The School Master

Failed

The EU entered negotiations on a free trade agreement with Australia already back in June 2018, due, on the one hand, to the industry’s interest in opening a new market. German exporters were particularly anxious to tap Australia’s market, even though it only has a limited purchasing capacity with just under 27 million inhabitants. However, for the EU, the most important objective was to obtain access to Australia’s resources. That country has huge deposits of lithium, the world’s second largest deposits of cobalt and large deposits of rare earth, nickel and graphite – all raw materials essential for the important technology of the energy transition. Currently, EU countries are largely dependent on purchasing these from China. A free trade agreement with Australia should have helped to reduce this dependence. In return, Canberra was demanding greater access for Australia’s farmers to the EU’s market. This has now led to the failure of the negotiations. Last Monday, Australia’s minister of agriculture declared that Brussels was not prepared to make serious concessions. Canberra broke off the negotiations. A revival of the talks is inconceivable due to the upcoming EU elections in 2024 and Australia’s elections in 2025.[1]

Threatened to Fail

The negotiations for a free trade agreement between the EU and the South American Mercosur alliance of states (Argentina, Brazil, Paraguay, Uruguay) are also threatened to fail. These negotiations had been already initiated in June 1999 and – following several interruptions – were only concluded in June 2019. However, ratification is still pending. The agreement is particularly attractive to the EU’s industry because it provides access to Mercosur’s sales market of 260 million residents. German industry was particularly committed to this agreement. The ratification has been stalled, because countries with prominent agricultural interests – France, Ireland, Austria – are blocking it with the excuse of wanting to reach a supplementary agreement on the protection of the rainforests. Within Mercosur this proposal is rejected as arbitrary harassment. Instead, Brazil and Argentina are demanding protective regulations for their threatened industries from EU rivals.[2] Currently the negotiations have again stalled. It is unclear how much longer Mercosur will even be available. In Argentina, the ultra-rightwing presidential candidate, Javier Milei, threatens to leave the alliance. In Uruguay, given the fact that the EU agreement is not advancing, a free trade agreement with China is being discussed on a national level. This would break up Mercosur.

Unachievable

The EU is, at best, making slow progress in the free trade negotiations with India. They had already been initiated also in 2007, but had to be suspended due to insufficient progress in 2013. They were resumed in June 2022. The agreement is seen as particularly important, because the EU seeks to have India as an alternative production site and an alternative market to China. A reduction of trade barriers would facilitate this. However, India – like the EU – is considered a difficult negotiating counterpart. During his visit to New Delhi in February, Chancellor Olaf Scholz energetically urged that progress be made in the negotiations.[3] Also in July, during his visit to the Indian capital, Germany’s Minister of the Economy, Robert Habeck sought to speed up the talks.[4] The original plan to wrap up the free trade agreement still this year, is now considered unrealistic. “Anyone in his right mind, knowing the complexity of this negotiation, will not believe for a second that it was an achievable target,” declared the EU Ambassador to India, Hervé Delphin, in late October. The agreement negotiations would take considerably longer.[5]

Stalled

There are also difficulties in reaching free trade agreements with the Southeast Asian nations. That ambitious project of reaching an agreement with the ASEAN association of states was launched in 2007 and abandoned already in 2009. The EU has since been trying to reach free trade agreements with individual Southeast Asian nations. So far, this has only been successful with the – of course, strategically significant – trading hub, Singapore, as well as with Vietnam, striving to become an alternative site to China. The free trade agreements with both countries became effective in November 2019 and in August 2020, respectively. Free trade negotiations with Indonesia, launched back in July 2016 have stalled. They are important because, on the one hand, Indonesia with its 280 million population, is the largest market within the ASEAN alliance and, on the other, it is a rising threshold country with rapidly growing influence, that the EU seeks to develop closer ties to. The talks are now stalled mainly because the EU wants to curb the country’s palm oil production, which is reducing rainforest resources. Jakarta considers this as discrimination against Indonesian producers to favor their EU competitors. It is, therefore, resolutely defending itself against it.[6]

Values Imperialism

From the German economic sector sharp criticism is now being raised. For exporters, the free trade agreements’ lack of success is weighing heavily. On the one hand, they are desperately seeking ways to overcome the escalating economic crisis. On the other, rival countries are bypassing Germany and the EU. For example, a free trade agreement between Great Britain and Australia came into force on May 31, 2023. The United Kingdom was also able to join the CPTPP Asian-Pacific free trade agreement (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), which opens British industry and markets to Southeast Asia and beyond. The EU’s repeated failure, on the one hand, is attributed to the divergent interests of individual member countries that could not be reconciled. German industry and French agriculture are regularly at loggerheads. On the other hand, third countries are increasingly hesitant to bow to the EU’s increasingly comprehensive demands, especially on questions of climate and environment. This is being seen as “values imperialism,” according to business commentators.[7] The EU is increasingly “acting like a school master.”[8] However – at the latest, since the expansion of BRICS [9] – “it should be clear to everyone: the times, when others would bow to Europe, because of its economic predominance, are over.”[10] However this realization has apparently not yet arrived in Brussels.

[1] Mathias Peer, Olga Scheer: Australien lässt Freihandelsdeal mit der EU platzen. handelsblatt.com 30.10.2023.

[2] See also EU’s Latin America Offensive (III).

[3] See also „Engage India”.

[4] See also No Alternative.

[5] Utpal Bhaskar, Shashank Mattoo: End-of-year deadline for India-EU FTA is unrealistic: EU ambassador. livemint.com 29.10.2023.

[6] Mathias Peer, Olga Scheer: Australien lässt Freihandelsdeal mit der EU platzen. handelsblatt.com 30.10.2023.

[7] Martin Greive: EU-Handelspolitik: Runter vom hohen Ross. handelsblatt.com 31.10.2023.

[8] Jürgen Matthes, Samina Sultan: EU sollte gegenüber den Mercosur-Staaten kompromissbereiter sein. handelsblatt.com 22.10.2023.

[9] See also Strategies Against BRICS.

[10] Martin Greive: EU-Handelspolitik: Runter vom hohen Ross. handelsblatt.com 31.10.2023.