To combat trade-distortive measures when necessary for EU industry and in the Union’s interest, in December 2017 the European Parliament and Council agreed on the Commission’s proposal to modernise the EU's trade defence instruments. Among the most significant changes to the EU’s anti-dumping and anti-subsidy legislation are: faster and more efficient investigations; the possibility to impose higher duties based on economic reality; improved injury calculation; the
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inclusion of social and environmental considerations; and increased transparency and predictability.
In the same vein, and to insist on reciprocity, the Commission adopted its revised proposal for an International Procurement Instrument (IPI) in 2016. The IPI allows the Commission to initiate public investigations in cases of alleged discrimination of EU companies in procurement markets. Should such an investigation find discriminatory restrictions vis-à-vis EU goods, services and/or suppliers, the Commission can invite the country concerned to consult on the opening of its procurement market. As a last resort, the Commission could, after consultation with EU member states, introduce price adjustment measures (i.e. a ‘price penalty’), giving EU and non-targeted countries' bids a competitive advantage on EU public procurement. However, member states remain deeply divided over this proposal. The INTA Committee of the European Parliament also needs to vote on a draft report.
Priorities for the next Commission
The main challenge for the next European Commission will be to preserve and improve the multilateral trading system. At the same time, the European Commission will need to stand firm and pursue its trade agenda through bilateral and regional FTAs.
With regard to the multilateral trading system, to European Commission needs to align more actively and strategically with like-minded countries such as Canada, Japan and Korea when pursuing its WTO reform agenda. However, a precondition for the preservation and modernisation of the multilateral global trading system will first be the normalisation of the triangular trade relationship between the EU, the US and China. As for the EU- US relationship, the conclusion of limited agreements such as those envisaged on conformity assessment and the elimination of tariffs for industrial goods can be used to normalise the transatlantic trade relationship, but such an approach should not be pursued to the detriment of the EU’s value- driven trade policy. Moreover, the Commission will need to engage actively with the European Parliament, which is somewhat critical of these agreements. Moreover, as foreseen in the Commission’s proposal, the EU should suspend these negotiations if the US imposes new trade restrictions.
The EU must first try to conclude the Comprehensive Investment Agreement and the Agreement on Cooperation on and Protection of
A precondition for the preservation and modernisation of the multilateral global trading system will be the normalisation of the triangular trade relationship between the EU, the US and China.
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Geographical Indications with China as soon as possible (Hu, 2018) to maximise the EU’s trade potential. Overall, it is imperative for the EU to recognise China as a partner, albeit a fierce competitor at the same time. The EU must engage China not only in bilateral relations to solve their trade frictions but also in multilateral fora (Hu and Pelkmans, 2017). After all, efforts to reform the multilateral trading system may become redundant if global major trade powers such as China are not involved.
With regard to the EU’s bilateral trade agenda, the Commission needs to continue with its approach to ‘split’ exclusive (EU-only) FTAs from ‘mixed’ Investment Protection Agreements. This approach provides a fair balance between the effectiveness and legitimacy of the EU’s FTA policy, provided that the European Parliament and national parliaments are fully engaged at their respective levels of oversight, together with civil society. Moreover, the Commission needs to maintain its transparency agenda, as foreseen in the Trade For All Strategy.
Whereas several FTA negotiations are expected to conclude smoothly during the next Commission mandate, such as with Australia and New Zealand, several other FTA negotiations will remain challenging, including with several ASEAN countries and MERCOSUR.
The most important trade negotiations for the next Commission will be those with the UK on the new economic partnership (Gros and Hu, 2018). The Political Declaration setting out the framework for the future EU-UK relationship gives an indication of what the
economic partnership between the EU and the UK should – or could – look like. This includes an ambitious free trade area that ensures no tariffs, fees, charges or quantitative restrictions and an ambitious, comprehensive and balanced arrangement on services and investment that
go beyond the WTO standards and build on recent FTAs concluded by the EU. Crucially, just how ‘frictionless trade’ can be guaranteed while leaving the single market remains unclear.
The most important trade negotiations for the next Commission will be those with the UK on the new economic partnership.
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Key priorities for the next Commission
Normalise the triangular trade relationship with the US and China by, inter alia, concluding envisaged bilateral agreements
Work for the preservation and modernisation of the global trading system (incl. the WTO and the creation of a Multilateral Investment Court under UNCITRAL)
Continue to ‘split’ exclusive (EU-only) FTAs from ‘mixed’ Investment Protection Agreements
References
Blockmans, S. and W. Hu (2019), EU Law Obstacles to Chinese Investment Flows Along the Belt and Road, CEPS Policy Insight, CEPS, Brussels, February. Council of the European Union (2018), “Conclusion on the negotiations of trade
agreements”, 8 May.
Emerson, M. et. Al (2018), Trilogy of Handbooks on the DCFTAs with Ukraine, Moldova, Georgian - Second Editions, Brussels/London: CEPS/Rowman & Littlefield International.
European Commission (2006), Global Europe: competing in the world, COM(2006) 567 final.
European Commission (2015), Trade for all. Towards a more responsible trade and investment policy, COM(2015) 497 final.
European Commission (2015), Concept Paper: Investment in TTIP and Beyond – The path for reform.
European Commission (2017), Proposal for a Regulation establishing a framework for screening of foreign direct investments into the European Union, COM(2017) 487 final, 13 September.
European Commission (2018), Concept Paper on WTO Reform, 18 September Gros, D. et al. (2018), “Strengthening EU-Turkey Economic Relations. Can
Services Revitalize the Customs Union?”, Istanbul Policy Center - CEPS Report, 3 April.
Hamilton, D. and J. Pelkmans, eds. (2015), Rule-Makers or Rule-Takers? Exploring
the Transatlantic Trade and Investment Partnership, CEPS Paperback, CEPS,
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Hu, W. (2018), “Reciprocity and Mutual Benefits: EU-China cooperation on and protection of geographical indications”, CEPS Research Report, CEPS, Brussels, 22 June.
Hu, W. and J. Pelkmans (2017), “China-EU Leadership in Globalisation: Ambition and Capacity”, CEPS Policy Insights, CEPS, Brussels, 30 May. Lannoo, (2018), “The Trump-Juncker meeting in DC raises urgent questions for
the next Commission”, CEPS Commentary, CEPS, Brussels, 16 August. Van der Loo, (2016), “Mapping out the Scope and Contents of the DCFTAs with
Tunisia and Morocco”, CEPS Commentary, CEPS, Brussels, 3 May. Van der Loo, (2016), “CETA’s signature: 38 statements, a joint interpretative
instrument and an uncertain future”, CEPS Commentary, CEPS, Brussels, 31 October.
Van der Loo, (2017), “The Court’s Opinion on the EU-Singapore FTA: Throwing off the shackles of mixity?”, CEPS Policy Insight No. 17, CEPS, Brussels, 26 May.
Van der Loo, (2018), “The Dilemma of the EU’s Future Trade Relations with Western Sahara: Caught between strategic interests and international law?”, CEPS Commentary, CEPS, Brussels, 20 April.
Pelkmans, J. (2018), “China and the EU: The contradictions of exercising joint trade leadership”, CEPS Commentary, CEPS, Brussels, 20 September. Pelkmans, J. et al. (2018), Tomorrow’s Silk Road: Assessing an EU-China Free Trade
Agreement – 2nd edition, Brussels/London: CEPS/Rowman & Littlefield
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ECONOMIC GOVERNANCE
AND ECONOMIC POLICY
During Juncker’s tenure, the role of the European Commission in the field of economic governance has been overshadowed by political initiatives coming mostly from the member states and the European Council. The latter, in turn, acted under the influence of the lingering effects of the euro area crisis, which had peaked in 2012 – under the previous Commission.
The so-called ‘Juncker plan’ constitutes the main example of an initiative of the Commission. The European Fund for Strategic Investment (EFSI) is widely regarded as a success, in the sense that hundreds of billions of investment were financed under its various mechanisms. However, evidence of additionality, i.e. that the total amount of this investment would not have taken place anyway, is more difficult to prove.
Most of the other legislative proposals presented by the Juncker Commission in the field of economic governance were drawn from the Four Presidents’ and Five Presidents’ reports of 2012 and 2015, respectively. The European Council recently reached an agreement on what is considered the ‘final’ pack on EMU governance. The hard content of this pack is modest, but it is in line with a package of proposals the Commission had published earlier. The most relevant novelties are that the European Stabilisation Mechanism (ESM) will be empowered to provide a backstop to the Single Resolution Fund (SRF) and that a ‘Euro Area’ budget line inside the EU budget may be created. Overall it appears that the Commission has played more of a supporting than initiating role in the changes to the economic governance structure achieved during the tenure of Juncker.
The Commission could still be seen to have delivered on most of the promises contained in the reports. But there is limited evidence that changes, like the creation of a European Fiscal Board or reforming the European Semester, led to a material improvement in economic governance of the EU.
There is limited evidence that changes led to a material improvement in economic governance of the EU. It is also difficult to discern a substantial impact of the Commission on economic policy.
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It is also difficult to discern a substantial impact of the Commission on economic policy overall. Member states have often succeeded in ignoring fiscal rules and Commission recommendations on economic policy. They managed to pursue their own priorities, driven either by the domestic political conditions or the political interest and credo of the running party. The most patent examples have been the ‘black zero’ in the case of Germany and the expansionary fiscal policy in France and Italy. Policymakers at the national level have little incentive (and no political mandate) to take the impact of their policy actions on the rest of the EU into account. The recommendations of the European Fiscal Board, which was supposed to establish guidelines for a common fiscal stance, have also been mostly ignored.
The Commission has been rather flexible in applying the rules of the Stability and Growth Pact and the Fiscal Compact. In this field the Commission has considerable influence due to the reverse majority mechanism introduced with the 2012 reforms. Moreover, only the
Commission (not the Council) has the necessary technical staff to be able to judge fiscal plans rapidly and consistently. However, there is little sign that the Commission has used these powers. It bent the Stability and Growth Pact
repeatedly in the case of Italy and, in the case of Spain and Portugal in 2016, it effectively condoned a clear breach of the rules, bowing in this instance to German pressure. This episode constitutes an illustration the ‘political Commission’ at work.
However, the Italian budget for 2019 has given the Commission another chance to assert its role in economic policymaking. In this case, the Commission has been careful not to appear political, emphasising instead its role as guardian of the Treaty (and of financial stability). The tough stance of the Commission, combined with strong market pressure, forced the government in power in Italy to change course, at least for time being. This episode might in the end constitute the most important legacy of the Juncker Commission in the field of economic governance.