René van Sloten, Cefic Executive Director Trade and Industrial Policy shares his thoughts about the deteriorating trade situation.
We are witnessing a trade policy scene that is getting worse by the month, and 2019 might well develop into an annus horribilis for trade. The World Trade Organization (WTO) is in crisis, the trade war between the US and China escalated further in May, while US sanctions policies increasingly complicate the operation of normal trade and investment policies of European firms. At the same time the talks between the US and the EU about eliminating import duties are not progressing well, due to very diverse negotiation mandates. The civil aircraft dispute over subsidies to Boeing and Airbus risks drawing in chemicals as part of respective countermeasures. Meanwhile, the possible prospect of a no-deal Brexit end of October and an EU-US trade war over cars and car parts loom large.
The impact on trade is slowly starting to affect the global economy, adding to the slowdown that has already set in. Trade growth is lower than GDP growth, and globalisation is turning into slowbalisation. This is particularly worrisome for the European chemical industry, as we are heavily dependent on free and open trade. In 2018 EU chemical exports were worth euro 160 bn and, in the next decade, 90% of GDP growth will take place outside Europe.
Where did it go wrong? 25 years ago, the WTO was heralded as the guardian of the multilateral trade system, ensuring rules-based trade in an ever-globalising world. The GATT Uruguay Round ended in 1994, setting up the WTO with a Dispute Settlement Body, new rules for intellectual property protection, subsidies and anti-dumping, technical barriers to trade, etc. Chemical tariffs decreased and chemical trade increased on the wave of economic development that drew hundreds of millions of people out of poverty.
The success of the WTO attracted a lot of criticism from NGOs, accusing it of standing in the way of economic progress of developing countries. Then the Doha Round was launched in December 2001, expected to be finished within three to four years. No further multilateral trade liberalisation has since taken place, despite our efforts to bring chemicals tariffs down to zero globally. Neither did the WTO deliver on new trade rules, apart from a Trade Facilitation deal. And its Dispute Settlement mechanism is under threat now as well, due to the US blocking the nomination of new judges to the Appellate Body.
What can Europe do, then, to ensure that its businesses stay competitive on the world stage? The new European Commission should continue to lead the efforts to reform the multilateral trading system and do all it can to preserve and modernise the international rules-based trading system, in cooperation with other partners – including Japan, China and the U.S. It should, moreover, bring forward ideas on how plurilateral agreements inside the WTO can play a role as a peacemaker for developing new sets of rules and liberalisation efforts.
At the same time, the EU should continue concluding commercially meaningful Free Trade Agreements (FTAs), to keep on opening markets whilst avoiding the further regionalisation and fragmentation of trade. The EU should also have a holistic view on how to address Africa. Africa’s population will increase to four billion people by the end of the century and providing Africa with sustainable economic development is essential. The revision of the Cotonou agreement with ACP countries provides an opportunity to include a more economic angle in the current EU development aid strategy towards Africa.
The recent conclusion of an agreement with Japan offers hope, as does the continuation of several trade agreements’ negotiations and the possible conclusion of a deal with Mercosur before the end of this Commission. We hope that the new European Parliament will also be supportive to concluding trade agreements. In trade policy you have to be an optimist, but dark clouds are gathering.