Europe Seeks to Redraw Trade Routes as War Strains Alliances

Russia’s war with Ukraine is giving a group of European Union countries fresh incentives to speed up work on free-trade agreements.

At least nine nations including Germany and Spain are planning to send a letter to the EU seeking to speed the delayed talks, according to a draft obtained by Bloomberg. (Click here for Bloomberg’s scoop.)

The signatories want faster negotiations with New Zealand, Australia, India and Indonesia, while speeding the implementation of accords agreed with Chile, Mexico and the Mercosur bloc of countries, which include Argentina, Brazil, Uruguay and Paraguay.  

The letter also says that the process to negotiate, sign and implement trade deals is too long, and points out that the massive Regional Comprehensive Economic Partnership was signed in late 2020 and will enter into force this year for most members.

In Brussels, a slow-moving trade bureaucracy has often been displaced and made irrelevant by quicker political developments.

For example, in 2016 a transatlantic trade deal negotiated during the Obama administration tanked after Donald Trump’s election reversed the trajectory of U.S.-EU trade liberalization efforts.

Then in late 2020 the EU announced the conclusion of its seven-year investment negotiations with China, only to see it promptly bellyflop after Brussels clashed with Beijing over its alleged human-rights abuses in Xinjiang.

Trade agreements take time to complete and sometimes span the length of entire careers, which makes it understandably frustrating to see years of hard work go down the drain.

New Era

Now Russia’s invasion is hastening a fundamental rewiring of the global economy that’s reinforcing existing trade ties among geopolitical allies and incentivizing new ones. It’ll play out in the months ahead through business decisions about supply chains and government deal-making.

“In a post-invasion world, it has become increasingly untenable to isolate trade from universal values such as respect for international law and human rights,” European Central Bank President Christine Lagarde said in a speech last month.

Shifts are occurring “from dependence to diversification, from efficiency to security, and from globalization to regionalization,” she said.

In Russia, businesses and the government may already be substituting imports from Europe with imports from Asia, according to Vincent Stamer, head of the Kiel Trade Indicator.

The Russian port of Novorossiysk in the Black Sea has recently seen a “significant increase in the number of container ships arriving, whereas the port of St. Petersburg, which is involved in European trade, continues to record declines,” Stamer said in a post Thursday.

“This could be a first indication of trade diversion” and “makes it all the more important to create economic incentives for countries such as India to move closer to Europe rather than Russia,” he added.

Source: Bloomberg