This article is republished from The Conversation under a Creative Commons license.
In a plenary debate on the future of the EU, the President of the Spanish Government underlined that “we must protect Europe, so Europe can protect its citizens.” (CC-BY-4.0) © European Union 2019 – Source EP.
Donald Trump’s threat to “cut off all trade with Spain” has drawn immediate, strong responses from politicians and the media alike. But beyond grabbing headlines, the threat raises a significant question in terms of law and international trade: can the US really suspend commercial relations with a country such as Spain?
The answer: it’s complex, because Spain doesn’t trade alone.
The first thing being ignored here is the legal structure that underpins international trade in Europe. The US doesn’t trade with Spain as an individual state but with the EU, a customs union with a shared trade policy. Since the creation of the Single Market in 1993, decisions on member states’ tariffs, trade agreements and trade protection measures fall under the sole jurisdiction of the EU.
This means that external trade relations are managed at the European level, not the national.
Indeed, when EU member states trade with one another, it is not even legally referred to as an “export.” If, for instance, a Spanish company sells goods to France, it is an “intra-community delivery.” In trade statistics, these operations are recorded as dispatches from the country of origin and arrivals in the destination country.
This illustrates how deeply integrated the European Union’s trade policy is. When it comes to non-EU trade, the EU functions in many ways as a single economic and legal entity.
This isn’t the case in every area. In defense, for example, EU member states act within frameworks of international cooperation or alliances such as NATO. In terms of external trade, however, the EU is effectively one bloc.
This all means that, in practice, any major commercial measure directed against one EU member will invariably affect the entire European market.
Barriers to Isolating an EU Member
The EU’s legal structure is compounded by an economic reality: much of Europe’s economy is effectively an integrated production network. Many European exports include components manufactured in various different countries.
This means a car assembled in Germany might include parts produced in Spain or Italy. A Spanish agricultural product might be processed or distributed in another EU country before being exported.
This phenomenon—known as global value chains—defines much of modern international trade. It is especially evident in the EU economy, where trade between member states is an essential part of production networks.
This interdependence between developed, deeply integrated economies means it would be extremely difficult to commercially isolate one member state from the European internal market wider and its economic network—far more complicated than recent speeches and headlines suggest.
International Trade Still Has Rules
In recent years, international trade systems have been subject to huge pressure. Trade wars, economic sanctions and a range of unilateral measures have prompted some experts to question the extent to which multilateral rules still matter on the global stage.
However, international trade is still backed up by an assortment of rules, especially those developed by the World Trade Organization. Its fundamental principles include not discriminating between trading partners, and not imposing arbitrary restrictions on trade.
The total suspension of commercial relations with a trading partner would call the rules and laws governing international trade even further into question.
EU Response Will Be Decisive
The key issues here are not just matters of law and economics, but also European institutions and politics.
Even if the US decided to apply targeted trade pressure—harsh tariffs, restrictions on certain products, and so on—the EU’s reaction would still be the deciding factor.
If Brussels were to decide that US measures targeting Spain affect the functioning of the internal market, it could treat them as starting a trade conflict between the US and the EU as a whole. If this happened, the problem would cease to be a bilateral matter, and escalate into a much wider transatlantic trade dispute.
But the alternative—allowing the dispute to be handled solely between Washington and Madrid—would have much more profound consequences. It would amount to treating a member state as if it did not belong to the EU in an area that is explicitly covered by EU treaties.
There are no clear precedents for something like this, and it would directly affect the unity of the internal market. For this reason, the European Commission has repeatedly stated that trade measures directed at one EU member must be handled on an EU-wide level.
How viable any US measures would be depends on one fundamental factor: the EU’s ability to act as as a unit on trade policy.
Beyond Bilateral Conflict
Taken as a whole, Trump’s threat to suspend trade with Spain goes far beyond a dispute between two nations. A measure such as this would undoubtedly affect the European Single Market and, by extension, the EU in its entirety and the continent’s trade systems.
The real question, therefore, is not whether the US could try to put this kind of measure in place, but whether the EU would respond by acting as a unified trading bloc, as stipulated by its own treaties when it comes to dealing with third countries.
Hernán Núñez Rocha, Profesor e Investigador del área de Derecho Mercantil, Universidad de Alcalá
This article is republished from The Conversation under a Creative Commons license. Read the original article.
