Why less Europe is no Europe – comparing the fates of CETA and MES

The free trade treaty with Canada, patiently negotiated for years by the Commission, is about to be sabotaged by the lonely opposition of a region of Belgium. Meanwhile, the issue of Market Economy Status (MES) for China is being dealt with in a surprisingly innovative way by the same Commission, in conjunction with the EU Parliament.

The first event is being trumpeted as the death knell of EU trade strategy. The second, admittedly not yet finalized, is hardly reported. The contrast illustrates several trends at work in Europe.

The first trend is a renationalization of policies. CETA has had to undergo a unanimous ratification process by all 28 EU parliaments. This was not a legal obligation, as the Commission has full competence to negotiate trade agreements. But sensing the rising tide of public opinion against globalization and free trade, Commission President Juncker decided to take this route. It is proving deadly, with a further twist: Belgium itself has a federal constitution with limited powers for the central government, meaning that a regional parliament can in effect block an EU-wide decision. In sum, the devastating results of the unanimity rule are compounded by a member state which has exactly the same constraint.

Meanwhile, the issue of Market Economy Status for China, behind the rhetoric, hinges on a change of EU law regarding anti-dumping measures. Whether this change is mandated by the terms of China’s admission to the WTO or not, it requires in any case an act of law. But unlike a trade treaty, that act of law only requires a co-decision by a qualified majority. In this case that means a majority in the European Council of at least 55% of the member states representing at least 65% of the EU’s population. Achieving that is no simple matter, but it is much more manageable than a unanimous vote.

One cannot over-emphasize how much the unanimity rule paralyzes the European Union. It is a common frustration –  and doubly so in the case of CETA because there was no need to apply it.

One cannot over-emphasize how much the unanimity rule paralyzes the European Union. It is a common frustration –  and doubly so in the case of CETA because there was no need to apply it. Juncker’s decision to do so was an overreaction to the political risk of an unpopular treaty with Canada. At this point one can safely say that all liberalizing treaties with outside partners are bound to be unpopular. That CETA had been very carefully negotiated and balanced over the years hardly mattered: if given the opportunity, anti-globalization groups were always going to do their utmost to sabotage it. Which is precisely why they should not have been given the opportunity.

Which leads us to a second trend. In the case of CETA, the treaty requires a ‘yes’ answer. In the case of MES, what the Commission is suggesting and is close to spelling out amounts to a ‘no’: whether or not the political epithet of Market Economy Status is granted (which currently looks unlikely), new trade defence instruments will be put in place. For better or worse, defensive trade measures are now a far easier political sell than trade liberalisation. On MES, the Commission did a tremendous job with its public consultation, and there was clearly a lot of behind the scenes consultation with the EU Parliament and its Committee on International Trade. Tripartite consultations between the Commission, Parliament and member states have increased under the present Commission. While this is sometimes criticized as opaque and undemocratic, it is actually how democracies manage their separation of powers.

A potential consensus is easier to reach when it does not go against the grain of public opinion. This, and the lesser requirement for a decision, has so far helped the EU to navigate the MES issue with China much more effectively than it has done with CETA. But the resolution of the MES issue could still be derailed. At the time of writing, Theresa May’s UK government, which had initially promised to avoid getting in the way of EU decisions as it starts to initiate Brexit, was rumoured to be rounding up a group of countries – the Netherland, Denmark and Sweden are cited – to oppose the EU Commission’s proposition.

On one level, this can be seen as a blackmailing response by the UK to the EU’s refusal to engage in informal negotiations on Brexit in advance of Article 50 being triggered. The threat of the UK making a nuisance of itself while still a member might be enough to bring other EU leaders to the negotiating table earlier than they had planned.

At another level, this is a continuation of David Cameron and Georges Osborne’s policy of going it alone with China. If a hard Brexit occurs, the UK needs options for trade deals with other partners. China is an obvious target for such a deal – and Beijing may be tempted to do a deal with the UK if its relations with the EU are strained by the MES issue. Ms. May is trying to leverage her threat to block EU trade strategy in order to secure concessions from both the EU 27 and China.

Obstruction by the UK might yet lead to an unplanned result: an inability to either adopt new trade defence instruments or phase out old ones.

But MES is not CETA. Granting MES is a symbolic gesture without much content. What matters to China is lifting anti-dumping rules – and that requires a qualified majority which the UK cannot hope to deliver. Perhaps the same is true of the Commission’s effort to impose new trade defence instruments: it tried three years ago and failed. But circumstances are different today – the Commissioners pushing the present policy on MES are actually trade liberals from Northern Europe, not avowed protectionists.

Obstruction by the UK might yet lead to an unplanned result: an inability to either adopt new trade defence instruments or phase out old ones, because of a lack of a qualified majority for either. That is the most undesirable result for China, which would certainly sue the EU. The UK would thus have made its demonstration that it can engineer “mutual assured destruction” in the area of trade.

Events surrounding CETA and MES show the need for a more federal approach – in effect, “ever closer union” – and the danger of imposing a unanimity rule that in effect paralyzes the EU. Leaving things as they are will lead Europe to further division.

The more power delegated to the Commission, with the appropriate balance of power with a strengthened EU Parliament, the more likely we are likely to get outcomes representing the majority of Europeans. The more we submit to sovereignist arguments – whether by leaving decisions to member state governments under short term political constraints or, worse, to all national parliaments with their tricky bylaws and special features, the more we hasten the dismantling of the European Union. Political leaders and executive power were invented to take responsibility and lead.