EU Eyes Free-Trade Pacts
9/14 9:05 AM

BRUSSELS (Dow Jones) -- The European Union is defying protectionist trends and pursuing its most ambitious agenda of free-trade agreements in years.

Senior EU officials outlined Thursday free-trade agreements they seek to negotiate with Australia and New Zealand, sidestepping the thorny issue of investment protections to fast-track talks.

"The world needs leaders in trade," European Trade Commissioner Cecilia Malmstrom said. "The EU is at the forefront."

The subtle yet significant shift to the EU's approach also includes proposals to replace controversial tribunals for settling cross-border investment disputes with an international court and screening foreign investments in Europe.

Brussels' trade offensive -- a gambit to reassert Europe's global economic prominence that faces internal and external challenges -- marks a turnaround. Just last year, the bloc faced profound threats: Britain's decision to exit from the EU, President Donald Trump's election on a protectionist economic platform, and growing support within Europe for nationalist political parties.

Today, the U.S. retrenchment on free trade is aiding EU trade efforts. Mr. Trump abandoned the 12-country Trans-Pacific Partnership trade deal on his first day in office and threatened to pull the U.S. out of the North American Free Trade Agreement with Canada and Mexico, ultimately deciding to renegotiate the pact.

"We thought we'd do nothing" on trade agreements at the start of European Commission President Jean-Claude Juncker's five-year term in 2014, said his chief of staff, Martin Selmayr. "All this has changed, because of Trump, because of Brexit."

Longstanding U.S. allies from Mexico to Japan scrambled for stronger economic links with the EU to offset Mr. Trump's "America First" policies.

In February, Mexico and the EU agreed to accelerate talks to expand an existing trade accord. In a joint statement, they cited the "worrying rise of protectionism." Tokyo and Brussels reached a political agreement in July to slash almost all bilateral tariffs.

Australia and New Zealand, stung by the trans-Pacific trade deal's collapse, asked Brussels for trade deals before the U.K. leaves the EU in 2019. Brussels is now close to implementing tariff-free trade with Singapore and Vietnam, and the EU is trying to clinch an agreement with South America's largest trading bloc, Mercosur.

"Australia shares the EU's commitment to open markets," said Australian Trade, Tourism and Investment Minister Steven Ciobo, advocating a "comprehensive agreement." A New Zealand Foreign Affairs and Trade Ministry official said the EU can choose between speed and scope of a deal, and Wellington "is prepared to work with whatever is decided."

The EU's free-trade ambitions got a boost from a ruling in May from the bloc's top court. The judges said that the EU can enact trade deals on its own, without approval from the bloc's thicket of almost 40 national and regional parliaments, if the agreements don't include clauses on portfolio investments and investment-protection mechanisms. All accords negotiated by the commission would need to be adopted by both the European Parliament and EU government leaders.

Brussels' new strategy prioritizes transparency and speed, reflecting the EU's desire to overcome pockets of European resistance to free-trade agreements, avoid years-long negotiations and bypass ratification challenges that delay or kill its deals.

Negotiations with Australia and New Zealand are slated to pose the first test of the EU's ambition to rapidly conclude new trade agreements by omitting controversial investment pacts. The investment element of the EU's pending deal with Canada, known as CETA, almost derailed it.

"We need to make sure that we cannot only launch trade negotiations, but that we can also conclude them and have them enter into force," Ms. Malmstrom said.

In response to criticisms that investment-dispute arbitrations override sovereignty and allow multinational corporations to dictate national policies, the commission is asking EU governments for a mandate to negotiate a multilateral investment court with its trade partners. The proposal would replace an existing system of ad-hoc tribunals included in more than 3,200 trade deals with a permanent body, establish an appeals process and reaffirm countries' regulatory power.

Businesses are applauding the EU's trade push.

"Europe has a role, which is even more important than before, to be a clear voice in favor of free trade, multilateralism," said Emma Marcegaglia, president of BusinessEurope, the biggest association of European trade federations.

Resistance in some quarters to the free-trade agenda remains strong. Green Party members of the European Parliament have opposed a potential EU-Japan trade deal over fear that food contaminated by the Fukushima nuclear disaster could enter Europe. EU countries including Belgium and Poland have challenged elements of CETA.

Competing interests within industry are another obstacle. The EU has tried for almost 20 years to strike a trade deal with Mercosur, which includes Argentina, Brazil, Paraguay and Uruguay. Last year, the EU bowed to heavy internal lobbying against opening European markets to more Latin American beef and ethanol imports, temporarily derailing talks.

Negotiations resumed this year with Mercosur and will continue next month. The EU is expected to offer new proposals to clinch a deal by year-end.

The two blocs have repeatedly failed to strike a compromise in previous negotiating rounds, but the EU's deal with Japan signals a willingness to overcome deep divides, Brazilian Foreign Minister Aloysio Nunes Ferreira said last month in Brussels.

The EU-Japan handshake required overcoming resistance from European auto makers to opening EU markets to Japanese manufacturers. In exchange, Japan agreed to lift restrictions on EU agricultural imports, a rare capitulation on its protectionist farm policies.

Diplomats acknowledge that the often-fractious EU doesn't fully replace the U.S. role as global beacon of free trade. Still, trade officials see a chance to claim the leadership mantle.

"I don't know if the EU can compensate," said Mr. Ferreira of Brazil. "But it is important to...create this pull of economic power, political power, in favor of multilateralism."


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