Hello from Brussels, which has pretty much emptied out for the summer break, though you’ve got Trade Secrets for one more week until we go on holiday in August. In fact, the exodus for those European Commission officials who weren’t working on the big announcements for July — principally the “Fit for 55” climate package, which we continue to consider a silly name — seemed to start even earlier than usual. The pandemic has made it a very long year. Today’s main piece is given over to an interview about environmental policy with commission executive vice-president Valdis Dombrovskis, who added trade to his already bulging portfolio almost a year ago. Today’s Financial Times also carries a story about his views on the steel and aluminium dispute with the US.
Charted waters looks at the scale of the euro area’s trade recovery.
The environmentalism that some call colonialism
No issue in Brussels these days can avoid being painted a fetching shade of green before being wheeled out in public, no matter how thin that layer of environmental friendliness proves to be in reality. The Green New Deal and Fit for 55 are referenced in pretty much every utterance by pretty much every European commissioner on pretty much every subject.
When the FT talked to Valdis Dombrovskis last week, he was bang on message, telling us “it’s clear that meeting our climate target will require what we call a whole-commission effort, including a contribution from trade policy”.
So what can trade do — aside from the biggie, the carbon border adjustment mechanism? Bringing environmental issues into trade deals, as we’ve written before, is a really tricky one. On the one hand, it does seem morally problematic that the EU might give privileged market access to farmers destroying forests of planetary significance in the Amazon. On the other, environmental conditionality is potentially WTO-illegal on discrimination grounds, can have perverse effects, can be captured by protectionists and gets attacked by developing countries as neo-imperialism. Jair Bolsonaro, Brazil’s president, described as “colonialist” rich countries’ demands for action to reduce Amazonian deforestation, which the EU has made a condition of ratifying a trade deal with the South American Mercosur grouping.
The EU is reviewing the “trade and sustainable development” chapters in its standard bilateral agreements to give them more bite. On top of that, Dombrovskis told us — though it’s only a discussion proposal at this stage — that he wanted to bring more environmental conditions into the EU’s preference programmes, specifically its Generalised Scheme of Preferences (GSP), which gives lower tariffs to certain developing countries. “We will strengthen the sustainability angle, ensuring that countries which are benefiting from GSP preferences respect international commitments concerning workers’ rights and protection of the environment,” he said.
Now, beneficiaries of the standard GSP programmes, of which there are currently 15, already have to “respect the principles” of 15 international agreements on labour standards and human rights. But Dombrovskis seemed to suggest that the EU might ratchet those demands up further towards the levels currently demanded by an enhanced programme called “GSP+”. The eight countries presently eligible for GSP+ get better trade access in return for jumping through more hoops: they have to ratify 27 international conventions on human rights, labour standards, the environment and good governance, and submit to close monitoring of their implementation by the European Commission.
“The idea is to strengthen this sustainability dimension for the whole of GSP and GSP+ beneficiaries,” Dombrovskis said. “Lack of compliance may trigger partial or full loss of benefits.” The idea fitted well with the commission’s new focus on enforcement, he explained. The trade directorate last year appointed the highly experienced commission official Denis Redonnet as its first “chief enforcement officer”.
What Dombrovskis’ ideas will mean in practice remains unclear, not least because they still have to go through the threshing mill of the EU policymaking process. But it’s a direction of travel that goes counter to the traditional EU trade policy stance — that binding and sanctionable environmental and human rights standards in trade deals are counterproductive and will trigger a lot of painfully difficult decisions on withdrawing preferential tariffs.
The EU has already had to make agonising decisions about hurting very poor producers this way. It raised tariffs on some garments and footwear from Cambodia (under the EU’s Everything But Arms preference programme for the least-developed countries rather than GSP) because of its government’s human rights abuses, for example. It is currently considering whether to remove Pakistan from the GSP+ list for its harsh suppression of religious freedom.
Raising tariffs on GSP countries because of trees rather than people — the failure to protect biodiversity, for example — might prove even more controversial. It’s also going to take a lot of monitoring and enforcement to keep the standard GSP countries (the current list of 15 includes India and Nigeria) adhering to a whole bunch of new conditions.
The political imperative to bring more and more greenery into trade policy is strong. “All policies must contribute to those goals, and from that point of view our new trade policy strategy is without doubt the cleanest and greenest we’ve ever had,” Dombrovskis said. But it also comes with internal opposition and external criticism, particularly for developing countries themselves. These ideas won’t get adopted without a fight.
Charted waters
The recovery in world trade during the second half of last year has been remarkable, including in the eurozone.
Euro area exports of goods to the rest of the world in May 2021 was €188.2bn, while imports hit €180.7bn. Compared with May 2020, that’s an increase of 31.9 per cent and 35.2 per cent respectively. Both of those figures are from Eurostat, the European Commission’s statistics bureau.
While a dramatic rise in percentage terms is what one might expect given that much of the world was shut during the months when Covid-19 first struck, the level of exports (and imports) is now above where it was when the pandemic struck. Claire Jones
Trade links
Talks between China and the US got off to a combative start today, with a senior Chinese diplomat warning that relations faced “serious difficulties.” Vice-foreign minister Xie Feng’s meeting with Wendy Sherman, US deputy secretary of state, was the first face-to-face meeting between the countries’ senior representatives since March.
Producing life-saving vaccines was never going to be easy, as illustrated by AstraZeneca’s admission that the launch of Covid-19 vaccine production at Siam Bioscience in Thailand has been “complicated.” The Anglo-Swedish drugmaker is aiming to supply Thailand — which has fully vaccinated just over 5 per cent of its population of almost 70m — with up to 5m-6m doses per month. “Our vaccine is a ‘biologic’ product that starts with growing ‘living’ ingredients. Its production is complicated,” James Teague, AstraZeneca’s managing director for Thailand, said in an “open letter to the people of Thailand” distributed to journalists on Saturday morning.
Michael Pooler and Bryan Harris have written an interesting article about whether Brazil — where traditional manufacturing is in steep decline — can be revived by a new commodities boom. The question is whether the country can break free from an age-old pattern of boom and bust that goes back to its origins.
The chair of TSMC said the Taiwanese chipmaker is “seriously evaluating” building its first European semiconductor plant in Germany. (Nikkei, $)
Vietnam will postpone an online shopping tax opposed by ecommerce companies such as Singapore’s Sea and Alibaba-owned Lazada, as the government rolls out tax breaks and cash aid during the country’s deadliest Covid-19 surge.
Source: Economy - ft.com
