Easing off the green squeeze doesn’t make the EU a development hero

It’s been a rare weekend without a shock-and-awe Donald Trump news announcement on trade, the main fare from the administration these days being an endless stream of wrong predictions that deals over the bogus “reciprocal tariffs” are going to happen at any minute. So let’s talk about something else. Today’s newsletter is on a topic that’s been brewing for a while, if that’s the right metaphor — the EU retreating from (“rationalising”, if you prefer) its various wheezes to impose more environmental and human rights standards on imports. Charted Waters, where we look at the data behind world trade, is on global oil prices.

Trade takes on a lighter shade of green

The EU loves, I mean loves, the idea that trade isn’t just about grubby mercantile gain but is also about exporting European values. Over the past decade, pressure from campaigners, sometimes bolstered by sneaky protectionism, has given European importers and hence foreign exporters a bunch of responsibilities, creating a grab-bag full of exciting new abbreviations.

Chief among them are CBAM, the carbon border adjustment mechanism to stop emissions-heavy imports undercutting carbon-taxed EU production; EUDR, the deforestation regulation that bans the sale of products, including palm oil, coffee and beef, raised on recently cleared land; and CSDDD, the corporate sustainability due diligence directive, which holds companies responsible for environmental and labour abuses in their global supply chains.

Whatever the intentions, they’ve all created a lot of bureaucracy and resentment, especially among low- and middle-income countries, which say they’re basically neo-imperialism in a progressive wrapper. To certify, say, an Indonesian smallholder oil palm grower, of whom there are several million, can mean an inspector armed with geolocation data has to turn up to each and every farm. (This at the behest of European countries that flattened their own forests centuries ago.)

Recently there’s been a rethink thanks to the apparent fragility of global trade, threats of punishment tariffs from Trump, who regards such standards as protectionism, and a general backlash against environmental regulations. The EU decided last year to delay the introduction of EUDR by one year until 2026, and in April issued new guidance which considerably simplified (some would say weakened) the regulation.

Recently French President Emmanuel Macron joined forces with Germany to argue for scrapping the due diligence directive, which at the least seems likely to end with it too being watered down. Given that France was one of the main progenitors, that’s quite the reversal.

Pragmatism but not partnership

So the EU has listened to developing countries’ concerns and a new era of mutual trade and prosperity can begin, right? Ish, verging on no. Lobbying from European business associations was almost certainly more influential in delaying and watering down the EUDR than protests from emerging markets (EM).

And, critically, as Jodie Keane from the ODI Global think-tank said in a recent letter to the FT, there’s little sign the EU has developed a joined-up policy towards trade and development, particularly given the damage climate change can wreak on growth.

If you’re in the right place, the view from some developing countries currently doesn’t look too bad. I talked recently to Odrek Rwabwogo, an economic adviser to Ugandan President Yoweri Museveni. Uganda has long exported unprocessed coffee beans to the EU and has struggled to move up the value chain, he says, because the big international coffee-roasting companies are reluctant to set up there.

The EUDR created a threat even to Uganda’s existing exports, but that seems to have diminished with the pushing back of deadlines and easing of compliance standards. “There’s not much noise any more on this from the EU and we hope it ends well,” Rwabwogo told me. “We don’t hear the demands for workshops and ultimata on deadlines that we were suffering from about six, seven months ago. Out of two million households that grow coffee, we now have around 970,000 that are [EUDR] compliant.”

Rwabwogo also says Ugandan agriculture luckily seems so far to have been spared the dislocations from floods and wildfires induced by climate change that have hit other coffee-producing countries. Although the big coffee processors still aren’t moving production to Uganda, the country has attracted some smaller ones. It has also diversified into other products, such as avocados for the European market, with the help of development assistance from the UK, traditionally a big aid donor. Exports have been boosted by direct flights to London, which restarted last month for the first time in a decade.

There are, however, big buts and missed opportunities. Complying with the EUDR doesn’t mean the EU is helping Uganda build a value chain. “The discussion is on traceability,” Rwabwogo says. “It’s very, very extractive. If the EU said it would leave 50 per cent of the value chain in our country, it wouldn’t need to order us to do something like the EUDR because it would be in our enlightened self-interest.”

Rwabwogo says there are no signs of aid drying up as yet. But the UK has savaged its overseas development assistance (ODA) budget to 0.3 per cent of gross national income from an already reduced 0.5 per cent, within which it dishonestly counts the costs of processing asylum seekers in Britain as aid. The EU has, in effect, redirected aid from supporting development in sub-Saharan African countries to aiding a horrendously abusive detention system for migrants in Libya and Tunisia.

European politicians still sometimes talk about partnership with developing countries in Africa, but usually it doesn’t mean much any more. Easing off on the EUDR is welcome to low- and middle-income countries, but imposing and then removing an obstacle to EM exports to Europe doesn’t constitute an enlightened use of trade to support development.

Charted waters

Global oil prices predictably shot up as Israel attacked Iran. But it’s worth noting that, unlike during previous episodes of war in the Middle East, fracking has made the US a net exporter of oil and gas, consequently changing its direct incentives to get heavily involved in the region.

Trade links

• Reuters reports that India will follow China in restricting exports of rare-earth minerals.

• Whither those bogus “reciprocal tariffs” and so-called negotiations? Nobody knows anything about what Trump will do, but Sam Lowe in his Most-Favoured Nation newsletter has a much better record of guessing than most, and here’s his bet. 

• The FT’s Unhedged newsletter examines the perhaps surprising lack of inflation as yet from Trump’s tariffs.

• A Bloomberg story says that this week’s summit of leaders of the G7 rich nations will avoid even trying to issue a communiqué in case it simply causes a row.

• Veteran markets guru Mohamed El-Erian notes in the FT that the oil shock comes at a bad time for the global economy and will create stagflationary forces, and the FT’s Lex column agrees.

• Showing that not all globalisation is about hydrocarbons and shipping containers, this is a lovely piece in the FT on how Turkish barbers (sometimes “Turkish” barbers) built an international brand, specifically with regard to the UK.

Trade Secrets is edited by Harvey Nriapia