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New Trade Commissioner – Priorities & Challenges

9 February 2010

As the new Commission starts work after the approval by the European Parliament on 9 February, the new trade commissioner, Karl De Gucht will have to take up a difficult task: to represent and defend “European interests”, while manoeuvring between different Member States and their particular interests, and at the same time dealing with other Commissioners and facing increasing scrutiny by the European Parliament. Overall, the EU trade policy will now become more complicated, as it will comprise more actors and longer lead-in times. Moreover, it will have to be implemented in a more politicized environment, which, in turn, leaves many questions open as to the actual day-to-day implications on the EU’s Common Commercial Policy that Treaty of Lisbon might have.

The EU has been a very dynamic player in the multilateral trade system at the same time building up its network of bilateral agreements. However, the EU has been cautious not to indicate a willingness to see bilateral agreements as a framework that could potentially replace a well functioning multilateral system.

In his introductory remarks, De Gucht emphasised his commitment to open markets, with a rules-based multilateral system. “Free trade must be used to promote prosperity and development. With rules, trade could be a win-win instrument. The EU has to show the lead, but that does not mean that we should accept unfair practices,” he warned, giving assurances that he understood the interaction between trade and development and the need to help developing countries join global trade. He made the conclusion of the Doha Round multilateral negotiations his number one priority.

De Gucht’s second priority is to enhance trade and investment relations bilaterally and regionally to supplement what has been done on a multilateral basis. Thus, negotiations with India, Canada, Ukraine, Latin America, the Mediterranean area and Singapore would dominate the EU trade agenda over the next two years. The EU will start free-trade agreement (FTA) negotiations with Singapore in March, which is the first step in a radical rethink of the Union’s trade strategy towards South-East Asia (the EU had initially preferred an inter-regional, EU-ASEAN FTA). By launching FTA negotiations with the most affluent ASEAN member, the EU hopes to trigger a ‘domino effect’ that would encourage other countries in the region to follow. Thus, Singapore has an advantage to set a precedent that could make it easier for other countries to launch bilateral negotiations with the EU.

De Gucht made cooperation with the EU’s major trading partners – the US and China – his third priority, the aim being to remove non-tariff trade barriers, as well as social and environmental dumping. He has called for a “higher level” of cooperation with China – the second largest trading partner – on matters of trade and investment. He has told journalists that the currency issue, i.e. the undervaluation of the Yuan against the Euro was the main “problem” when it comes to EU-China trade relations. EU leaders regularly complain that the undervalued yuan is holding back European efforts to export to China. China “must show its responsibility by being able to address thorny questions (of trade), such as currency misalignment,” De Gucht said. “It is clear to me that this is a deliberate policy and we should address this on all possible occasions, bilaterally and also multilaterally.”

Although China claims that international pressure regarding its currency policy is “unfair,” as it has contributed more than its fair share to help the recovery of global economy, De Gucht’s comments reflect a “growing frustration within DG Trade,” as reported by Europolitics. Such effort would mirror the approach of the Obama administration, which has been consistently raising the exchange rate question. De Gucht’s position was welcomed by many member states such as France or Italy, who are advocating a tougher approach towards China.

De Gucht also pointed out that he would enforce a strict anti-dumping policy. This is another sensitive area of conflict with Beijing, which has counter-accused the Commission of anti-dumping behaviour. In reaction to the tariffs slapped on Chinese leather shoes, Beijing has started to retaliate by triggering its own antidumping measures against European products and has made a complaint (4 February 2010) to the World Trade Organisation (WTO) over the EU’s decision last December to extend anti-dumping duties against Chinese and Vietnamese leather footwear imports for 15 months.

China’s ministry of commerce said the EU tariffs “damage the legitimate rights and interests of Chinese enterprises”. Many European retailers and shoe brands that cooperate with China, opposed the move by the EU. This is only second time that China has taken the EU to the WTO’s formal dispute resolution process and coincides with Beijing becoming more assertive on the world stage. Many see it as a test of the EU’s commitment to free trade in the middle of recession. It has also caused disadvantage to small shoemakers compared to large retailers that have increasingly outsourced production to Asia.

The dispute coincides with US President Barack Obama’s vow to take a “much tougher” stance on China, trying to ensure that it opens its markets to US exporters. On the other hand, China’s decision has been interpreted by some analysts as a sign of Chinese greater trade assertiveness that its partners will henceforth have to face, including the EU. China’s assertiveness might bring about increasing tensions that the new Trade Commissioner would have to manage carefully to avoid harmful trade war that might jeopardize the slow and uncertain economic recovery in Europe.

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