Franco-Dutch alliance could be harbinger of things to come in EU trade deals

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Hello from Brussels. What news from Europe this week? Well, the UK got its bilateral talks going again with the US. They’ve been on hold since March because of the pandemic, but now 200 officials will be videoconferencing across the Atlantic. (The UK has more negotiators than the US does, at least on paper.) Since London and Washington are aiming for a full-spectrum agreement, including having to address the eternally amusing chemical-washed chicken issue, it’s going to go on for a long while. Today we’re contenting ourselves with a Tall Tales addressing the overblown claims for its economic impact.

Meanwhile, today’s main piece is on an intriguing proposal for EU trade policy put together by the French and the Dutch, one of the more unlikely partnerships in this area you could imagine. Our chart of the day looks at the rise in US imports of key medical supplies.

The frankly improbable Franco-Dutch alliance

OK, people, fess up. Which of you was it? Which of you kidnapped the Dutch? Who are these imposters lining up with the French to make the EU’s trading partners jump through ever-smaller hoops?

For Brussels veterans it’s hard to imagine a bigger upset to the natural order than France and the Netherlands forming an alliance on trade policy, a development my brilliant colleagues unearthed on Monday, in which the two nations proposed tougher enforcement of environmental and labour standards in EU trade deals. By Tuesday, horses in the Camargue were observed eating each other, and yesterday a two-headed calf was born in Utrecht.

The Dutch are traditionally out on the free-trade end of the EU spectrum and enthusiastic about preferential trade agreements (PTAs). The French, although obviously partly for domestic show, habitually object to liberalisation, particularly in agriculture.

To be fair, the French/Dutch proposals aren’t off the wall. They envisage the “trade and sustainable development” (TSD) chapters — mainly environmental and labour rules — of PTAs to be backed up with direct incentives, which some may call coercion. Rather than subjecting them to formal dispute settlement, this could involve the EU withholding tariff cuts or reversing reductions already made if standards aren’t met.

Labour and environmental measures backed by sanctions aren’t exactly unheard of. Under American pressure they’ve made their way into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and thus been accepted by impeccable free-traders such as the New Zealanders. Even in the EU, there is something similar in super-preferential deals for developing countries, which has given Brussels some tricky decisions to make.

But in EU trade politics, attaching sanctions to TSD chapters across the board has been a wedge issue. The mainly northern free-trade member states (and the commission’s trade directorate, DG Trade) have traditionally regarded it as a protectionist ruse, facilitating an unholy alliance of well-meaning environmentalists and cynical farmers. The EU has always preferred softer mechanisms whereby a breach of rules triggers dialogue rather than tariffs. For the Dutch to join the French in writing a joint paper backing them is like the Montagues and the Capulets forming a grand coalition on Verona city council.

Free-trade members regard attaching sanctions to TSD chapters across the board as a protectionist ruse, facilitating an unholy alliance of environmentalists and farmers © Clodagh Kilcoyne/Reuters

Why have the Dutch shifted? Partly it’s domestic political pressure. The Netherlands has seen a sharp jolt towards trade scepticism. Just two years ago Mark Rutte, the Dutch prime minister, was all about being the leader of the free-trade bloc in the EU. In February the Dutch parliament nearly voted down the EU bilateral deal with, of all countries, squishy-liberal Canada.

But the Netherlands might not be a one-off. Governments in the free-trading Nordics (and the departed Brits, whose absence from the EU is becoming evident) have also traditionally been the keenest on high environmental standards. Until now, they’ve seen the two positions — of high environmental standards and light-touch rules in PTAs — as compatible. This was also the traditional DG Trade line and Cecilia Malmstrom, the Swedish former trade commissioner, was exceedingly skilled at nodding thoughtfully at irate environmentalists while holding it.

Maybe now that tension is beginning to crack open long-held positions. As the EU ratchets up its own environmental standards, particularly with carbon pricing, there’s an obvious case that tough green rules at home plus lax enforcement in PTAs equals exporting environmental damage abroad. The commission’s Green New Deal plan, for example, envisages hardwiring the Paris climate change agreement into PTAs.

The immediate test case is the looming ratification of the EU-Mercosur deal. True, the early objections to the agreement were from countries such as Ireland and France, partly motivated by beef farmers opposing higher import quotas from Brazil. But there’s clearly also principled concern in European public opinion, governments and legislatures about the fate of the Amazon.

The France-Netherlands initiative isn’t great news for Big Phil Hogan’s big plans for lots more bilateral deals. Imagine selling this one to potential PTA partners Indonesia and Malaysia, which already think the EU’s de facto ban on palm oil is neocolonialist. 

But maybe that’s where we have to go now. Maybe the Dutch are a harbinger rather than a maverick. Maybe this is the narrative synthesis we now need to get PTAs done. Higher standards get you higher access, tougher enforcement gets you a better deal. It’s not going to make things easier for DG Trade, but it might make them more palatable for member states.

The Franco-Dutch alliance. Remember the name. It might be flying in the face of nature, it might be disguised protectionism. But you have to admit it has a ring to it.

Charted waters

The pandemic caught most nations off guard with regards to their stockpiles of medical equipment. The US was importing less PPE and test kits as late as February compared with the previous month — but by March, its imports of the crucial supplies shot up.

Tall tales of trade

Robert Lighthizer, US trade representative © Andrew Harrer/Bloomberg

What’s the tall tale?

There was strong rhetoric around the UK-US talks that were launched this week. USTR Robert Lighthizer said a deal would “strengthen our economies, support good-paying jobs and substantially improve opportunities for trade and investment”.

Why is it wrong?

The reality: the UK Department for International Trade’s own (commendably realistic) modelling suggests even an improbable zero-tariff scenario would add just 0.16% to UK gross domestic product over several years. A more realistic partial liberalisation would add only 0.07%. And the effect on US GDP will be homeopathically weak. A deal won’t noticeably strengthen growth or jobs in either country. You can try to make a geopolitical case for a UK-US PTA as with any trade deal (we don’t agree with that idea either, as it happens), but the economic impact is a rounding error at best.

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Source: Economy - ft.com