German exporters are vacillating between hope and pessimism over the prospects of the EU striking new trade deals during the European Commission’s upcoming five-year mandate, with the country’s top export-driven sectors warning that the bloc must change its approach towards global partners or risks being left behind.
In her speech to the European Parliament seeking a second term in July, Commission chief Ursula von der Leyen steered clear of the topic of new free trade agreements (FTAs), sparking little enthusiasm among those hoping for stronger signals from the EU executive at a time of rising global trade protectionism.
However, fresh signals of progress on the long-awaited trade deal with the Latin American Mercosur bloc renewed optimism last week – with a Commission spokesman confirming on Thursday (8 August) that the two blocs’ negotiating teams were working at a “technical level to try to make progress on the remaining outstanding issues”.
“I want to be optimistic that progress can be made,” Matthias Blum, head of foreign trade policy at the German chemical industry association VCI, told Euractiv.
“But of course, if you interpret [von der Leyen’s] speech literally, I am concerned that the ambition to conclude free trade agreements could decline because of the intra-European political difficulties,” he added.
The chemical industry is one of Germany’s top three export sectors, along with car and machinery manufacturers, whose representatives are hoping for lower tariffs and other trade barriers through FTAs with third countries and regions.
In a more detailed account of her vision for her second mandate, von der Leyen opted for the more vague term of “partnerships”, emphasising the need for cooperation with countries in Asia, Africa and Latin America in specific areas such as “cyber, space and in the secure supply of critical minerals”.
“We don’t yet know exactly what that means and how it could be institutionalised,” Blum said.
“In our view, free trade agreements would actually be the basis for a good, established relationship with regions such as Mercosur, India, and the [South-East Asian] ASEAN states,” he said.
However, according to Claudia Schmucker, head of the Centre for Geopolitics, Geoeconomics and Technology at the German Council on Foreign Relations (DGAP), the reason for von der Leyen’s reticence is that the “topic of free trade – and FTAs in particular – is currently [very] controversial, and there are few opportunities for progress at the EU level.”
New hope for the EU-Mercosur deal
As for the bloc’s most high-profile pending trade deal, the EU-Mercosur trade agreement, there have been fresh signs that it will be adopted before the end of the year, with confirmation that a new round of talks will take place in Brasília on 4-6 September.
Furthermore, as the FT indicated in its initial report on the deal’s progress, EU officials would be prepared to outvote France and Austria to get the deal over the finishing line.
This would suggest that the ‘trade’ parts of the deal, including tariffs, for which the EU has exclusive competence over its 27 member states, could be adopted by a ‘qualified’ majority of at least 15 countries representing more than 65% of the total population, and ratification by the European Parliament – rather than requiring approval by all national parliaments.
“Apparently, they now simply want to outvote France,” said Schmucker.
“I’m surprised that they’re doing it, but I think it’s great. And it would be a huge success to complete the agreement,” she added.
While negotiations with the Latin American bloc (Argentina, Brazil, Paraguay, Uruguay) were officially concluded in 2019 – after 20 years of negotiations – the adoption of the FTA depends on a side agreement addressing some of the outstanding environmental issues.
France and Austria, in particular, have taken a harder line over concerns about the increased risk of deforestation in partner countries, including in the Amazon rainforest, as well as the deal’s potential impact on the EU’s agricultural sector.
“The focus [from the EU negotiating team] remains on ensuring that the agreement delivers on the EU sustainability goals […] while, of course, respecting the EU sensitivities in the agricultural sector,” said a Commission spokesperson in response to a question from Euractiv on Thursday (8 August).
But France is currently without a government after more than two months of internal political reshuffling following the EU elections in June, which weakens its position in Europe.
“I think there is more optimism now than before that this deal can be concluded quite early in the new Commission’s mandate,” John Clarke, a former director of international relations at the Commission’s Directorate-General for Agriculture and Rural Development (DG AGRI), told Euractiv.
“I’m quite sure Macron understands the value economically to France and the EU,” he said, suggesting that even France could quietly acquiesce to the deal.
However, while the deal “is very interesting for Europe commercially,” Clarke added, French politicians will have to “find a way to pacify [the country’s] very vocal farmers.”
Exporters warn EU position remains problematic, threatens future growth
Meanwhile, the situation looks less promising on other trade deals.
“I can still see that all the other important agreements are actually not progressing for very different reasons,” Schmucker said, citing difficulties with India and the ASEAN states on sustainability issues. The EU’s new carbon border tax (CBAM) and its anti-deforestation law are also not helping the negotiations, she added.
Both laws, which aim to extend the reach of EU environmental regulation to countries outside Europe, have been met with resistance from trading partners who see them as an undue encroachment on their sovereignty.
“Fewer and fewer countries are willing to let us tell them what to do and what not to do. Those days are simply over,” Ulrich Ackermann, head of foreign trade at the German machinery maker association VDMA, told Euractiv.
This, he said, will continue to strain trade negotiations.
“If the EU institutions continue as before, if they pursue the same line as in the last five years, they won’t achieve anything in the next five years either,” he said.
“It’s a tragedy how little the EU has achieved in the last five years. And there aren’t many signals that things would improve now,” Ackermann said.
Similar points were also made by German chancellor Olaf Scholz (SPD/S&D) ahead of von der Leyen’s renomination at the end of June, when in a speech to the German industry association, BDI, he called the lack of progress on trade deals “unacceptable”.
EU trade policy “has not made decisive progress in recent years,” a spokesperson for the German car industry association VDA told Euractiv, calling for “more pragmatism from Brussels when negotiating free trade and investment agreements.”
“The world is not waiting for the EU – the markets and access routes are being opened up by others, and the EU’s lack of determination is costing it growth, prosperity and, as a result, geopolitical relevance,” he added.