Traditionally, the logic of trade policy within the EU was driven by economic efficiency considerations: lower tariff and non-tariff barriers to international trade would facilitate mutual gains through the theory of comparative advantage. The EU’s new trade policy approach—“open, sustainable, and assertive”—has shifted tack to incorporate non-economic concerns and account for a novel international context: uneven domestic distribution of gains from trade, the rise of China, climate change, and digital transformation.

Trade policy remains the paradigmatic example of EU power, its “unique lever.” And economic concerns still remain the key objective, given that 85% of global GDP growth is projected to occur outside of the EU. For Europe to prosper, it needs to trade. Yet, for Europe’s other interests such as sustainability and inclusive growth, it will also need to manage trade, argues the Commission. Some other countries have taken the further step of merging trade and foreign policy in a single ministry to pursue geopolitical goals with economic means. The Commission, however, has not proposed, and likely not considered, moving DG Trade to the European External Action Service. Nonetheless, it argues that the EU can and should use trade policy to shape outcomes in other areas. This is especially clear in its approach to its transatlantic partners, and particularly on technology.

In a companion alert, we identify the Commission’s new enforcement measures to make its trade policy more “assertive” and “sustainable.” Here, we discuss the policy’s “open” aspects, particularly with respect to the key partners and policies, and how trade intersects with related EU policy pronouncements. Inevitably, the Commission, Parliament, and EU Member States still have to decide on the detail of much of this policymaking. Getting this right will require complex analysis supported by voices from industry and other stakeholders.

Transatlantic Partnership

In a variation on the theme on recent EU strategic discourse, the Commission’s Trade Policy Review adopts the concept of “open strategic autonomy” as a guiding thread for its new approach: the “EU’s ability to make its own choices and shape the world around it through leadership and engagement, reflecting its strategic interests and values.” Openness is in the EU’s self-interest, argues the Commission, because Europe relies on trade for its prosperity and competitiveness more than any other large economy in the world. Yet, given that its growth lags behind other regions, the European Union needs strategic partners to accomplish its policy goals.

In particular, the Commission emphasizes the importance of Europe’s partnership with the United States: the “transatlantic relationship is the biggest and most economically significant partnership in the world” that is “deeply rooted in common interests and values.” Echoing its prior determination to seize a “once-in-a-generation” opportunity to work with the new Biden-Harris team in meeting common challenges (see our prior blog), the Commission’s new trade policy gives “priority to strengthening its partnership with the US.”

To be sure, the Commission also recognizes the importance of other like-minded partners in Africa and Asia. It remains silent on trade policy toward Russia, the EU’s fifth-largest trading partner. This is no surprise, given the precarious state of EU-Russia relations following the recent visit of HRVP Borrell to Moscow and new sanctions against Russia in response to the poisoning and detention of Alexei Navalny. And it signals its intent to “[e]nhance regulatory dialogues with like-minded partners in strategic areas for EU competitiveness.” But the transatlantic link is the cornerstone for global collective action—including WTO reform, integrating climate concerns into trade policy, ensuring fair trade and inclusive growth, as well as shaping the digital transition.

Tech Policy

The digital agenda is top priority for the EU’s trade policy. The Commission intends to work within the WTO to “set the rules for digital trade” and “liberalise trade in services in sectors going beyond e-commerce.” It also seeks to “explore stronger frameworks for cooperation on trade-related digital issues with like-minded partners,” such as the “Digital Trade title of the Trade and Cooperation Agreement concluded with the UK.” It wants to preserve the “international free flow of data” that is “in full compliance with EU data protection rules and other public policy objectives.” The possibility of reconciling both objectives—digital trade and data privacy—is evidenced by the EU’s recent draft adequacy decision with respect to the UK (see our recent blog).

EU-US Trade and Technology Council

The EU’s trade policy approach also includes new potential institutional arrangements. In particular, the Commission proposes to “[d]evelop a closer transatlantic partnership on the green and digital transformation of our economies including through the EU-US Trade and Technology Council.” The Biden-Harris administration has not yet taken a position on this specific idea, but the concept is supported, among others, by the U.S. Chamber of Commerce. It also was discussed between President Biden and European Commission President von der Leyen in their call last Friday. Now may be a good time for interested businesses to actively engage the Commission and the U.S. government on this idea, its substantive focus, and institutional structure.

The Commission’s trade policy review is a comprehensive discussion of many issues related to the EU’s new approach to trade, as we further discuss in the companion alert. It is also part of a continuous stream of EU initiatives, such as the forthcoming sectoral strategies and industrial policy. But the importance of transatlantic partnership and tech policy stands out within the overall strategy.

The team at Covington will continue to track these policy developments closely and identify potential issues and engagement opportunities for clients.

If you have any questions concerning the material discussed in this client alert, please contact the following members of our Public Policy, Tech Regulatory and International Trade practices.