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Tag: Trade

This Is New Africa: EU-Africa relations after Cotonou

  • September 2019
  • Hannah Bettsworth

This Is New Africa: EU-Africa relations after Cotonou

Source: Pixabay

The EU and Africa have a chance to build a rebalanced, modern partnership of equals if they tackle tough issues together.

Before we start talking about Africa, trade, and development, take a few minutes to go and take this quiz. A quick highlight, if you don’t have the time: in the last 20 years the proportion of the world population living in extreme poverty has halved.

How did you do? Most people do not do very well. They actually do worse than a computer randomly selecting the answers would (do). That is because us humans come with pre-existing biases, from charity appeals and songs and endless images of people in extreme poverty worldwide. A lot of people assume that extreme poverty is getting worse, when the opposite is happening.

The Africa that the EU is negotiating its future relationship with is not the Africa of Live Aid (which was incredibly patronising even in 1984, and bears no resemblance to the modern-day continent.) It has exceptional growth potential, as well as a young population, and seeks to enact the right policies to ensure that growth leads to jobs for those young people. That’s where the EU-Africa relationship comes in. The renewal of their partnership will provide an opportunity to build a true partnership of equals: one that should aim to consign misconceptions and stereotyping to the past.

Indeed, when the African, Caribbean and Pacific (ACP) – EU Partnership Agreement (more commonly known as ‘Cotonou‘) was signed in 2000, the African Union (AU) was still known as the Organisation of African Unity. Just as Africa’s governance has changed, so has Europe’s, and, naturally, Cotonou has evolved to take into account changes over the last 20 years.
The rise of the AU is something that will specifically have to be considered. The ACP group was developed by its Member States for development and negotiation purposes, primarily with the EU. The pressing question today is whether continuing with centralised negotiations at the ACP-EU level would sideline Africa’s own regional and continental institutions – as well as North African countries, which are in the AU but not the ACP as they fall under the EU Neighbourhood Policy. In turn, centralised negotiations risk reducing regional engagement with and interest in African-EU affairs. The EU must make sure that both the AU and regional groups are treated as important, relevant actors (not just in Africa, but in the Caribbean and Pacific) and that their knowledge and expertise is recognised and valued in the negotiations.

Trade is just one of the areas where African regions are especially relevant. The EU, being a trade power, has used its Generalised Scheme of Preferences classifications as well as trade deals to ensure that the vast majority of African countries benefit from reduced or entirely eliminated tariffs. The Economic Partnership Agreements (EPAs) with the EU cover different regional groups within the ACP. However, there was little additional benefit to African countries from negotiating these deals where they already had almost complete access to the Single Market. A side-effect of these regional deals has been that groups of African countries have signed up to different trade terms and commitments. As the AU recently ratified the African Continental Free Trade Area (AfCTA), it is attempting to move towards a single African market for goods and services, which is made more complex by those divergent trade practices.

 

Think back to the quiz you just did. Poverty worldwide has dropped substantially over the last few decades. One of the reasons for this drop is trade liberalisation. To eradicate persistent extreme poverty, especially in Africa, the World Bank has called on the international community to reduce trade costs, improve the trade environment, tackle specific barriers facing remote, small traders and women, and mitigate the risks that the poor face

 

The Center for Global Development‘s recommendations to the EU identified an issue with EU rules of origin. Countries that manufacture products using components sourced from other African countries find it  difficult to prove they have sufficient domestic content to access reduced tariffs or provisions of a trade agreement, which disincentivises regional value chains. The CGD also maintains that agricultural subsidies undermine development and have little benefit for the environment. A study for the European Parliament Development Committee found that, under the Common Agricultural Policy (CAP), some targeted support for particular agricultural products distorted markets and there was a lack of coherence between agriculture and climate goals. The CAP goes to the heart of internal EU controversies. In a negotiation between equal partners in which one side is negatively affected by subsidies, however, the two partners will have to be bold enough to tackle it head-on.

Migration is a similarly controversial issue which the two partners will not be able to duck. Most Africans who want to move wish to do so within Africa, although 27% still wish to move to Europe. As countries get richer, migration increases, until they reach the mid-range of upper middle-income status. Out of 54 African countries, 9 currently have World Bank upper-middle income status or above and 23 have lower-middle income status. The potential for increased migration, therefore, is real. African countries have particular security concerns about the risk of youth unemployment: migration both helps mitigate the issue and allows the country of origin to benefit from remittances.

What is in it for the EU? To start with, although limiting migration is often cast as a security measure, if conflicts are exacerbated by unemployment the EU can expect additional migration flows.  Europe suffers from demographic pressures that are the opposite to Africa’s: its population is aging. Legal migration pathways have the potential to benefit both sides, and the Commission cannot sustainably continue with business as usual. Pressure from Africa may be useful in forcing it to act. The expansion of Global Skills Partnerships (GSPs), as highlighted by the CDG report, could be useful both in Africa-to-Africa migration and Africa-to-Europe.  They can be supported by the Commission, but not instigated by it. The Flanders region has already enacted a GSP: it pays for ICT training in Morocco, and some of the workers stay in the local market while others come to Flanders to resolve local labour shortages. That allows for legal, permanent migration opportunities without depriving the local markets of talent. Both sides should find the political will to discuss new migration opportunities, rather than remaining dogmatically focused on migration control and enforcement.
Overall, if the EU truly wishes to have a sibling-like relationship with Africa,  that will involve much more sharing and compromise. A solution on legal migration is of particular interest to Africa and something the EU will have to find the political will for, and the reduction of EU trade barriers would benefit both partners in the long run as Africa continues to grow and do business with Europe. Moving away from a donor-recipient relationship means that the EU will be dealing with a much more organised, powerful and assertive African Union than that of 20 years ago. The post-Cotonou dialogue is a fork in the road. Whether the two continents take the well-travelled route or dare to try something different will determine their intertwined future for decades to come.

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With Great Power Comes Great Responsibility

  • August 2019
  • Hannah Bettsworth

With Great Power Comes Great Responsibility: the EU and Trade Conditionality

The Amazon case reflects both the potential of the EU’s market power and how inconsistently it is exercised

Source: Pixabay

Most people online have probably seen the photos of the Amazon burning, as they spread rapidly across social media and developed into a hashtag. As with any online movement, it has suffered from its fair share of misleading content but has also pushed world leaders to act. The EU is no exception to this: its painstakingly negotiated trade deal with Mercosur (Argentina, Brazil, Paraguay and Uruguay) hangs in the political balance.

 

Emmanuel Macron spotted an opportunity. In threatening to block the deal, he was able to challenge Brazilian President Jair Bolsonaro who allowed people to set fires without having to worry about being punished. France, alone, would not have the economic weight to enforce environmental norms, but the sheer weight of the EU market gives it a potentially high level of impact. Chad Damro, an academic, described this phenomenon as Market Power Europe. In other words, the vastness of the single market means that access controls, EU regulations, and interest contestation within it naturally have a knock-on effect on other countries and foreign firms. As such, the EU can and does use its market in carrot and stick measures,  and deploys it to encourage its partners to adopt EU policies and norms.

 

The reality follows the theory to an extent, concerning EU action in Latin America. It shapes the environmental agenda through dialogues, development aid, Association Agreements and environmental programmes. Its Association Agreements and Free Trade Agreements with Latin American countries are conditional on upholding certain environmental positions. However, the EU’s influence levels in Latin America are weaker than in its neighbourhood. It is also hard to detach the impact of a specific EU contribution from similar measures by other countries and international organisations. Using its single market as an incentive is often a substitute for deploying sanctions. As described in Ian Manners’ concept of a Normative Power Europe, it is the EU’s different identity (derived from its history and governance) that leads it to seek consensus and convince rather than impose.

 

Shaming and pressure only work if domestic leaders are receptive to such input. The EU has similar mechanisms relating to human rights and trade, including a ‘human rights clause’ as an essential part of trade deals which can result in the suspension of the whole agreement. Such clauses have not yet been invoked, although the EU also has a Generalised System of Preferences+ (GSP+) scheme which provides additional trade benefits on developing countries and is conditional on ratification and implementation of particular international agreements. So far, the EU has inconsistently used withdrawal threats with varying degrees of success: it succeeded in convincing El Salvador to change its constitution to ratify an International Labour Organisation convention, but could not sufficiently pressure Sri Lanka to address rights violations.

 

In Cambodia, which has duty-free access to EU markets under the Everything But Arms scheme, preferential tariffs aimed at increasing land investment inadvertently also incentivised the state to seize land and evict people against their will to facilitate sales to agro-industrial developers. This led the EU to begin to consider preference removal, which is a long process and has no coercive impact in the meantime if the Cambodian government is not receptive. This is relevant to the current situation, as Bolsonaro has made repeated remarks about developing on indigenous land and integrating the people there (who wish to maintain their current system and culture) into mainstream Brazilian society.

Indeed, the European Parliamentary Research Service notes that some suggest the EU has the most power at the stage of negotiations it has currently reached with Mercosur: “when it can still withdraw the conclusion of the agreement unless the other party improves its commitment to human and labour rights.” It, sensibly, reminds us that the Commission has to weigh up all the potential impacts of a trade agreement as to the increased openness, dialogue, and contacts between the parties that come with economic liberalisation have the potential to lead to additional progress. Indeed, civil society can also benefit from the accompanying environmental and human rights dialogues in EU agreements and obtain more opportunities to mobilise for reform at home. Free trade should not be restricted at all: as part of an effective development package, it is a vital tool for reducing poverty, and the slowing growth in global trade puts that at risk.

 

Member States know that, and value domestic economic growth highly on their priority lists. It is worth looking at the experience of the EU-Canada agreement (CETA). The European Parliament fought tooth and nail for human rights conditionality in CETA, against Canada’s wishes. Despite Canada’s traditionally strong human rights record, the European Parliament insisted on the inclusion of a human rights clause in the deal, which the Canadians initially saw as unnecessary. It has not always pushed as strongly for such clauses but chose to operate tactically as a result of growing civil society and public focus on trade deals. Macron has arguably done the same. He spotted an opportunity to fight with a populist leader on an issue which had erupted into the public consciousness, while tactically avoiding confrontation with French farmers (much to the chagrin of other Member States.)

 

Overall, this situation is a microcosm of wider EU trade policy issues. Market Power Europe could have an exceptional amount of leverage with its partners and with global markets. If it was willing to overcome its squeamishness about hard power, it could successfully push other actors to fall in line with its human rights and environmental policy priorities while maintaining its ever-more-vital role as a defender of global free trade and economic openness. It could consistently and successfully spread European economic and human rights norms to its partners, in a beneficial manner for Europeans and the planet as a whole, but instead only uses this vast potential when the stars align to make it politically convenient for a leader or institution to do so.

 

 

 

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Looking for a common strategy

  • March 2019
  • Otto Ilveskero

Looking for a common strategy

 

EU struggles with a united vision on China ahead of bilateral summit

 

Source: Wikimedia Commons

 

The EU is struggling to maintain a united front towards China ahead of the 21st bilateral EU–China summit on 9 April. After the Commission labelled China a “systemic rival” for the first time, France has stepped up the calls for a common EU strategy and an alignment of vision towards China.

 

But while President Macron staged a “mini-summit” with Angela Merkel, Jean-Claude Juncker to Paris and China’s Xi Jinping on Tuesday (26 April), the Italian government was busy signing a bilateral investment deal as a part of the global power’s controversial Belt and Road Initiative (BRI). The EU’s slow departure from its usual soft stance towards Beijing is a welcomed step despite having so far gained limited attention beyond the Franco-German axis. Alongside Italy, 12 other EU members have signed a memorandum of understanding with China on BRI.

 

China’s growing interest in Europe comes with risks attached

 

Chinese foreign direct investment (FDI) in Europe has risen rapidly over the past decade. Last year Chinese companies completed FDI transactions worth over eight times the 2010 numbers (from €2.1 billion to €17.3 billion). During the record year of 2016, Chinese firms completed investments worth €37.2 billion in the EU. This year, China’s trade conflict with the United States has already prompted growing Chinese interests towards Europe, as highlighted by Xi’s European tour. China’s recent €2.5 billion memorandum of understanding with Italy, which marks the first time a G7 economy has signed up to the BRI, could grow to €20 billion in value in the future. These investments to the struggling Italian economy cover ports, satellites, agriculture, and media, among other sectors. In addition, China has also set aside a provisional €15 billion in the train tunnel development plan between Helsinki and Tallinn earlier this year. Chinese technology company Huawei’s investments and sponsorships in Europe worth billions of euros are also well-documented.

 

But dealing with state-owned companies that use Chinese governmental subsidies to their advantage will inevitably come with potential risk factors. Estonia’s Prime Minister Jüri Ratas, for instance, has called for a security review of the FinEst Bay Area project. Moreover, during his recent visit to Central Europe and Brussels, US Secretary of State Mike Pompeo sounded alarm on EU member states conducting business with Huawei on the company’s 5G technology in particular, which the US administration has identified as a security risk. Washington has suspected the Chinese government could use Huawei technology for spying, although it has so far not provided public evidence to support the claim. Like Germany earlier this month, the European Commission resisted the calls to issue a blanket ban on Huawei in its new Cybersecurity Recommendation published on Tuesday 26 March. Instead, the European agenda-setter decided to ask the national capitals to run risk assessments on 5G network technology and to collaborate on common EU-wide measures before auctioning spectrum bands. Many member states – notably France, Italy, and the UK, are yet to update their 5G security requirements.

 

China’s ‘debtbook diplomacy’ and strategic investments in Europe

 

China’s strategic investments around Europe may in the long-term constitute an unsustainable burden on weaker European economies. This so-called ‘debtbook diplomacy’ allows China to use economic leverage to politically coerce vulnerable countries to achieve its strategic aims. For example, the EU has raised concerns over China’s investments in Central and Eastern Europe as a part of its 16+1 Initiative. Similarly, due to concerns over the autonomy and sovereignty of Italy, the EU’s budget commissioner Günther Oettinger recently called for the EU to veto the member state’s participation in Chinese infrastructure projects. “[I]nfrastructure of strategic importance like power networks, rapid rail lines or harbours are no longer in European but in Chinese hands”, the commissioner added.

 

Equally important to China are the strategic investments made over the past decade which have led to its state-owned enterprises controlling around 10% of European cargo port capacity – most recently signing deals to manage Italy’s largest port in Genoa as well as the port of Trieste. On a continent where 70% of all goods crossing its borders travel by sea, this is certainly not insignificant. In addition, as a result of its carefully planned ‘science diplomacy’ and investments through the ‘Polar Silk Road’, China has been able to carve a foothold in strategically valuable locations in the Arctic. This has provided China with the opportunity to better observe air traffic and monitor naval activity in Europe’s High North, as well as tighten its grip on the global rare earth materials market. There is always a possibility these acquisitions will be used for non-civilian purposes later on.

 

EU needs a coherent common China strategy

 

The EU is in need of an updated common China strategy. (This applies equally to NATO, as pointed out here by Carnegie Endowment’s Erik Brattberg.) Although the nature of rhetoric has shifted since the EU’s 2016 Elements for a new EU strategy on China, the continent remains divided on its attitudes towards Beijing. For example, the southern member states have been critical of Brussels and the northern member states’ complaints about the scale of Chinese investment, given that many of them were pushed to sell prime asset during the height of the eurozone crisis. The combined impact of slow economic growth and the EU’s failure to maintain economic solidarity has also resulted in a situation where member states such as Italy are considering selling debt to China. This has understandably raised concerns in Brussels regarding the possibility for China to establish political leverage over Rome.

 

Calling for China to deliver on World Trade Organization (WTO) reforms regarding subsidies and technology transfers is not enough, when the EU cannot do it as one voice. Effective implementation of common screening regulation for FDI is one thing, but the EU must also improve its own practices on strategic investment to support many areas that now feel the need to turn to China due to lack of investment. Increasing EU investment on infrastructure and industry is important also from the perspective of sustainable development.

 

This is, however, not to say that the EU should become adversarial towards China or ban Chinese investments as a security risk altogether. It is to support what the Commission has already stated: ‘Neither the EU nor any of its Member States can effectively achieve their aims with China without full unity.’ It is highly important that member states ensure their bilateral relations with China comply with EU law and policies, while the EU aims to deliver a more balanced and reciprocal overall trade relationship with Beijing. A united EU can expect to wield some leverage in trade negotiations as China’s largest trading partner, but this should not be overestimated. China is adept at pitting Europeans against each other (not to say Europeans would not be good at it on their own). Thus, without a common strategy, the EU simply cannot push for the reciprocity in economic ties and advances in human rights it so desires.

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Piece by piece

  • March 2019
  • Otto Ilveskero

Piece by piece

 

Solving the challenges hindering EU–US trade talks

 

Source: Security & Defence Agenda | Flickr

 

The EU–US trade negotiations could be revitalised “within some weeks”, according to the EU Commissioner for Trade Cecilia Malmström. The Council is expected to approve the negotiating mandates during its currently on-going Summit in Brussels. The prospects of any transatlantic trade talks have faced numerous challenges since the Transatlantic Trade and Investment Partnership (TTIP) negotiations stalled, but the two sides sound ready to return to the table.

 

As is often the case in trade talks conducted by the EU, however, the agriculture sector has constituted a significant problem moving forward. In the specific case of revitalising the EU–US trade negotiations, there have been significant disagreements on whether to include agriculture products within the scope of the agreement. Despite the joint declaration made by Presidents Juncker and Trump in the White House Rose Garden in July 2018 to reduce trade barriers and strengthen strategic cooperation, trust between the transatlantic partners has only eroded further. From the EU’s perspective, President Trump’s zero-sum perception of trade negotiations, steel tariffs, and threats to impose measures against European car imports have reinforced the view that his administration is not willing to follow the rules on which the transatlantic relationship has traditionally been based.

 

“Agriculture is out! That is crystal clear.” Speaking at a European Liberal Forum global trade event on Thursday (21 March), Trade Commissioner Malmström was more than certain that the Council would never grant her a mandate to negotiate trade with the United States that would include agriculture products. She stated that there is no appetite on the EU side to open negotiations for a full 30-chapter free trade agreement. Instead, the bloc would be looking to conclude a smaller agreement, as President Juncker already indicated during his July 2018 visit to the White House. According to the Commission’s draft mandates released this January, the EU would be open to negotiating a trade agreement strictly focused on removing tariffs on industrial goods (such as steel) and another agreement on regulatory conformity intended to remove non-tariff barriers.

 

Speaking also on the topic of trade on Thursday, the US Ambassador to the EU Gordon Sondland told an American Chamber of Commerce to the EU (AmChamEU) transatlantic conference that “the mandate that is being circulated falls far short of what even President Juncker and President Trump discussed in July”. He continued that the talks will need to include “all aspects of our relationship” and repeated the US administration’s demand that agriculture is included in the deal. Last week, US Trade Representative Robert Lighthizer told Congress that the EU-U.S. Executive Working Group had reached a “complete stalemate” as a result of the disagreements over agriculture.

 

The situation is not this simple, of course. Washington has also consistently refused the EU’s demands to include public procurement and geographical indications in the negotiations, as Commissioner Malmström explained on Thursday. In addition, car tariffs have been another point of contention, as Brussels has insisted that vehicles should be included in the negotiations. This is obviously in the EU’s interest in order to avoid higher import tariffs on European cars to the US as per President Trump’s threats to do so. However, the 2018 joint declaration – on which the current efforts to establish a dialogue are based – explicitly refers to “non-auto industrial goods” in its wording.

 

What is there to be done then? First of all, both Commissioner Malmström and Ambassador Sondland agreed in their speeches that the EU and US could build up agreements, moving through the issues one by one. Dealing with each issue on its separate track would allow addressing problems at their own pace. Successfully concluding a smaller trade deal could also be used as a platform to build trust between the transatlantic partners and to pave the way for more comprehensive talks in the future. According to Malmström, seeking a positive platform for these talks could start, for example, from the work already done on some regulatory cooperation and standard alignment matters during the TTIP negotiations. From the EU’s perspective, focusing also on aligning car safety regulations could possibly strengthen its hand in arguing that the US cannot impose tariffs on the basis of national security.

 

Furthermore, the EU and US should use the talks to set a common agenda on their shared concerns on global trade, namely reforming the WTO rulebook and challenging China on its unfair practices.

 

There are also risks that the transatlantic negotiation would backfire, eroding the already strained relationship even further. The EU might, for example, fail to enter the talks as one voice. The European Parliament’s recent vote failing to issue recommendations on the US trade negotiations highlights the existing divisions between European policy-makers on the topic. President Trump’s own ‘tough guy’ act and the possibility that his administration would impose punitive tariffs before the talks have been concluded – in which case the EU would most likely suspend the negotiations – also pose risks to re-building the partnership. For example, carefully avoiding any reconciliatory tones in a speech to the US governors this February, Donald Trump called the EU “in certain ways, tougher than China” on trade and said that he would “tariff the hell out of [the EU]” if the bloc would not agree to include agriculture products in the trade negotiations.

 

Yet, perhaps the future opportunity to use the EU–US trade negotiations as an example of President Trump’s deal-making skills ahead of the 2020 US presidential race will eventually be enough to convince Washington of the benefits of a smaller trade agreement. Commissioner Malmström, at least, expects the talks to be concluded by the end of the current Commission’s mandate on 31 October.

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