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Trade
  • Speech
  • 14 May 2024
  • Brussels
  • Directorate-General for Trade
  • 16 min read

Speech by Director-General Sabine Weyand: Trade policy in a changing world

A speech on 'Trade policy in an changing world', delivered by DG Trade Director-General Sabine Weyand at the ECIPE and Europe Unlocked conference in Brussels, Belgium on 14 May.

Thank you for the invitation to today’s conference.

Now as you know, this year we transition towards a new political cycle in the European Union, following the elections of the European Parliament in June. And this year there are elections taking place also in many other countries. 

It should therefore not come as a surprise that change will be a Leitmotiv of my speech today. 

I will focus on the fast-changing circumstances of international trade and the growing complexity of it all, and in particular on the following three elements: 

I will start by looking back at how the world of global trade has changed over the past five years. 

Then I will talk about the new trends we see coming in the next years that are likely to affect our trade policy. Of course it is risky to make predictions – especially if those predictions are about the future…! 

Finally, in the third part of my presentation, I will try to look ahead, by focusing on the practical trade policy implications of our new environment. 

Changed environment of international trade – and how we adapted trade policy 

So, first on the changed environment for international trade. It has now been almost exactly three decades since the conclusion of the Marrakesh Agreements, which established the World Trade Organization. And what a different world we live in today! 

For decades, we have taken many things for granted: for example, the benefits of interdependence, the pursuit of efficiency, and the strength of rules-based cooperation. 

We saw how international trade and investment have expanded, through trade liberalisation both in the framework of the WTO and in the form of bilateral and regional trade agreements, but also by way of autonomous trade liberalisation measures. 

But today, we are facing a new environment: 

The US and China find themselves in an intense geopolitical rivalry, and this has repercussions on international trade as well as on international cooperation. 

The recent crises over the last few years – notably the Covid-19 pandemic and Russia’s war of aggression against Ukraine, but now also the latest developments in the Middle East – have disrupted global supply chains and added more strains on international trade relations. 

Due to these growing tensions in geopolitics and the resulting supply chain disruptions, we have clearly (and unsurprisingly) seen an inward turn of economic policies, including in the EU – a paradigm shift, from a focus on efficiency to a desire for more resilience and ‘economic security’. 

In this context, mutual economic interdependence is nowadays often seen as a risk, rather than an opportunity. 

I would like to emphasise three ways in which this new environment has tested and affected trade policy:

First, we were encouraged to see how effective our diversified global trade network was in helping to absorb major recent shocks. 

During the Covid-19 pandemic, after initial restrictions by national governments, it became clear that we needed to use our open trade links and supply chains, to effectively fight disruptions. Without our open trade links, we would not have been able to ensure vaccine production, or the supply of protective equipment. As a result, since the pandemic, diversification through open trade has become a core component of strategies towards greater resilience of supply chains. 

A few years later, we faced the enormous task of transitioning away from Russian energy supplies, following Russia's full-scale invasion of Ukraine. Also in this context, we have clearly benefitted from the EU’s diverse global trade relations. We have boosted our energy imports from several other countries, as we were diversifying away from Russia, in the context of EU sanctions and Russian countermeasures. 

These two examples are very clear reminders that our diversified trade ties are efficient in responding to policy shocks. 

Second, we have engaged with partners across the globe, through trade agreements and other platforms to increase the competitiveness and resilience of European companies by securing their access to critical inputs and seeking export opportunities for them. 

As a result, the European Union is today a global leader in international trade: we have free trade agreements with 74 countries, covering over 44% of our external trade. The EU is the number one trading partner for 54 countries globally, which together represent 48% of the world’s GDP. 

During the past five years, we have further developed our FTA network and we have deployed new ways of deepening ties with our partners – because we know that flexibility in our approach is more important today than ever. There can be no ‘one-size-fits-all’ approach to trade relations with our various partners. 

We have also reinforced our efforts on the implementation of our agreements, to make sure that EU businesses can really reap the benefits of these deals. We resolved 140 trade barriers fully or partially, in more than 30 countries, over the past five years. This helps boost EU exports in sectors such as agri-food, pharmaceuticals and health.

Third, the international context has made us more assertive, as we aim to preserve the EU's economic openness, when others try to abuse it. Let’s make no mistake: assertiveness is a pre-requisite for keeping our markets open. 

We have updated and expanded the EU’s toolbox of autonomous instruments in recent years, by adopting new ones including the Anti-Coercion Instrument, the Foreign Subsidies Regulation, the FDI Screening Regulation and the updated Export Control Regulation, amongst others. 

And we have started to make use of these new instruments, as you know. The FDI screening mechanism has developed over time, and we continue to review its functioning, in close cooperation with the Member States. The same goes for our updated Export Control regime. 

And we have had the first cases under the Foreign Subsidies Regulation as well as under the International Procurement Instrument, which is another new tool. 

Pulling all this together, in June last year, the Commission published the European Economic Security Strategy. 

This strategy embodies many of the trade-offs that we need to acknowledge, between our parallel policy objectives of economic efficiency and economic resilience. 

Because we need to be realistic: we can hardly expect that we can take de-risking measures that will only have the benefits of risk minimising but have no costs to our efficiency. We need to acknowledge these trade-offs. 

The good news is that a proactive trade policy can support both the competitiveness and the economic security aims – trade diversification is yet again the name of the game. 

The three pillars of the Economic Security Strategy will help us find the right balance between our objectives: as we enhance our resilience, we can do this through various ways: 

  • by promoting EU competitiveness: competitiveness starts at home, on the EU internal market; 
  • by protecting economic security, and;
  • by partnering with other countries, across all sectors.

These are the changes that we have put in place over the past five years. This brings me to the second point I wanted to make today: the need for policy integration, to navigate amidst the new trends that will surely affect international trade in the coming years. 

New trends – and trade policy as part of an integrated EU policy approach

Let me start with a bit of foresight: What might those new trends be that will affect trade in the coming years? 

Let me name four of them:

First, the geopolitical flux: As a result of the US-China rivalry, there is a risk of growing fragmentation of supply chains; and the IMF has put a price tag on the costs of global economic fragmentation: in its study, it stated that if it also includes technological decoupling, it could cost the global economy as much as 12% of total GDP. The global South would be the worst off – but it would be very costly also for the EU. 

Second, the economic pressure: Negative externalities of China’s industrial policy and the risk of trade weaponization, all of which lead to de-risking and efforts to promote reindustrialisation, with the related costs to efficiency. Subsidies are being deployed for economic transformation, carrying the risk of a subsidy race – which can make our green transition more costly. 

Third, green (energy) transition: This brings me to the trend of green transition. We need to ensure that this happens as smoothly as possible. The green transition brings about both opportunities and costs. It entails new areas of competition, including in supply chains for critical raw materials. The US and China will continue to have access to cheaper energy, until the green transition has allowed us to rely more on renewables.

Fourth, new technologies: These will affect economic competitiveness also in the longer term. The EU needs both R&D and actual deployment and commercialisation capacities. At the same time, there is uncertainty, due to security-driven controls by the US and China, which have impacts also on EU businesses. Indeed it is in our interest to engage with the rest of the world, to ensure and enable our innovation capacities. 

These developments will require a solid combination of internal and external EU policies. 

Policies that will contribute to the EU’s economic competitiveness and resilience – while also ensuring sustainability through the green and energy transitions and equipping the EU for the challenges that stem from both the geopolitical tensions and the technological developments. 

In other words, the EU will need an integrated and coherent set of policies, through a whole-of-government approach.

This may sound a bit abstract. Therefore, let me give you a few examples, from the perspective of our trade policy. 

First, we will need to further enhance the coherence between our internal and external policies.

I welcome Enrico Letta’s recent report on the Single Market – it shows the links between the single market and our global presence that are relevant for both our internal and external policies: 

When regulating the internal market, we need to take into account what our regulation means for our companies’ ability to compete globally. We also need to assess ex ante the impact of our domestic legislation on our international partners as this affects their regulatory autonomy. There is also the issue of compliance costs, particularly important for developing countries. So, we need to integrate the interests of our trade partners. 

Second, we need to keep improving the coherence between our various external policies. 

As we are working with our partners across the globe – especially developing countries – we need to come up with a more attractive offer, by pulling our different external instruments together. Our weight in the world is declining. The single market is a market of 450 million consumers, and rich – at the same time, there are India, China, Africa, and others as well. 

These external instruments include, in particular, trade and investment relations, development cooperation, funding of investment, and regulatory cooperation. Indeed, investment will be important, in the years to come. We have already started pulling together our external tools, for instance through the Global Gateway initiative. 

But more needs to be done. This requires reinforcing our Team Europe approach, combining and coordinating EU and Member State level actions and global outreach to our third country partners. 

This leads me to my third point: we need to keep working on the coherence of external actions between the EU-level and the Member States. 

One aspect of this is our proposed improvement of our EU-level coordination on investment screening and export control. We have made some progress on this in the past years – but much remains to be done. 

This is part of our ongoing work on the Economic Security Strategy, including the risk assessments of our vulnerabilities in a number of areas of economic interdependence. 

Coherence between EU and Member States also requires a unified EU approach vis-à-vis our key trading partners. This is challenging, in view of the diverse cultural ties, economic structures and interests of our 27 Member States. However, we have to have a united approach, to ensure the EU’s interests and its role in the new global environment. 

Looking ahead: Trade policy implications of our new environment 

Let us now briefly look ahead towards the next few years and the next Commission mandate. We cannot know the outcome of the EU elections today. Nor do we know who the next EU Trade Commissioner will be. But we can already have ideas about what he or she will find in his or her ‘trade policy inbox’! 

The tasks will include (i) managing our relations with the US and China, our two largest trading partners, (ii) our broader network of trade agreements, as well as (iii) developing a doctrine for the use of our autonomous tools. 

Relations with the US and China

As we will be facing the challenges of continued US-China strategic competition, and the risks of the fragmentation of the economic order, we will have to make sure that we promote and protect the EU’s interests with both of our largest trading partners. 

As regards our relations with the US: 

This is still the most important bilateral relationship we have, and despite certain trade irritants, we will continue to make the best possible use of it to improve our bilateral trade conditions and to address the EU’s trade concerns. As likeminded partners, our relations need to be taken care of. 

We will continue our positive engagement through important channels such as the TTC – which proved a useful platform of bilateral engagement, even though it did not always lead to concrete outcomes for all our intended objectives, and we may review it in view of the incoming administration. 

Whoever wins in the US elections, we will continue to seek positive engagement for our transatlantic relations. And this should also include plurilateral initiatives – and potentially multilateral ones in the WTO. 

At the same time, we need to be prepared for potential disruption scenarios: we will be ready to stand up for the EU’s economic and trade interests, if they are affected by US policy measures. 

With regards to China, our trade relationship is different: 

While it will continue to be our second largest trading partner, with which we will keep engaging, we will also need to address the imbalances in our relationship. It would of course be easier if China itself would address those, at their root causes, in view of the distortions hitting our market as well as third country markets. 

A key concern is China’s industrial policy that leads to overcapacities across manufacturing sectors – therefore, we have started to increase the use of our level playing field instruments. Going forward, we will not hesitate to make a determined use of our trade defence and other instruments to protect our market from unfair competition. 

We will also need to continue our efforts to address our vulnerabilities that stem from our dependencies in certain sectors, through de-risking and diversification. This requires the implementation of our economic security strategy, based on sound risk assessments.

Active and flexible trade engagement globally

In addition to our relations with the US and China, we will also keep adapting EU trade policy as regards our broader global trade network. 

We will further develop our diverse and wide-ranging bilateral trade ties.

For this we will need to approach relations in a flexible and open-minded way, tailoring our approach to the partner. 

In this regard, we will seek continued progress in our FTA negotiations with several trade partners. 

These are at various stages of advancement – and our negotiating partners include Mercosur, Mexico, Australia, India, Indonesia, Thailand, and the Philippines. We are also exploring the negotiating options with the Gulf Cooperation Council and with Malaysia. 

It is important to keep advancing with our active negotiating agenda –without underestimating the difficulties of getting to the finish line with a good outcome. These difficulties include the political context in some of our negotiating partners, but also in some Member States, as recent experiences have shown. 

However, we are not limited to negotiating FTAs: we also continue deploying other forms of engagement, allowing us to reach agreements on targeted issues in a shorter timeframe. 

I have already mentioned our Trade and Technology Councils with the US. We also have a TTC with India. 

We are also conducting negotiations on Digital Trade Agreements with Singapore and South Korea. We have recently concluded a deal on dataflows with Japan. We consider these as necessary complements to our existing FTAs with these partners. 

As I said, everyone is after investment. And we will strengthen investment opportunities in African partner countries, through Sustainable Investment Facilitation Agreements (SIFA) – beyond the deal that we have concluded with Angola. We are working on the scope of these future deals at the moment. We are conducting exploratory talks with Ghana and Ivory Coast. 

And we aim to further enhance our network of Mutual Recognition Agreements to reduce the trade costs associated to divergences in our respective regulatory requirements. Our biggest prize would be a Clean Tech MRA with the US, which would be an important agreement for our business communities. We know this is an uphill struggle, in view of entrenched regulators – but we are willing to make an effort, in the framework of the Transatlantic Initiative on Sustainable Trade. 

All these bilateral agreements and platforms will help contribute to better market access and economic resilience in the future. 

These agreements bring the most benefits if they are duly implemented. Therefore, we will continue to put emphasis on the implementation of these deals, and with the creation of the Chief Trade Enforcement Officer (CTEO), we have pulled together our enforcement actions. 

A sound and legally more certain trade environment also helps underpin the rules-based international trading system.  

This is also why we will continue pursuing WTO reform working in different configurations to make that happen.

We have not given up on the WTO. It provides the essential guardrails against protectionism – and the majority of global trade continues to take place on the basis of the WTO rules and the MFN framework. There are no quick fixes to international trade rules. But we will continue our efforts to shore up the system, also in case in the future the pendulum swings back towards more plurilateral and multilateral solutions. 

Making use of our autonomous instruments

Last but not least, in the years to come, we will need to make the best use of our newly updated toolbox of autonomous instruments. 

Some of our tools address security risks, others aim to restore fair competition and the level playing field, yet others address sustainability concerns or coercive practices. 

And as I said, being able to defend ourselves against the abuse of our economic openness is a precondition for maintaining that very openness. 

Deploying these tools in a coherent and coordinated way will help us deal with existing problems and should encourage partners to seek cooperative solutions. We will need to develop a coherent doctrine for their use, also taking into account the interlinkages between the different instruments. 

Conclusion 

All in all, as you have heard, there are ample ways in which trade policy contributes to the broader key objectives of the European Union. 

And it can do so most effectively if it fits well into that bigger picture – as a very important piece – with various links to the other parts, of the whole, integrated set of EU policies. 

As we now look ahead, let me also say that, if I had given a speech in 2019 on future trade policy, a lot of key elements and developments would not have been there: for instance, the Covid pandemic, or Russia’s invasion of Ukraine. 

In other words: as we reflect today on what we may expect in the coming years based on the ‘known unknowns’, we must also be aware of the ‘unknown unknowns’…  

Thank you for your attention. 

Details

Publication date
14 May 2024
Author
Directorate-General for Trade
Location
Brussels
Trade topics
  • Trade policy