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1. Trading Up: An EU Trade Policy for Better Market Access and Resilient Sourcing

Author:
Fredrik Erixon, Oscar Guinea, Philipp Lamprecht, Oscar du Roy, Elena Sisto, and Renata Zilli
Publication Date:
05-2024
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Europe’s competitiveness could be substantially improved by a trade policy that facilitates more trade and other forms of cross-border exchange. The evidence is clear: the EU trades less with the rest of the world than would be expected given the size of its economy. With 85 percent of global growth happening outside of the EU – and with an increasing share of all new technologies, innovations, patents, human capital, and R&D expenditure emerging in other parts of the world than Europe – the EU needs to find better ways to integrate with international markets. It is now becoming urgent for the EU to revive its international trade policy. Europe’s increasing detachment from global markets lead to two major economic concerns: deteriorating market access and less capability to build economic resilience. Market access can be defined as an export challenge, as EU firms face increasing trade barriers that hinder their ability to sell products and services abroad. These barriers ultimately limit the EU’s ability to scale up production, specialise, and increase R&D spending. Economic resilience is an import challenge. To become more resilient, the EU must diversify its sources of supply, particularly for critical raw materials, and secure a stable and frictionless access to foreign high-end goods, services, and technologies. The next five years present a critical opportunity for the EU to address the challenges limiting the contribution of international trade to EU’s competitiveness. This Policy Brief outlines seven trade policy recommendations that tackle the lack of market access and address the need for economic resilience. These policy recommendations are there for the EU to take: they are realistic and achievable. The EU has the power to make these seven policy recommendations a reality.
Topic:
Markets, Treaties and Agreements, European Union, Trade, and Resilience
Political Geography:
Europe

2. Securing Europe’s Future: Strengthening ICT Competitiveness for Economic and National Security

Author:
Fredrik Erixon, Oscar Guinea, and Dyuti Pandya
Publication Date:
12-2024
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Europe’s Information and Communication Technology (ICT) sector, including ICT manufacturing such as telecom equipment and electronic components, as well as ICT services such as software, telecommunication services, and data processing, is no longer merely an economic pillar but a strategic asset essential for national security and defence capabilities. This paper identifies two concerns linking technology and national security: the exploitation of ICT as a gateway to critical infrastructure and the weaponisation of trade and technological dependencies in ICT by foreign nations. Addressing these two challenges requires tailored approaches, as they involve distinct nations and contexts. First, the EU should reduce its reliance on Chinese telecom equipment within its networks and accelerate the deployment of 5G. While phasing out Chinese telecom equipment will take years, a faster rollout of 5G can be achieved in the short term. To accomplish this, the EU should promote the scale and profitability of its telecom operators. Secondly, the EU relies heavily on US companies for a substantial share of its cloud-based online services. However, it is unlikely that the US would impose restrictions on these exports to the EU. Furthermore, replicating the infrastructure needed to deliver cloud-based online services would entail significant costs. To achieve technological leadership, the EU must prioritise emerging technologies such as 6G, XG, AI, quantum computing, and edge and hybrid computing, which will form the foundation of future commercial and military innovations. Thirdly, the EU should strengthen its leadership position in the development of technologies for advanced mobile communication, including 5G, 6G, and XG. Through significant effort and investment in R&D, European companies have secured a leading role in developing technical standards for cellular communication and telecom equipment. Large European firms such as Ericsson and Nokia, as well as EU SMEs that are champions in their fields, are among the most significant contributors to the technological standards. This hard-won position is one that EU policymakers must do their utmost to protect and develop. However, complacency is a recipe for disaster. The EU has the potential to foster companies that could lead in the technologies of tomorrow. It possesses the necessary fundamentals to drive technological innovation in the ICT sector, including high levels of human capital, firms operating at the technological frontier, and a market economy underpinned by strong institutions, the rule of law, and robust intellectual property protections. These constitute Europe’s comparative advantages, and the EU must adopt policies that recognise and reinforce them, rather than undermine them.
Topic:
Defense Policy, National Security, European Union, Digital Economy, Trade, and Competition
Political Geography:
Europe

3. Reforming Standard Essential Patents: Trade, Specialisation, and International Jurisprudence

Author:
Fredrik Erixon and Oscar Guinea
Publication Date:
04-2023
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The European Commission is considering a radical overhaul of the system governing Standard Essential Patents (SEPs). A leaked proposal suggests that the Commission wants to take control over the registration of SEPs, take efforts to regulate their essentiality, and intervene in negotiations over royalty rates if parties do not come to an agreement. The underlying assumption is that such a system will benefit SEP implementers and the European economy, and that the common holders of SEPs will be cut down a size or two. The logic behind this policy is that, since there are more SEP implementers than holders, any change in favour of implementers will have a net positive effect on the EU economy. However, this is doubtful. The EU is a R&D powerhouse for many of the technologies protected under SEPs and since most of the global production of the goods using these technologies is done outside Europe, the EU is a net exporter of innovation and a receiver of revenues from the licensing of these technologies. Using data on trade, specialisation, and market revenues, this paper comes to a different conclusion: the EU economy is likely to be a net loser if the balance between holders and implementers is changed. Moreover, there is a general and fundamental interest for Europe to preserve a system of standards and SEPs that allows it to punch above its weight in international policies and practices in standards and patents.
Topic:
Reform, European Union, Trade, Patents, Specialization, European Commission, and Jurisprudence
Political Geography:
Europe

4. The New Wave of Defensive Trade Policy Measures in the European Union: Design, Structure, and Trade Effects

Author:
Fredrik Erixon, Oscar Guinea, Philipp Lamprecht, Vanika Sharma, and Renata Zilli
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
This study undertakes a comprehensive review of proposed and adopted defensive trade policy instruments in the EU, with the purpose of better understanding their design, functioning, and implications. The study covers eight policy instruments at different stages of development. These are: Anti-Coercion Instrument (ACI), International Procurement Instrument (IPI), Carbon Border Adjustment Mechanism (CBAM), Foreign Subsidy Instrument (FSI), Corporate Sustainability Due Diligence (DD), Level Playing Field Provisions in the EU-UK Trade and Cooperation Agreement (LPF), Enforcement Regulation (ER), and the Deforestation Initiative (DI). It is understandable that the EU seeks both redressive and retaliatory measures in its trade policy. However, these measures would have the total effect of Europe producing more for itself and being less dependent on imports. This is a significant policy shift, because in their totality the defensive trade policies make the EU more inward-looking. This can lead to major negative consequences. An extensive distortion of trade and markets would reduce the gains from trade and prompt a reallocation of European resources. Notably, the EU is a larger supplier of goods and services than it is a buyer, and an inward-looking policy that leads to retaliation from EU’s trading partners can harm its exports and trade surplus. There are also potential strategic consequences that could follow, and their importance has increased considerable as a result of the Russian war against Ukraine. Under these measures, the EU could introduce new trade frictions with friends and allies, and with countries that the EU seeks closer cooperation with to provide for a safer geopolitical environment. For each of these defensive measures, the study takes an extensive look at the objectives of the instruments, their legality, proportionality, and subsidiarity, the working of the instruments and the division of labour between institutions, as well as their enforceability in conjunction with existing multilateral and bilateral rules affecting the EU. It also attempts to capture the impact and potential for retaliation for the EU and its partners as a result of the implementation of the instruments. The study highlights the areas where the instruments lack clarity, particularly in the implementation of the instrument, the division of labour between the EU and EU member states, and the compliance of the instruments with WTO rules and bilateral FTA provisions. The instruments share some general characteristics. Many of the instruments have been created as retaliatory measures against coercion and unfair trade practices by partner countries. Very often, the partner countries most affected by the instruments are also the same. The United States, China, Russia, the UK, and Turkey are likely to be on the receiving end of the instruments due to the significant volumes of trade and economic interdependence with the EU, but also because they either do not follow the same trade rules as the EU, or the EU wants to maintain with them the current level of competitiveness. Most instruments also use restrictions to the EU market as the main policy lever. The objective is not just about creating an equal playing field but also ensuring that the rest of the world follows EU rules. Particularly, the EU aims at regulating non-EU companies directly and unilaterally through EU policies, which increases the risk of retaliation against the EU. At the same time, there are also important areas of departure in the specifics of each instrument, as illustrated by the varying objectives, measures, compatibility with international obligation, affected sectors, and whether the measures apply automatically or at the discretion of the EU.
Topic:
Defense Policy, Political Economy, European Union, and Trade
Political Geography:
Europe

5. The Good, the Bad and the Ugly: Taking Stock of Europe’s New Trade Policy Strategy

Author:
Fredrik Erixon
Publication Date:
04-2021
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
This Policy Brief takes stock of the EU Trade Policy Review – the Commission’s proposed strategy for trade. Despite appearances, the Review doesn’t come close to its billing as a strategy for the new geopolitics of trade. In fact, the Review is weak on key geopolitical developments and rather gives the impression that the EU doesn’t have an ambition to shape outcomes. Obviously, the Review is anchored in Europe’s general economic climate: defensiveness on globalization, competition and digitalization. It follows that Europe is getting increasingly detached from world developments. There are several good parts in the Review. The Commission wants to revive and reform the World Trade Organisation, and it’s clear about what factors that have made the Geneva-based trade body dysfunctional. The Review also acknowledges that the EU will seek a closer alliance with the United States and use that for constructive purposes. Finally, it is welcome that the Commission proposes some new instruments for dealing with market distortions caused by foreign subsidies and protectionism in government procurement. All these initiatives can achieve good outcomes. However, they all require that Europe makes changes in its own policies and positions. The bad parts in the Review are Europe’s weak agenda for getting better market access in the growth regions in the world and its continued passivity on matters related to China. Europe’s main trade-policy challenge in the next decade is to ensure that businesses and consumers in Europe get better integrated with a world-market dynamism that predominantly will come from the Asian region. Absent a realistic and medium-term strategy for dealing with challenges connected to the rise of China, Europe will have difficulties getting the EU-China Comprehensive Agreement on Investment approved. Europe needs an actionable agenda for addressing bilateral frictions with China and problems that occur outside bilateral trade. Finally, the ugly part of the trade strategy are all the commercial policies in the EU – with strong effects on trade – that aren’t recognized or only casually mentioned in the Review. The latter category includes the ambition to introduce an autonomous carbon border tax on imports. Such a policy comes at a high political and economic cost, and the measure’s effect on reducing global carbon emissions is at best very negligible.
Topic:
Globalization, International Political Economy, International Trade and Finance, Treaties and Agreements, European Union, Geopolitics, Digital Economy, and Trade
Political Geography:
Europe

6. Europe’s Carbon Border Adjustment Mechanism: Time to Go Back to the Drawing Board

Author:
Fredrik Erixon
Publication Date:
11-2021
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
This Policy Brief takes stock of the global and European trade and carbon-emission effects from CBAM. It argues that the current design of the CBAM is not good enough and, ultimately, that there are risks that it will dent the positive effects on global carbon emissions that come from a lower cap on carbon emissions in Europe. These effects will happen through trade and the reallocation of production – and from retaliatory responses from countries that will be negatively affected by the CBAM. This Policy Brief provides recommendations on what the EU could do to improve the CBAM. First, it should respond better to concerns about WTO compatibility. No one knows if CBAM would stand up in a WTO dispute, or if the issue of WTO compatibility is of relevance at all. What we do know, however, is that the EU is going a bit off-piste with CBAM, and it knows it. It’s better to address these issues directly than to pretend that they don’t exist. It could, for instance, pre-empt problems by offering compensatory concessions for affected countries. Moreover, the revenues raised by CBAM fees could be paid out to the origin country for the exports. There will be a price for the EU to pay and the more front-footed it is, the more choices it will have in deciding what political currency to use for the payment. Second, the EU should address development problems that will arise from CBAM. The genie is already out of the bottle since development concerns have been raised by the European Parliament and EU member states. Something will have to be done to avoid that CBAM makes it harder for poor countries to improve their welfare. Third, the EU should provide workable ideas for how CBAM could be anchored in trade and climate agreements. If more economies go off-piste in their climate policies (e.g. in subsidies and procurement), the EU is going to be harmed. Hence, the EU has a strong interest to establish an example and provide international rules for how other countries should act in the future when they take measures that ‘beggar-thy-neighbour’. Fourth, the EU should provide a realistic assessment of what retaliatory strategies that other countries will use against the EU, and get a much better understanding of the dynamic or second-order actions that CBAM will prompt. These actions can have a very bad impact on both EU growth and its efforts to decarbonise the economy. It is just decadent to avoid dealing with them pre-emptively. Finally, and more ambitiously, the EU should consider how it can avoid that CBAM (not the ETS) provokes carbon leakage through both imports and exports. In its current shape, the CBAM provides an incentive to move imports up the value-chain and reallocate imports to goods with embodied carbon. Moreover, the CBAM will reduce the external competitiveness of EU exports, leading to a reduction in foreign sales. Both effects will move the global production of CBAM goods to countries with lower carbon costs and higher carbon intensity in the production.
Topic:
Climate Change, European Union, Trade, Carbon Emissions, and WTO
Political Geography:
Europe

7. The Role of Trade Policy in Promoting Sustainable Agriculture

Author:
Philipp Lamprecht and Fredrik Erixon
Publication Date:
01-2020
Content Type:
Research Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
There is now a long history of countries improving sustainability standards in most parts of the economy while at the same time pursuing the ambitions of rules-based international trade and economic integration with other countries. It is not surprising that countries at the vanguard of sustainability also tend to be the countries that are most open to trade. This Report looks closer at the interplay between the formulation of domestic standards and provisions in Free Trade Agreements that either acknowledge domestic standards or establish standards in a direct way. This interplay is crucial for two reasons: first to establish market access arrangements that help to promote sustainability standards, second to provide the policy basis to make standards and possible market access restrictions conducive to basic trade rules. It lays a focus particularly on the growing importance of sustainability standards in international trade agreements, or Free Trade Agreements (FTAs) – in particular for the food sector. Such standards are relevant for all new high-ambition Free Trade Agreements – from the EU-Japan Economic Partnership Agreement to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership between eleven trans-pacific nations. The Report considers especially nine modern FTAs. The purpose of the Report is to investigate how governments with high sustainability ambitions approach the issue of trade and sustainability – in particular how they work with, on the one hand, specific provisions in FTAs and, on the other hand, the development of domestic standards and their linkage to trade. The Report also looks directly at how these standards are designed, and what lessons that can be learned for governments that want to raise sustainability ambitions. It puts the results of the analysis in the context of Norwegian ambitions to improve its sustainability standards for food placed on the Norwegian market. The analysis of how trade and sustainability have been made compatible starts with the rules of the World Trade Organisation (WTO). These rules are important in their own right, but they also carry political significance. WTO-rules form the basis of the bilateral free trade agreements that countries sign with each other – and that now make up the main plank of international trade negotiations. In the language of the WTO, basic trade rules serve to protect the principles of national treatment and non-discrimination. Sustainability policies that are grounded on solid evidence and that follow international scientific norms will be compatible with WTO rules. Sustainability policies that confer advantages to domestic producers or that are arbitrary will get a harsh treatment. Consequently, the bilateral free trade deals that the European Union or the European Free Trade Area (EFTA) have concluded with other parts of the world are not just compatible with WTO rules, they rely on these rules as the foundation stone. Moreover, these rules inform governments how they should organise their sustainability policy if they also want the opportunity to take part in modern trade agreements. If countries aren’t willing to play by these rules, they should also accept that they won’t be able to enjoy the benefits of trade agreements. What member countries of the WTO have agreed in past multilateral trade accords are not a blockage of sustainability policy, but they bar countries from pursuing such policies in a way that would lead to unequal application of trade rules – between home and foreign producers, or between different foreign producers. In addition, it is of interest – also to the Norwegian policy discussion – to consider how EU policies are likely to change in the forceable future. The analysis provides a discussion of issues that are likely to remain very high on the agenda of the next European Commission. These include possible improvements in the TSD Chapters of trade agreements in particular with regard to enforcement mechanisms, the engagement of civil society, and climate action. Further policy highlights include a possible introduction of a carbon border tax, as well as the discussions related to due diligence of supply chains, and multilateralism. In terms of conclusions, the Report identifies four main observations that should inform future policy development in Norway: First, there is clearly a case to be made for aligning Norwegian trade policy to EU trade policy when it comes to provisions on trade and sustainability in Free Trade Agreements. Second, there is a substantial body of scientific evidence, risk assessments and international experience of standards in areas that are related to sanitary and phyto-sanitary standards and to environmental standards which any government that want to raise sustainability standards can draw on. Third, many countries struggle to formulate their domestic sustainability standards in a structured way. Arguably, this is a critical point for governments that are considering to introduce higher standards with consequence for market access for foreign producers. To avoid confusion or accusation of standards being a disguised trade restrictions, countries like Norway would have to structure and systematise its standards if the ambitions were to be raised and formed part of market access policy. A first step for a policy that seeks to condition import on the compliance with a stand is to make the standard clear and explicit. Fourth, there are direct and indirect relations between domestic standards and provisions in FTAs. FTAs often deal with policies that cannot be directly formulated in a domestic standard, like some aspects of labour laws. They also deal with other forms of standards that need policy convergence in order to guarantee smooth trade between the contracting parties. Generally, it cannot be said that the EU or other entities use FTAs to “regulate” or to establish the standard. That rather happens bottom-up – through domestic regulations that later get reflected in trade agreements.
Topic:
International Political Economy, International Trade and Finance, Partnerships, Global Markets, Free Trade, Trade, and Sustainability
Political Geography:
Europe and Global Focus