When I was a visiting student at Cambridge, my way to class followed the banks of the River Cam. Each morning, the comrades rowed by eight, four or two. I’ve never been a rower, yet I’ve always been fascinated by it. Boats are light, but can carry a lot of weight. An eight-person shell can hold more than 1,000 kg, although it itself weighs less than 100 kg.
When I think of trade, I think of boats for rowing. Let me explain why.
It has become normal today to ask what trade can do to face the great trials of our time. How can it help fight climate change? How can it promote labor rights globally? What is its impact on security? Not so long ago, trade officials would have considered these matters to be beyond their purview. According to the standard view, trade policy was to stimulate economic growth and create jobs, by removing trade barriers and opening up markets.
However, trade is more than ever seen as a tool to achieve broader goals. These go far beyond climate, environment and human rights to include geostrategic interests, security, public order and more. This trend is part of a general blurring of borders between different political communities. Trade can no longer be viewed in isolation but has become a tile in a complex mosaic.
At the same time, the international context is changing. What was once a rules-based order based on predictable standards and stable procedures is now being challenged by the same countries that once helped shape it, and destabilized by new emerging countries. Multilateral institutions designed to foster cooperation like the World Trade Organization are themselves mired in conflict and are not allowed to reform. It invites the politics of power and paralysis. Coupled with a pandemic, the challenges are immense.
This environment presents opportunities and dangers. Trade, now in the spotlight, has the chance to be an accelerator of positive change. The danger is that when a single political instrument is called upon to achieve several political objectives, it encounters difficult compromises and ends up showing its limits. Viewing trade as rowing boats, it seems trade policy now has to carry a much heavier load while navigating rougher waters.
When I took on the post of Director General of the European Commission for External Trade, one of the first tasks was a critical review of EU trade policy. It was particularly clear that sustainability had to be a priority. Trade remains one of the EU’s essential tools because it can be practiced almost exclusively at the supranational level, and given the sheer size of the single market, it offers significant leverage.
February 2021’s new strategy is the greenest ever. At the multilateral level, the EU integrates climate objectives into the reform of the World Trade Organization and continues to liberalize environmental goods and services. This is fundamental because everyone must have access to resources supporting their own green transition. Bilaterally, the EU relies on its network of trade agreements – the largest in the world, with 46 agreements with 78 countries and territories – which already include ambitious provisions on sustainable development.
The EU also makes respect for the Paris Agreement an essential element of future bilateral trade agreements. These agreements are important for sustainability because they provide a platform for dialogue to bring about changes on the ground. Yet for this to happen, agreements cannot simply be negotiated; they must be ratified and implemented. And the EU alone is adopting new regulatory tools to protect public goods, such as a proposed Carbon Frontier Adjustment Mechanism (CBAM), which would equalize the price of carbon between domestic goods and imports in order to to prevent production from being moved to places with weaker policies, potentially nullifying our climate ambitions.
Of course, tackling climate change is the fundamental challenge of our time – and trade policy, like all others, has a role to play. First, a stable international regulatory environment is needed where tariffs and non-tariff barriers on environmental goods and services are reduced or removed. Second, dialogue is necessary so that different jurisdictions can contribute to the achievement of common climate goals. Finally, national actions must respect international rules so that they do not trigger political and economic tensions.
This is why a rules-based trading system is essential to achieve the transition to a carbon neutral economy. But realism is also in order. Even if we want to use trade to support sustainability, there will always be limits.
Consider the EU Emissions Trading System and CBAM. These policies, along with other measures in the European Green Deal, can ensure that the EU is on track to achieve a 55% reduction in emissions by 2030 from 1990 levels, and climate neutrality d ‘by 2050. But the EU only accounts for 9% of global carbon emissions. To meet the goal of limiting global warming to 1.5 ° C above pre-industrial levels, the biggest carbon emitters, notably America and China, must follow the same path. This cannot be achieved by trade or by its own policies.
While CBAM can create incentives for non-European companies to improve their carbon footprint, there is no guarantee that this will happen or that emissions will decrease in other countries as a result. These goals can only be achieved through international cooperation and coordinated efforts negotiated in international fora other than trade, such as during the United Nations climate talks.
The same approach applies to elements of sustainability beyond climate change. For example, EU legislation under development on forced labor, due diligence to tackle environmental and labor abuse in supply chains and deforestation addresses issues that require global solutions. To combat forced labor, the EU has the power to ban products from the European market, but this is only part of the global demand. If we are to eradicate the problem completely, we need an international arrangement that includes both supplying and requesting countries.
Trade policy is a powerful tool but has its limits, just like a boat. As a student, I feasted on the story of a band that enjoyed a drop too much and decided to go do a midnight row. They tried to get everyone in the boat… and it sank on the first turn. The moral? No ship can carry everything.
Likewise trade: it can never and is never supposed to solve all the world’s problems. But with the right international and national policies and instruments, trade can make significant progress in addressing the critical challenges of our time.
Sabine Weyand is the Director-General for Trade of the European Commission. She has worked for the European Commission since 1994 and was previously the EU’s Deputy Chief Negotiator for the Brexit process.