State of the union speeches in countries are typically a time for optimism with a review of the challenges that are presently being addressed and a host of policy initiatives to take the country in the direction the Executive believes is important. The European Commission’s President von der Leyen presented her State of the Union 2020 Address earlier this week before the European Parliament. The Address lays out the vision the Commission has for the road forward to “building the world we want to live in”.
The starting part of the address deals with COVID-19 and the EU response and actions needed to prevent the same type of challenges in the future. When the address turns to moving Europe forward, the first topic is the efforts to address climate change, focusing on the European Green Deal and various initiatives to make the Green Deal operative and effective. Other areas of focus include digital with attetion to data, technology and infrastructure.
President von der Leyen then turns to the need for collaboration to address global issues such as the pandemic citing both sharing of protective equipment to countries in need and the EU effort to set up fund “research on vaccines, tests and treatments for the whole world.” “Vaccine nationalism puts lives at risk. Vaccine cooperation saves them.”
The EU supports cooperating in international bodies whether the UN, the WTO or the WTO. The EC President recognizes the pressing need to “revitalize and reform the multilateral system” and wants the EU to lead reforms in both the WTO and WHO.
On China, EC President von der Leyen notes the complicated relationship and the need for China to live up to its commitments in areas like climate change. “There is still hard work to do on fair market access for European companies, reciprocity, and overcapacity. We continue to have an unbalanced trade and investment partnership.”
On the topic of trade generally, the EC President had this to say:
“We will continue to believe in open and fair trade across the world. Not as an end in itself – but as a way to deliver prosperity at home and promote our values and standards. More than 600,000 jobs in Europe are tied to trade with Japan. And our recent agreement with Vietnam alone helped secure historic labour rights for millions of workers in the country.
“We will use our diplomatic strength and economic clout to broker agreements that make a difference – such as designating maritime protected areas in the Antarctica. This would be one of the biggest acts of environmental protection in history.
“We will form high ambition coalitions on issues such as digital ethics or fighting deforestation – and develop partnerships with all like-minded partners – from Asian democracies to Australia, Africa, the Americas and anyone else who wants to join.
“We will work for just globalisation. But we cannot take this for granted. We must insist on fairness and a level playing field. And Europe will move forward – alone or with partners that want to join.
“We are for example working on a Carbon Border Adjustment Mechanism.
“Carbon must have its price – because nature cannot pay the price anymore.
“This Carbon Border Adjustment Mechanism should motivate foreign producers and EU importers to reduce their carbon emissions, while ensuring that we level the playing field in a WTO-compatible way.
“The same principle applies to digital taxation. We will spare no effort to reach agreement in the framework of OECD and G20. But let there be no doubt: should an agreement fall short of a fair tax system that provides long-term sustainable revenues, Europe will come forward with a proposal early next year.
“I want Europe to be a global advocate for fairness.” [Emphasis in original]
The full text of President von der Leyen’s Address is embedded below.
State_of_the_Union_Address_by_President_von_der_Leyen_at_the_European_Parliament_PlenaryThe State of the Union — WTO Reform Priorities for the EU and Potentially Problematic Priorities
While EC President von der Leyden indicates she wants the EU to lead reform in both the WTO and the WHO, there is no set of agenda items identified as such in the State of the Union. That said, there are many areas addressed within the State of the Union where WTO reforms could be helpful. One can start with keeping markets open for the movement of goods and services during pandemics. Other pandemic response issues are more relevant to possible reforms at the World Health Organization.
The EU has been an active participant in the plurilateral negotiations on digital trade at the WTO and the Address’s focus on digital issues supports the need for completing those negotiations.
Similarly, the central place of addressing climate change and implementing the European Green Deal suggest that the EU would support greater activity in the Trade and Environment Committee as well as its work on the Paris Agreement on emissions reductions. Moreover, the carbon tax issue mentioned in the Address may require WTO negotiations to ensure WTO consistency or result in serious WTO disputes and possible unilateral responses by trading partners.
EC President von der Leyen’s discussion of the EU’s bilateral relationship with China raises issues on “fair market access, reciprocity and overcapacity”. This presumably includes the EU’s efforts with the US and Japan to address industrial subsidies, state-owned enterprises, forced technology transfer and more.
Finally, the digital services tax issue, while potentially being addressed within the OECD and G20 has the potential to result in serious trade consequences with the United States if not resolved to the U.S.’s satisfaction.
Conclusion
The European Union is a critical global player in trade and many other areas. The State of the Union Address by EC President von der Leyen at the European Parliament Plenary given on Wednesday this week lays out a comprehensive set of objectives for Europe, many of which have trade implications.
While the EU has an important role in the WTO, time will tell whether its desire to lead the reform process plays out. While it views itself as having been a constructive player in the Appellate Body impasse, as viewed from the U.S., the EU is one of the largest reasons for the departure of the Appellate Body from its agreed-to mandate. While the EU led a number of Members to create an interim arbitration system, from the U.S. perspective, the interim system attempts to shift arbitration to being a pseudo Appellate Body and is more objectionable in some respects than the now dysfunctional Appellate Body.
With the need for comprehensive reform of the WTO understood by most delegations, constructive leadership by any of the Members is certainly welcome. Hopefully, the EU will be such a leader in 2021.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
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