2 July 2019
Global Trade Barriers Rise As EU Works to Open Markets; Reciprocal Trade Measures Cannot Be Excluded
On 17 June 2019, the European Commission presented a Report describing what it called a steady opening of markets for EU traders amidst rising global protectionism. Between 2014 and 2017, the EU is said to have intensified efforts to lower global barriers to trade, resulting in the removal of 123 trade barriers and the generation of additional exports totalling at least EUR 6.1 billion. A top priority for the Commission continues to be identifying and removing new barriers to trade and investment, particularly in mainland China.
It is reported that since Cecilia Malmström took office as EU Commissioner for Trade in 2014, the EU has eliminated 123 barriers to trade in third countries, generating additional exports for EU companies of at least EUR 6.1 billion. It is also reported, however, that 2018 saw the implementation of 45 new barriers to trade in countries outside the EU. The total number of trade and investment barriers recorded at the time of publication was 425 in 59 countries, which is said to be a record figure. Overall, the rise in the number of trade barriers in 2018 was less than 2017, but the economic impact of trade barriers was significantly higher in 2018.
The report states that mainland China has become the EU’s most restrictive trading partner. Of the 425 trade barriers, 37 were recorded in mainland China (the highest stock of recorded barriers) and 7 in Hong Kong. The report did not register the implementation of any new trade barriers in Hong Kong in 2018, but it did report four new trade barriers in mainland China. Taken together, these four new barriers could, it is stated, affect EU exports of up to EUR 25.7 billion. A single new barrier in the ICT and electronics sector considerably affects EU exports valued at EUR 24.9 billion. It is reported that this measure could impact EU investments in mainland China and stretch beyond ICT into the high-tech sector.
The report notes that mainland China was responsible for the most important barriers as measured by economic impact, followed by the United States, India, and Algeria, creating obstacles affecting EU exports worth billions of euros. The assessment of the economic impact of new market access barriers may not at times fully reflect the real impact of obstacles. This might be the case concerning barriers in services or of a horizontal nature, which are difficult to quantify, or when it comes to overlapping restrictions covering the same products.
While the report does not prejudge the legality of the recorded measures, the barriers have all been identified as problematic for EU companies and prioritized for further action in the Commission’s market access work as they might be discriminatory, disproportionate, or otherwise trade restrictive.
Several systemic concerns emerged regarding the new barriers introduced in mainland China, including what the Commission describes as:
- Government subsidization of mainland Chinese companies;
- Obligations to transfer technology;
- Overcapacity in steel, aluminium, and increasingly in high-tech;
- Unjustifiable cybersecurity and encryption regulations which, as part of the 1 June 2017 Cybersecurity Law, could exclude foreign companies from certain market segments depending on the perceived level of sensitivity.
To counteract these systemic and specific concerns, the Commission has considered a number of approaches.
- Bilateral dialogue: including within the Economic and Trade Working Group, ICT Dialogue, Cyber Task Force, Trade and Investment Policy Dialogue, and the High-Level Economic Dialogue;
- Multilateral dialogue within WTO committees;
- Resolute action before the WTO: Hong Kong traders may recall that on 1 June 2018, the EU launched a legal proceeding at the WTO (DS549) against mainland Chinese measures on the transfer of technology that undermine the intellectual property rights of European companies.
- WTO Reform: The EU is also looking to modernize WTO rules through a bilateral working group on WTO reform, which was launched at the 2018 EU-China Summit. The Summit was also the site of negotiations for a Comprehensive Agreement on Investment and an exchange of market access offers between the EU and mainland China.
These efforts appear to be having an incremental effect. For instance, two removed barriers in the agriculture and fisheries sector accounted for a combined share of 15% of global trade flows affected by barriers resolved in 2018 (1.2 billion euros). Additionally, following bilateral meetings, mainland China did not enforce new dairy sector standards for products that had already been imported for many years. And finally, trade restrictions on bovine semen, bovine embryo, ovine semen, and ovine embryos were lifted.
In trade terms, the report aims to highlight protectionist measures that the EU perceives exist around the world. The EU aims to combat such protectionist trends through dialogue and through action before multilateral organizations like the WTO. Unfortunately for Hong Kong and mainland Chinese traders exporting to the EU, it could also mean increased protectionism from the EU side. For instance, the EU could adopt and install trade protection measures, creating barriers to trade.