the EU trade policy on both trade and non-trade outcomes. The project is still in its initial phase and answers to its main research question are not there yet. However, preliminary data collection exercises undertaken by RESPECT researchers are already contributing to advance our knowledge of the scope and modes with which non-trade issues feature in EU trade agreements. For instance, a first descriptive analysis of the data reveals that only less than 10% of EU Preferential Trade Agreements cover good governance issues. Governance institutions often represent necessary conditions for trade liberalization to deliver the highest payoff and higher emphasis on governance issues in trade agreements would be particularly recommended.

Final ruminations

While waiting for a more robust body of empirical evidence to take shape and inform policy action, we can still propose some final ruminations on the future of EU trade policy and non-trade objectives based on what we know. EU trade policy does not operate in a vacuum, especially when it tackles non-trade objectives. There are other instruments available and other actors involved, including development assistance of the EU and EUMS, regulators, international organizations, private forms of transnational governance. Research for example has shown that Voluntary Sustainability Standards could be an effective tool to promote labour standards as well as a useful instrument within the framework of EU GSP itself. If we expect that loading trade policy with non-trade issues would not always be the optimal solution (and that is what theory seems to suggest), coordination and coherence with other instruments and actors is a necessary condition to strike the right balance.

Future EU trade policy can contribute successfully to the realization of EU values if it will be able to identify the most effective modes and the appropriate conditions to address non-trade objectives. Empirical analysis and coordination with other actors will help on that. A stronger emphasis on values is definitely not sufficient and not necessarily the best option.

Photo: Matteo Fiorini

Matteo Fiorini is Research Fellow in Global Economics at the Robert Schuman Centre for Advanced Studies of the European University Institute in Florence, Italy and currently visiting researcher at DIE. His research focuses on international trade, trade policy and development.

Leave Comment

Deine E-Mail-Adresse wird nicht veröffentlicht. Erforderliche Felder sind mit * markiert.