Since we last discussed trade aspects of the COVID-19 pandemic at our video conference on 16 April, we have fortunately seen a gradual stabilisation and improvement in the health effects of the pandemic, although the situation remains serious.
According to the updated Commission estimates, the COVID-19 crisis could result in a decrease in global trade for 2020 of somewhere between 10 and 16 per cent. For the EU27, the estimated decrease in EU27 exports would be around 9 and 15 per cent (€282-€470 billion), while EU-27 imports could expectedly decrease by between 11 and 14 per cent (€313-€398 billion). These numbers are serious reading and underline the need for concerted EU action.
Export Authorisation Scheme
You will recall that, when we last met, we discussed the extension of the original export authorisation scheme for personal protective equipment (PPE), which was first introduced in March, to ensure adequacy of supply of such products in the EU in times of the coronavirus pandemic.
Since then, on 26 May, the scheme was discontinued. The Commission‘s assessment of its application led to the conclusion that it has served its purpose. The scheme has been put in place as a temporary measure and its lapsing was consistent with our commitment in that respect. There have been no requests to prolong the scheme.
Its implementation showed that the authorisation regime struck the right balance between delivering on public health needs and securing open trade flows.
According to the reports submitted by Member States, exporters requested more than 1,300 authorisations based on the regulation that entered into force on 26 April. Some 95 per cent of all applications have been approved. Based on Member States’ reports, more than 13 million protective masks, around 1 million protective garments and more than 350,000 protective masks and visors have been exported from the EU since 26 April.
The Commission’s recent proposal of an MFF/Recovery package, including the Recovery Fund is therefore very important. If agreed, it will deliver significantly on our shared policy priorities.
Even if the focus of the MFF/Recovery package is very much on internal support measures, trade will have its part to play. The importance of multilateralism and the rules-based order is clearly recognised and the Communication on “Europe’s moment” underlines that global trade and its integrated value chains will remain a fundamental growth engine and will be essential for Europe’s recovery” and that “with this in mind, Europe will pursue a model of open strategic autonomy”.
This is therefore a very balanced approach. Our shift toward greater public support and government involvement in the economy may not go unnoticed by our trade partners.
The effects of this may be significant since it is clear that some of the measures that have been proposed will outlast the COVID-19 crisis.
To avoid this, internal and international coordination in the coming months will be key as regards the temporary nature of the measures and the shared global objective of returning to market-driven approaches.
Trade Policy Review
It is clear that the Covid-19 pandemic is reshaping the world as we know it, and that trade policy needs to be proactive rather than reactive in relation to anticipating the “new normal”.
Although it is just five years since the “Trade for All” initiative was published, the world has changed enormously since then.
- The rise of China, the retreat of the United States, the exponential growth of the digital economy, the escalating climate crisis, our rapidly expanded network of EU free trade agreements, Brexit etc.
- All of these factors demand a fresh look at the “why” and “how” of our common EU Trade Policy.
- We have all seen the headlines asking if this moment represents the “death of globalisation”. We, in the European Union, cannot and should not shy away from this debate.
This is why we now need to work together to produce a policy that will help us show leadership in shaping a strong global trade and investment environment, with a fit-for-purpose international rulebook underpinning it.
I will therefore launch a Trade Policy Review on 16 June that will start a very broad and inclusive consultation process. The public debate on this review will be guided by a short consultation paper which will set out a series of questions.
There will be discussions with all key stakeholders (Member States, the European Parliament, business, civil society…) but it is very clear that the Member States will have a key role to play.
The objective will be to conclude this review with the adoption of a new Communication towards the end of the year.
Today is not the day to kick-off the trade policy review, but I would like nevertheless to briefly outline some of the key themes that this review will need to address:
- The debate should focus on how to support building a model of “Open Strategic Autonomy”, which allows us to continue reaping the benefits of international trade and exerting leadership in the international sphere, while having the tools in place to protect ourselves from unfair practices and assertively enforcing our rights. In effect, the review is about striking the right balance between a Europe that is “open for business” and a Europe that protects its people and companies.
- In this context, the review will need to tackle the key issues facing trade policy, such as
how to ensure greater resilience in our supply chains;
how best to support our economic recovery and long-term growth
how to pursue our green, sustainability and digital objectives (and what role due diligence schemes can play in this)
what more can be done to support SMEs;
and how to advance our level playing field objectives internally and externally.
- Ultimately, the consultation should help us identify expectations as to how to deal with the major challenges we face while connecting us to external sources of growth, which will be critical for our prosperity in the years to come.
- The contribution of trade and investment policy to addressing key global challenges, many of which appeared before the crisis (climate change, the digital transition…).
I look very much forward to hearing your expectations for this exercise.
President, I welcome the Dutch and French non-paper on “Trade, Social-Economic Effects and Sustainable Development”. It is an important and useful contribution to our reflections on the post-COVID recovery and the green deal in the run up to the trade policy review. There is no return to ‘business as usual’ and we need to step up the sustainable trade agenda.
Some ideas contained in the paper are already a reality or are being implemented, while others require further reflection. The 15-point TSD action plan has led to a considerable stepping up of implementation and enforcement efforts. This has led to concrete results for example in Peru, Vietnam and Korea; and in respect of civil society involvement in implementation.
The Commission is keen to continue these efforts, with the forthcoming appointment of a Chief Trade Enforcement Officer. We are increasingly taking up on the green agenda in FTAs, in particular climate. We are also working hard to insert sustainability more prominently in the WTO agenda.
Sustainable value chains and due diligence are important parts of the recovery to build a resilient economy. Trade has a clear role as supply chains extend beyond EU borders.
The EU is a key player in the development and implementation of the various international guidelines (OECD, ILO, UN). We reinforce the uptake of these guidelines through capacity building projects and through our FTAs.
On the internal EU front, Commissioner Reynders is leading the work and the Commission intends to table a horizontal legislative proposal on mandatory due diligence and corporate governance in early 2021. We will also see a legislative proposal for the revised Non-Financial Reporting Directive early 2021. At sectoral or thematic level, the Conflict Minerals Regulation will enter into force on 1 January; and I am looking into an initiative for cocoa.
All in all, a lot is happening. As Trade Commissioner, I am very keen to promote coherence between the various initiatives, avoid red tape, avoid duplication, build on international standards, and ensure compatibility with the WTO
Following the request made at Coreper last week by France and Italy for a read-out of recent contacts with the US, I am pleased to have this opportunity to bring you up-to-date.
I have been in regular contact with USTR Lighthizer over the last several weeks. You saw the proposals I made to him for a closer cooperation in the context of Covid-19 (the “Five Principles” paper of late April). Unfortunately, the US has not shown a lot of interest in engaging on these issues, at least to this point.
Of course, an important part of the EU-US agenda pre-dates Covid and includes work on a potential trade-facilitating package, efforts to resolve existing trade disputes and closer EU-US cooperation on global challenges and issues of growing importance at the nexus between trade, technology and security. Achieving results in these areas would be a positive signal and a confidence-builder in challenging times.
The Commission continues to work towards these objectives. However, we must acknowledge that the US is now in a pre-election phase.
The focus of political attention in Washington is therefore much more on the immediate challenges in US domestic politics, such as the need to deal with the Covid outbreak.
Over the weekend, we have seen President Trump returning to his familiar theme that the EU treats the US unfairly – this time on lobsters. I note in passing that our lobster tariff is 8 per cent and not the 20 per cent that President Trump quoted. There will likely be more of that in the coming months.
There are a few other items on which I would like to update you.
We continue to explore a potential small trade-facilitating package covering notably a number of industrial tariff lines, (non-sensitive) SPS issues and the increasingly important linkages between trade and technology. This work is challenging because the US continues to see the overall goal as achieving a reduction in the size of its bilateral trade deficit with the EU.
The Commission will continue to be guided by existing mandates and will work to ensure balance and coherence with the EU’s regulatory and legal framework.
Civil aircraft disputes
We have continued our efforts to reach a fair and balanced resolution of the civil aircraft disputes. I regret that the US has stepped back from the settlement talks in recent weeks. Positions are therefore still quite far apart. If this remains the case, the EU will little choice but to exercise its retaliation rights and impose our own sanctions in the Boeing case, once we have the WTO-award.
This should not be seen as an escalation – rather, it is fully in line with our entitlements under the WTO agreements – and essential to bring the US back to the negotiating table.
We expect the WTO to issue the arbitration award in the Boeing case around early July. Member States will be consulted before any enforcement action is taken. The Commission will carefully calibrate its proposal to make the best use of whatever level of retaliation is authorised by the WTO, with a selection of products where we can exert pressure on the US without causing problems for our own industry.
President, I’m pleased that we have the opportunity to gather again, at least virtually, under your Presidency. The period since we last met in this format has been eventful and it is timely that we should meet to review some recent developments and look forward to some important forthcoming events.
There are fewer more important subjects than the one with which we are starting this morning – the WTO.
The COVID-19 pandemic has generated an additional, legitimacy crisis for the WTO. While the fundamentals of the organization were already put into question by unilateral actions and managed trade, the economic crisis that is unfolding will put the rules-based trading system under additional pressure.
The unexpected early departure of the WTO Director General is further contributed to the uncertainty around the organisation. This creates an urgency to shore up the WTO to enable it to better absorb these upcoming pressures.
The EU should lead WTO reform efforts. To this end, the WTO needs new leadership to be put in place swiftly. We also need to reassess and adapt our WTO reform plans in light of the COVID-19 crisis.
In this respect, a new initiative on trade and health would be a significant contribution of trade policy to ensuring sustainability and resilience of our global value chains for medical products and devices.
Before elaborating in further detail on these three areas, I would like to debrief you on the state of play when it comes to trade in the G20. At the G20 ministerial meeting of last 14 May, we had two WTO-related objectives: first, the recognition of the centrality of WTO reform for the recovery strategy and, second, a hook for the plurilateral initiative on health. We have obtained both, so the G20 provides a least a proper baseline for global trade discussions.
WTO DG Selection
The EU has very strong multilateral credentials and is recognised as a force that could shore up the WTO and protect the multilateral trading system. This puts the EU in a legitimate position to offer a Director General to the WTO.
I propose that you support the Presidency carrying out further consultations to be able to designate, in the coming weeks, an EU candidate.
A new approach and sequence for WTO reform
Our current efforts to make the WTO relevant and effective have become even more important in the context of the COVID-19 pandemic, but they also need to be re-assessed to ensure that they are fit for purpose. Our multilateral trade policy must contribute to the EU’s strategic autonomy, in particular through building resilience, supporting a swift and sustainable economic recovery and contribute to addressing global challenges, many of which appeared before the crisis but have been exacerbated by it.
With the view to ensure that our multilateral trade policy fulfil those objectives, a new sequence and a new focus of our WTO reform policy should be put in place.
We should frontload those elements that respond the most to the current efficiency and legitimacy crisis of the WTO, such as those linked to transparency, health and sustainability, whilst maintaining for the medium term the fundamental objective to tackle industrial subsidies as well as the institutional reform aspects.
The proposed immediate actions would combine:
- Enhance transparency at the WTO, notably with respect to measures taken in the context of the COVID-19 pandemic, including export restrictions.
- Trade and health: a plurilateral initiative on pharmaceutical products and medical devices, to which I will come back in a few moments.
- Bring sustainability to the forefront with the finalisation of the Fisheries Subsidies negotiations and starting a reflection on the liberalisation of climate mitigating goods and services, which could support our climate objectives and would contribute to ensuring a sustainable and green recovery.
- Support ongoing rule-making negotiations: which includes the liberalisation and rule-making in the field of digital trade, via the E-commerce Joint Statement Initiative negotiations. Digital trade has proven to be a critical issue in the current health crisis and its development would contribute to facilitate resilience and crisis response in the future. The Joint Statement Initiatives negotiations on Services Domestic Regulation and Investment Facilitation address behind the borders barriers. Those two initiatives, which could be concluded at MC12, complement liberalisation initiatives in creating opportunities and fair conditions through tackling obscure and inefficient regulatory practices. Eliminating such barriers is particularly beneficial to MSMEs.
The long term policy objective of the EU remains a root-and-branch reform of the WTO, which would require restoring a two-step, binding and independent dispute settlement mechanism, to ensure enforceability of the rules; new rules on level playing field including on industrial subsidies; defining mechanisms to incorporate plurilateral agreements within the WTO; and establish a new consensus on special and differential treatment.
In terms of coalition building, it is clear that some major players will not participate in reform efforts for now. We therefore have the choice between either total inaction or action without the key players on board at the start. Inaction is not an option. We need to move ahead with those who are willing, leaving the critical mass question for later, and assuming that key members will eventually re-engage. For this reason, I think that country groupings such as the Ottawa Group should morph from a sounding board to a coalition for reform, while we progressively extend our outreach.
Trade and health
The health initiative is an opportunity for the EU to show leadership. This is a step very firmly supported by EU business.
The initiative has two components, and is a balanced proposition: elimination of remaining tariffs in the medical and pharmaceutical sector; as well as non-tariff disciplines that would facilitate trade in health care products; notably, the enhancement of WTO disciplines on export restrictions.
Tariff elimination would cover
- medical devices and supplies; and
- certain personal protective equipment (PPE) – but not those with a dual use character (e.g. goggles).
Tariff elimination would be conditioned on reciprocity among countries representing a critical mass of world trade in the sector; free-riding by major partners would not be tolerated.
The objectives of the initiative are to:
- Facilitate access to affordable healthcare products globally on an enduring basis, including to vulnerable countries without manufacturing capacities;
- Contribute to making supply chains more resilient and diversified;
- Support efforts to build strategic reserves of critical equipment;
- Level the international playing field on tariffs in a major industrial sector. We are considering here a forward looking trade initiative that concerns 12 per cent of total EU exports, or €236 billion;
- Create new export opportunities for EU healthcare product manufacturers, and thus incentivise greater production in the EU;
- Support multilateralism, as the agreement would be anchored in the WTO.
The first step will be to discuss the contours of an initiative, on the basis of the concept paper that you have received, with other possible proponents in the Ottawa Group at a Ministerial meeting on 15 June. I should emphasise that the concept paper is just that – it is a means by which we will reach out to partners. It is not a formal proposal and, if we get to that stage, you can be assured that we will revert to the Member States.
Health provides us with a window to offer ideas for a new avenue for plurilateral rule-making, on the basis of concrete proposals which could rapidly gather support from both developed and developing countries. I would like your support today for taking that first, exploratory step, noting my assurances that we are not making a formal proposal at this stage.
President, I look forward now to the contributions of Ministers, particularly in relation to the process for the selection of the next WTO DG and I hope that the meeting will endorse the view that the next DG should come from the EU. I hope also that you will be in a position to offer your support for the health initiative.