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

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.

1. Modernise existing FTAs and conclude agreements with Mercosur, Australia and the ASEAN countries: there is untapped potential in the modernisation of current FTAs to improve market access and facilitate imports, particularly on raw materials, services, and clean technologies. The advantages of signing FTAs become clearer for countries with whom the EU does not have an FTA such as Mercosur, Australia and some of the ASEAN countries such as Indonesia, Thailand or the Philippines.

2. Negotiate “Mini deals”: the EU should prioritise sectoral agreements in areas where global regulatory requirements diverge and in sectors where the EU demonstrates a comparative advantage. These targeted agreements, focused on major trading partners and high-volume sectors, can deliver benefits comparable to, or even exceeding, those of Free Trade Agreements.

3. Expand the adequacy framework for regulation: similar to the existing framework for personal data, the EU should develop a transparent and efficient process for countries to demonstrate alignment with EU regulations. This would facilitate predictable market access for foreign businesses, mitigating unnecessary costs and delays associated with importing into the EU market.

4. Join the CPTPP: the EU should apply to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Joining the CPTPP will allow the EU to shape trade rules, counter Chinese influence and expand its market access in the region.

5. Deepen Trade and Technology Councils (TTCs) with the US and India: the EU-US TTC should be broadened and serve as a springboard for new common standards and policies in trade, technology and economic security. Moreover, the EU should elevate the EU-India TTC, recognising India’s growing importance as a tech hub and talent pool.

6. Deepen Neighbourhood Policies on raw materials: the EU has a vital strategic interest in securing a reliable and sustainable supply of critical raw materials. Leveraging the Eastern Partnership and the Union for the Mediterranean, the EU can establish mutually beneficial partnerships to enhanced access to diverse and secure sources of these minerals and metals and boost local processing, refining, and recycling capacities.

7. Initiate a Trade Resilience Coalition: building upon the Ottawa Group’s collaboration during the Covid-19 pandemic, the EU should spearhead the creation of a Trade Resilience Coalition. This group of like-minded countries would proactively agree on trade rules and protocols in preparation for common response to sudden stresses in trade and supply chains.

You can read the full Policy Brief by Fredrik Erixon , Oscar Guinea , Philipp Lamprecht , Oscar du Roy , Elena S. , Renata Zilli here.