Assessing Ursula von der Leyen’s track record on trade

By
Pieter Cleppe
-
European Commission President Ursula von der Leyen (Copyright: European Union, 2024, CC BY 4.0 , via Wikimedia Commons)

The core business of the European Union is to open trade: both within Europe, and between the EU and the rest of the world. However, a look at the EU’s track record on trade during the last five years does not show great results for the EU Commission led by Ursula von der Leyen.

Failures

Prominently, the EU failed to conclude a trade deal with Latin American trade bloc Mercosur. This was partly the result of French protectionism, but was also due to the  EU’s sudden demand to add a sustainability annex to the arrangement. The move was not well received Mercosur governments, who were particularly resistant to the EU’s new deforestation legislation, which imposes the EU’s standards on the rest of the world.

This EU approach of instrumentalizing trade to export specific policy choices also soured trade relations with South East Asia, with palm oil exporting countries Malaysia and Indonesia deciding to freeze trade talks with the EU over its refusal to recognize their standards to prevent deforestation, despite the fact that  NGOs like Global Forest Watch have lauded Malaysia’s success in reducing deforestation. Recently, a WTO panel also accepted Malaysia’s complaints over how EU biofuels policy had been prepared, published and administered, as EU measures were seen to amount to discriminate against Malaysian imports into the EU. The EU was thereby ordered to make adjustments to its biofuels policies.

In contrast, the UK does recognize Malaysia’s standards to prevent deforestation – called the MSPO – as acceptable. This was key for the UK to be granted access to the Trans-Pacific Trade Agreement CPTPP, including countries covering 15 percent of global GDP. This counts as the biggest trade deal for the UK after Brexit.

EU negotiations with Australia for a free trade agreement also led to similar disappointing outcome, as the country’s leadership chose to abandon talks over the EU’s imposition of beef and sheep meat quotas. “The EU’s arrogance killed the deal,” a diplomat from a third country commented.

Moreover, the European bloc’s diplomatic troubles are unlikely to fade away any time soon, as the EU’s new climate tariff, called CBAM or Carbon Border Adjustment Mechanism, is currently being disputed by India at the WTO level, and has already drawn criticism from numerous  African countries, as it is estimated to impose a whopping annual 25 billion US dollar cost on their economies.

Philippe De Baere, a managing partner and trade expert at law firm Van Bael and Bellis is not mild for von der Leyen’s track record on trade. He says: “Everybody has been trying to overload trade agreements with non-trade objectives. (…) This has killed the goose that lays the golden egg.”

Some successes  

Despite these significant setbacks, and the underlying strategy that has limited the EU’s ability to secure meaningful agreements, there are a number of success stories that have enabled von der Leyen to maintain her position and power through ongoing scrutiny. One small example is the trade deal with New Zealand. Still, this is relatively minor, as bilateral trade in goods was only worth €7.8 billion in 2021, which amounts to only 0.2 percent of the EU’s total trade.

A far more significant win was the Enhanced Partnership and Cooperation Agreement (EPCA) governing trade and economic relations between the European Union and Kazakhstan. Initially signed in 2015, the EPCA has allowed for a rapid increase in cooperation between the EU and the fast-rising Central Asian power, and provided the groundwork for the signing of a Memorandum of Understanding (MoU) on Strategic Partnerships on Sustainable Raw Materials, Batteries, and Renewable Hydrogen Value Chains, following the outbreak of conflict in Ukraine.

Building on this burgeoning relationship, the EU has furthermore announced a historic 10 billion euro investment to build out the so-called Middle Corridor, described by former U.S. Ambassador Richard E. Hoagland as “the trade and transportation routes through the Caspian region from China to Europe that now, because of international sanctions against the government in Moscow, have to bypass the long-established more northern routes through Russia.”

He calls this “a most welcome step forward.  It will be well worth watching how the €10B investment further builds out and institutionalizes the Middle and Trans-Caspian Corridors, bypassing Russia over the long term for enhanced trade and transportation from China to Europe.”

In Kazakhstan, the EU has found a committed partner, eager to expand diplomatic ties and explore new avenues for collaboration across key sectors, including energy, security and critical minerals. One clear sign of the country’s mounting global ambitions is the creation of the Astana International Forum, launched in 2023 with the aim of revitalizing Central Asia’s diplomatic landscape and encouraging the proliferation of mutually beneficial agreements.

Going forward, the EU must now continue to deepen ties. After all, Kazakhstan has emerged as an indispensable partner for the European bloc, due in large part of its annual supply of 67 million tons of oil to Europe, as well as its vast uranium reserves, which are critical to the increased popularity of nuclear power in the EU.

Two years ago, Kazakh President Tokayev told EU Council President Charles Michel that, given the “deepening geo-economic fractures”, his country “could contribute by acting as a ‘buffer market’ between East and West, South and North.” With such fractures unlikely to wane in the near future, EU leadership will come under increased pressure to secure further diplomatic wins in Kazakhstan.

CBAM

Recently, the EU came up with the “Carbon Border Adjustment Mechanism” (CBAM), a climate tariff imposed on certain imports, introduced because the EU believes it is unfair that other regions do not adopt Europe’s costly climate policies. This has sparked a major dispute with emerging trading power India, which is challenging CBAM at the World Trade Organisation (WTO). Additionally, African countries are also opposed to CBAM, as it is estimated to cost them US$25 billion annually.

It is truly unfortunate to see the EU’s punitive approach on climate policy now also affecting its trade policy. This while an alternative approach is conceivable. It is being championed by members of the “Climate & Freedom International Coalition,” a group of academics and policymakers who have drafted an international treaty based on leveraging free markets to achieve carbon-neutral solutions. Countries that sign this treaty, which serves as a free-market alternative to the collectivist “Paris Agreement,” would benefit from trade advantages if they implement climate-friendly free-market policies.

Signatories would thereby agree to liberalize their markets, with one proposal suggesting that entrepreneurs and financiers in these treaty countries be incentivized to invest in “property, plant, and equipment (PP&E)”—assets crucial for long-term company growth—through tax-exempt “CoVictory bonds,” loans, and savings funds. The goal is to reduce borrowing costs by at least 30%, thereby promoting investment in newer, cleaner technologies.

Other recommendations include targeted tax cuts (Clean Tax Cuts, CTCs) in the four sectors responsible for 80% of greenhouse gas emissions—transport, energy and electricity, industry, and real estate—as well as tax cuts aimed at breaking up monopolies. This involves eliminating profit taxes for investors who acquire monopoly companies and state-owned enterprises, with the goal of encouraging energy market liberalization among treaty members. Additionally, “Game Changer Tax Cuts” are proposed to reward firms that achieve significant breakthrough innovations that substantially reduce greenhouse gas emissions, offering a 15-year tax exemption on such profits.

Conclusion

The trade policy track record of Ursula von der Leyen’s Commission is anything but impressive. On top of what’s been discussed, the steel tariff dispute with the United States has not been solved, and an EU crackdown on big tech isn’t improving things, while trade relations with China have also deteriorated. Going forward, the EU will need to improve its performance on opening up trade with the rest of the world, as this really amounts to its core business.

RELATED ARTICLESMORE FROM AUTHOR