Marco Padovan* & Nicolò Cusimano**
This article examines the future of international trade as envisioned by the European Union (EU) through the lens of the European Economic Security Strategy (‘EESS’). The international political landscape, reshaped by recent major events such as the war in Ukraine, the definitive rupture in relations between the G7 nations and Russia and the intensifying rivalry between the United States (US) and China – along with the resulting so-called ‘decoupling’ of their economies – has led to new security challenges for the EU. The EESS aims to define EU strategies to meet these challenges, achieving not only economic, but also social and national security. The Union strategy is based on three main pillars: (1) enhancing the competitiveness of its economy by strengthening the Single Market through significant investments in strategic sectors; (2) protecting its economic security by implementing measures to safeguard its market and intellectual capital, while enhancing its supply chains; and (3) reinforcing its international relations, bearing in mind that the world is increasingly shifting towards a ‘small yard, high fence’ dynamic. The ultimate goal is to strike the right balance between EU strategic autonomy and free trade.
INTRODUCTION
After the fall of the USSR, the US-led liberal order, based on free trade, multilateral institutions and the spread of democracy, appeared to have achieved a decisive victory. The triumph of liberal capitalism over Soviet communism triggered a political, economic and social transformation that led to the so-called globalization. Long-standing centres of power and conflict, thanks to globalization and its de-spatialization, were reconfigured into nodes of a global network, characterized by the movement of goods, information, people and capital, which was believed to enhance collective well-being. The accession of China to the WTO on 11 December 2001 marked the peak of this process, which at the time seemed irreversible, leading Francis Fukuyama to famously declare it in ‘The End of History’.
Today, the geopolitical landscape, reshaped by recent major events such as the war in Ukraine, the definitive rupture in relations between the G7 nations and Russia and the intensifying rivalry between the United States (US) and China – along with the resulting so-called ‘decoupling’ of their economies – has led to a significant setback in the globalization process. Whereas in the past the expansion of international trade was viewed as a driver of collective prosperity and a means to reduce global tensions, today economic interdependence is increasingly seen as a potential source of vulnerability than merely an opportunity.
For this reason, the European Union (here-after also ‘EU’) has undertaken a significant restructuring of its approach to international trade in recent years. This article aims to examine the strategies the EU has implemented to strike the right balance between openness to international trade and the need for security, intended in (1) economic, (2) social and (3) ‘national’ terms.
2. THE NEW PRINCIPLES GOVERNING INTERNATIONAL TRADE ACCORDING TO THE EUROPEAN ECONOMIC SECURITY STRATEGY
2.1 The Shift Towards Strategic Autonomy
The EU’s policy document on economic security is the European Economic Security Strategy (‘EESS’) published on 20 June 2023. The EESS is a comprehensive framework aiming to protect the EU’s economic strategy and strengthen its resilience, while maintaining and growing the EU’s technological edge and promoting responsible and sustainable trade practices.
One of the cornerstones of the EESS is the concept of strategic autonomy. This principle marks a significant departure from past trade policies that prioritized liberalization over security concerns. Strategic autonomy, in fact, means reducing the EU’s dependence on external actors for critical goods and services by strengthening its economic self-reliance while remaining open to global trade. According to the EU institution ‘Getting this balance right is essential and can ensure that our economic and security interests reinforce each other’.
2.2 Risks to European Economic Security
The starting point of the EESS for achieving strategic autonomy is the identification of risks to the Union’s economic security. In this regard, the European Commission and the High Representative of the Union for Foreign Affairs and Security Policy have identified the following four broad and non-exhaustive categories of risks to economic security:
(1) Risks to the resilience of supply chains, including energy security (e.g., ‘risks of price surges, the unavailability or scarcity of critical products, or inputs in the EU, including but not limited to those linked to the Green Transition, those needed for a stable and diversified energy supply and pharmaceuticals’);
(2) Risks to the physical and cyber-security of critical infrastructure (e.g., ‘risk of disruptions or sabotage of critical infrastructures, such as pipelines, undersea cables, power generation, transportation, electronic communication networks, that undermine the secure and reliable provision of goods and services or data security in the EU’);
(3) Risks related to technology security and technology leakage (e.g., ‘risk to the EU’s technological advancements, technological competitiveness, and access to leading-edge technology, including through malicious practices in the digital sphere such as espionage or illicit knowledge leakage[.] In some cases, technology leakage risks strengthening the military/intelligence capabilities of those that could use them to undermine peace and security, especially for dual-use technologies such as Quantum, Advanced Semiconductors or Artificial Intelligence, and therefore require specific risk mitigation measures’);
(4) Risk of weaponization of economic dependencies or economic coercion (e.g., ‘risk of third countries targeting the EU, its Member States and EU businesses through measures affecting trade or investment to bring about a change of policy falling within legitimate policymaking space’).
In order to mitigate these risks and strengthen the EU’s strategic autonomy, EU policymakers have identified the following three priorities on which the EESS is based:
(1) Promoting the EU’s competitiveness and growth, strengthening the Single Market, supporting a strong and resilient economy, and fostering the EU’s research, technological and industrial base.
(2) Protecting economic security through a range of policies and tools, including targeted new instruments where needed.
(3) Partnering and further strengthening cooperation with countries worldwide.
2.3 Promoting the EU’s Competitiveness and Growth
A crucial element in achieving strategic autonomy for the EU is the strengthening of the Single Market. Indeed, as EU policymakers emphasized in the EESS ‘The Single Market is the EU’s best asset to keep its economy prosperous, innovative, and resilient’.
With this in mind, in order to promote the EU’s competitiveness and at the same time strengthen its internal market, the Union has launched an ambitious investment policy. One of the most significant initiatives is the Next Generation EU, which was adopted as a response to the Covid-19 economic crisis and represented the largest stimulus package ever financed in Europe. Through the Next Generation EU and the Cohesion funds, numerous sectors of the Single Market have been targeted for reform and investment in recent years, fostering not only economic growth but also the EU’s green and digital transition.
Indeed, environmental sustainability is a key focus in the EU’s efforts to restructure its internal economy and international trade. In this regard, the European Green Deal and the Fit for fifty-five package are central to the EU’s strategy for driving the green transition within the Single Market, with the ambitious goal of achieving climate neutrality by 2050, while ensuring a just and socially equitable transition.
One of the goals set by EU environmental policy is the reduction of fossil fuel consumption. This goal has become even more critical in the light of the EU’s need to decrease its reliance on Russian gas, oil, and coal imports, which, following Moscow’s aggression against Ukraine, have been identified as a significant vulnerability in the foreign policies of EU Member States. In response, on 18 May 2022, the European Commission introduced RePowerEU, a plan to end the EU’s dependence on fossil fuels, address the climate crisis, and build a more resilient energy system through energy efficiency, supply diversification, replacement of fossil fuels with clean energy, and the implementation of strategic reforms and investments.
The goal of reducing dependence on other countries in critical sectors is central to several initiatives undertaken by the EU. Among the most noteworthy are Regulation (EU) 2023/1781, known as the ‘Chip Act’, and the Strategic Technologies Platform for Europe. These instruments are designed to mobilize significant investments in areas such as semiconductors, digital technologies, deep tech, clean technologies, and biotechnology. Their primary aim is to enhance the EU’s long-term sovereignty and competitiveness in sectors concerning critical technologies.
2.4 Protection of Economic Security
The EU’s commitment to increasing its competitiveness and autonomy in strategic sector is closely linked to the second priority included in the EESS, namely the protection of economic security. Specifically, this aim is pursued through three main approaches: (1) countering economic coercion by third countries, (2) strengthening supply chains, and (3) enhancing technological security while preventing technology leakage.
In recent years, in fact, third countries have exploited the EU’s economic dependencies as a means of pressure on EU institutions. In order to increase its deterrence capabilities, the EU adopted Regulation (EU) 2023/2675 (so-called ‘EU Anti-Coercion Instrument’). This act provides a mechanism for identifying instances of economic coercion and engaging in dialogue with the offending country to resolve the issue. Where appropriate, the EU may also seek compensation for the injury caused. Where this is not possible, and as a last resort, the EU may adopt countermeasures, including trade restrictions, such as increased tariffs, import or export licenses and restrictions on services trade, foreign direct investment or access to government procurement.
For similar reasons, the EU adopted Regulation 2022/2560 to prevent distortions in the internal market caused by foreign subsidies. This regulation establishes a framework of rules and procedures for investigating foreign subsidies that disrupt the internal market and for remedying such distortions. These distortions can affect any economic activity, particularly in the context of mergers and public procurement processes.
Another key initiative aimed at enhancing the EU’s economic security is the Global Gateway,11 an ambitious investment plan designed to develop smart, sustainable, and secure global infrastructure across the digital, energy, and transport sectors, while also strengthening health, education, and research systems worldwide. Access to these resources by EU partner countries is contingent on their adherence to democratic values and high standards. Indeed, the underlying principle of the Global Gateway is that supply chains built on sustainability, transparency, and human rights protections are more secure and resilient.
Finally, the third pillar of the EU’s strategy focuses on increasing technological security and preventing technology leakage. In this regard, the EU’s goal is to maintain a technological edge over potentially hostile countries while ensuring the right conditions for developing and keeping up with new technologies.
On the technology security front, the EU has recently adopted the Critical Entities Resilience Directive and the revised Network and Information Systems Security Directive (‘NIS 2 Directive’), which provide an updated and comprehensive legal framework to bolster the physical and digital resilience of critical infrastructures, including energy, transportation, healthcare, digital infrastructure, water and food.
In particular, the Critical Entities Resilience Directive was prompted by the rising threat of hybrid attacks, notably from countries like Russia and Iran, against critical infrastructures, including those of the EU. Critical entities, in fact, are defined as those providing essential services in upholding key societal functions, supporting the economy, ensuring public health and safety, and preserving the environment. Under this directive, Member States are required to develop a national strategy to enhance the resilience of critical entities, encompassing their capacity to prevent, protect against, respond to, withstand, and recover from hybrid attacks, as well as natural disasters, terrorist threats, and public health emergencies. Additionally, Member States must conduct a risk assessment at least every four years and identify critical entities that provide essential services.
The NIS2 Directive, on the other hand, updates the cybersecurity standards introduced in 2016 and extends their scope to new sectors and entities to improve the resilience and incident response capabilities of both public and private organizations, relevant authorities and the EU as a whole.
With regard to countering technology leakage, however, the EU is taking measures on both the subjective and objective fronts. In order to prevent the leakage of EU-funded technologies, the Commission may, in duly justified cases, exclude certain third-country entities or EU entities controlled by such countries from participating in research and innovation and digital capability deployment projects in order to protect the strategic assets, interests, autonomy or security of the Union. On the objective front, the EU is enhancing its trade control capabilities, including through improved coordination among Member States.
2.5 Economic Security Partnerships and Cooperation
The third priority outlined in the EESS is the establishment of economic security partnerships. This goal is grounded in the recognition that the global economy has become so integrated and interconnected that the EU cannot secure its economic security alone, but it must instead rely on its capacity to collaborate and coordinate with other countries.
The key word in this strategy is ‘diversification’. Ensuring access to a diversified set of import and export markets, and thereby diversifying supply chains, is crucial for reducing risks and mitigating disruptions to international trade. This underscores the importance of cooperating with the widest possible range of partners, including long-standing like-minded partners such as G7 members, as well as others with whom the Union has common interests and that are willing to cooperate.
Such cooperation is flexible and varies in form, scope, and types of participants depending on the shared interests, the common dependencies and the specific policy area or risks involved. In this regard, the EU is pursuing this through bilateral, plurilateral and multilateral forms of cooperation.
First, the EU is strengthening its bilateral relations through new free trade agreements (e.g., New Zealand and Chile) as well as through high-level dialogues with its key partners like the US and India via their respective Trade and Technology Councils (TTCs), as well as with Japan. Dialogues at the G7 level are also crucial within this framework.
The plurilateral approach in the Union’s economic security policy is particularly significant in its relations with developing countries, whose resources will enable them to play a larger role in global value chains in the future. As seen above, initiatives like the Global Gateway allow the Union to enhance its economic resilience by promoting a more diversified global economy based on transparency and sustainability. This also helps the EU to fill a void that might otherwise be occupied by third countries with interests and values conflicting with those of the Union.
Finally, despite the challenges posed by recent international developments, multilateralism remains of fundamental importance for the EU. In fact, according to Union policymakers, ‘[e]ven in an environment of strategic rivalry and economic competition, there is scope for international cooperation on common challenges and a need for clear rules guaranteeing fair and open trade, thus putting guardrails on the trend towards “might is right”, economic fragmentation or protectionism’.
Therefore, in the EESS, the EU reaffirms its interest in strengthening multilateral cooperation through international forums and organizations such as the G20, the United Nations, or multilateral development banks. In addition, in the trade realm, it reaffirms its willingness to continue its efforts to reform the WTO and restore its dispute settlement function, given the critical role that an effective WTO plays in minimizing the risk of arbitrary behaviour and narrowing the scope of possible trade restrictions.
3. THE PROTECTION OF THE SINGLE MARKET THROUGH A QUALIFIED SUPPLY CHAIN
3.1 Due Diligence in Environmental Legislation
As discussed above, one of the key approaches identified by the EESS for the protection of economic security is the strengthening of qualified supply chains. In this regard, it is noteworthy that a significant recent trend pursued in this direction by the EU legislator has been the imposition of increasingly stringent due diligence obligations on EU operators in the conduct of their activities.
These EU initiatives share the common objective of ensuring that EU companies operate within the Single Market on a level playing field, thereby preventing companies established in third countries from gaining a competitive advantage through more lenient commercial practices.
Simultaneously, these initiatives enhance social security for EU citizens. By mandating high standards throughout the supply chain and in the production of final products, in fact, they help reduce the environmental and social impact of business practices, thereby improving not only the quality of products available to EU consumers, but also the environment in which they live.
In this regard, we can identify three main instruments implemented by the Union to protect the Single Market by strengthening qualified supply chains: (1) regulations on the supply of raw materials; and (2) import duties.
3.2 Regulations on the Supply of Raw Materials
One of the most impactful innovations for EU operators recently introduced into EU law is Regulation (EU) 2023/ 1115 (the so-called ‘EU Deforestation Regulation, or EUDR’), adopted in the framework of the EU Green Deal. This regulation prohibits the placing and making available on the Union market as well as the export from the Union of products that contain, have been fed or have been made using the raw materials affected by the Deforestation Regulation, currently including cattle, cocoa, coffee, oil palm, rubber, soya and wood, unless these products fulfil the following three conditions: (1) they are deforestation-free; (2) they have been produced in accordance with the relevant legislation of the country of production; and (3) they are covered by a due diligence statement.
In order to comply with this prohibition, the regulation imposes several due diligence obligations, primarily focused on reporting requirements. These include the obligation to declare not only the country of production, but also the geolocation of all plots of land where the raw materials concerned were produced, to prove that such land has not been subject to deforestation after 31 December 2020.
The objective of this Regulation is in fact to minimize the Union’s contribution to deforestation and forest degradation worldwide, thereby contributing to reducing global deforestation, as well as to reducing the Union’s contribution to greenhouse gas emissions and global biodiversity loss. At the same time, the Regulation pays special attention to the social security of indigenous peoples by providing for consultation and cooperation with them, as they are often victims of the consequences of deforestation.
The EUDR was initially foreseen to apply from 30 December 2024; however, due to its significant impact, the Commission has proposed to postpone its entry into force by one year, to 30 December 2025. The link between the social security of indigenous peoples, the supply of raw materials and due diligence obligations is also central to Regulation (EU) 2017/821 on Conflict Minerals. In particular, this regulation requires Union importers of minerals to identify and assess risks in their mineral supply chains and implement strategies to address these risks in order to reduce the opportunities for armed groups and security forces to engage in trade in tin, tantalum and tungsten, their ores, and gold (3TG).
The objective of this regulation is to ensure that Union importers of 3TG meet the international standards on responsible sourcing set by the OECD, contributing to the cessation of financing for armed groups, the prevention of abuses toward local populations, including mine workers, and the support of local development by combating corruption and money laundering.
The supply chain due diligence obligations under both the Deforestation Regulation and the Conflict Minerals Regulation, therefore, require EU economic operators to carefully select their raw material suppliers in such a way as to exclude those who engage in environmentally or socially unsustainable practices, thereby enhancing the social security of local populations.
3.3 Import Duties
Finally, a third tool used by the EU to strengthen the internal market is the imposition of import duties. Unlike the measures discussed above, duties are a traditional element of state trade policy designed to ‘protect’ domestic producers from competition by economic operators in third states who, for various possible reasons, can offer their products at lower prices.
In recent years, the EU has adopted several anti-dumping measures against countries, such as China and India, which, thanks to more lenient regulations compared to the EU (e.g., on labour law) and state subsidies, have sought to control significant shares of the EU internal market by exporting products at prices below their fair value. In this way, the EU has successful ensured fair competition for its producers, thereby strengthening the EU internal market.
On the other hand, an innovative form of import duties is provided for in Regulation (EU) 2023/956 (‘Regulation on the Carbon Border Adjustment Mechanism’ or ‘CBAM’), adopted in the framework of the EU Green Deal. The CBAM Regulation, in addition to imposing various due diligence obligations on EU operators, introduces an ‘environmental duty’, calculated on the basis of the emissions produced during the manufacturing of certain carbon-intensive goods (cement, steel products, aluminium, fertilizers, electricity and hydrogen) to be paid when these goods are imported into the customs territory of the EU.
The objective of the CBAM is both environmental and economic. From an environmental (and thus, indirectly, social) point of view, it aims to ensure that efforts to reduce greenhouse gas emissions within the EU are not undermined by a corresponding increase in emissions outside its borders due to the import of goods produced in non-EU countries.
On the other hand, from an economic point of view, it imposes a duty on imports into the EU market comparable to the costs EU producers incur under the EU Emissions Trading System (ETS) when manufacturing the same kind of goods. Thus, the CBAM eliminates market distortions and ensures the competitiveness of EU producers, the strengthening of the internal market and thus EU economic security.
4. THE PREVENTION OF PROLIFERATION OF DUAL USE ITEMS
4.1 Economic and National Security
The third dimension of security addressed in the EESS is the ‘national’ one, which in this article refers to the military, political and territorial security of the EU. In the EESS, particular attention is paid to dual-use goods, i.e.:
items, including software and technology, which can be used for both civil and military purposes, and includes items which can be used for the design, development, production or use of nuclear, chemical or biological weapons or their means of delivery, including all items which can be used for both non-explosive uses and assisting in any way in the manufacture of nuclear weapons or other nuclear explosive devices.
The EESS highlights the critical need to prevent the leakage of sensitive emerging technologies and other dual-use items to destinations of concern, particularly those that employ military-civil fusion strategies. Such leaks, in fact, not only enhance the know-how and thus the competitiveness of international competitors of EU economic operators, but also could strengthen the military and intelligence capabilities of actors who could threaten international peace and security.
To mitigate this risk, the EU and its Member States participate in various international forums (so-called ‘Multilateral export control regimes’) whose aim is to adopt common export control measures at international level. However, recent shifts in the international landscape have significantly undermined the effectiveness of these regimes, leading some EU Member States to introduce national trade control measures, which, however, undermine the harmonized development of relevant laws at the EU level.
4.2 The EU in the Multilateral Export Control Regimes
EU export control regulations for dual-use items are primarily governed by Regulation (EU) 2021/821 (the socalled ‘Dual-Use Regulation’). In particular, the dual-use items covered by the Regulation are listed in Annex I of the Regulation, based on the decisions made by multilateral export control regimes, such as, for example, the Australia Group, the Missile Technology Control Regime, the Nuclear Suppliers Group and the Wassenaar Arrangement.
On this point, the White Paper on Export Controls published by the European Commission on 24 January 2024 as part of a set of measures aiming at strengthening economic security, underlines that this multilateral approach is the most effective way to develop robust export controls on a global scale. Consequently, the EU should strive to preserve the effectiveness of multilateral regimes and strengthen them.
However, recent events in international politics are undermining the proper functioning of these regimes. Indeed, many of the multilateral export control regimes (Wassenaar Arrangement, Missile Technology Control Regime and Nuclear Suppliers Group) count the Russian Federation among their members. Given that these regimes require consensus, Moscow’s use of its veto is hampering the adoption of new control measures, resulting in ongoing systemic failures.
In response to these challenges, the EU has adopted a two-pronged approach. First of all, the EU is intensifying cooperation with international partners, as demonstrated by its efforts within the EU-US TTCs, to bolster international security. Secondly, the EU has recently activated and strengthened the mechanisms provided under Articles 9 and 10 of the Dual Use Regulation, which allow for the adoption and coordination of national export control lists at the EU level.
4.3 National Control Lists and the Strategic Autonomy of the EU
Article 9 of the Dual Use Regulation empowers Member States to impose control measures on goods and technologies not listed in Annex I of the Dual Use Regulation for reasons of public security, including the prevention of acts of terrorism or the protection of human rights, by requiring special authorization for the export of such goods and technologies. On this basis, recently, several Member States have established their own National Control Lists, including France, Italy, Spain and the Netherlands.
In this regard, it is important to note that under Article 10 of the Dual-Use Regulation, also the other Member States – after the publication of an appropriate notice by the European Commission – may also make the export of the items included in the national control lists adopted by another Member State (and indicated in the same notice) subject to prior authorization provided that the exporter has been informed by the competent authority that the items in question ‘are or may be intended, in their entirety or in part, for uses of concern with respect to public security, including the prevention of acts of terrorism, or to human rights considerations’.
Pursuant to Article 9(4) of the Dual-Use Regulation, in fact, the Commission publishes, on the one hand, an annual information note including all ‘national measures’ notified to it by the Member States and, on the other hand, a so-called ‘EU compilation of national control lists’.
Although the publication of the ‘national measures’ has no particular legal effects in the other Member States, the publication of the EU Compilation of National Control Lists – pursuant to Article 10 of the Dual Use Regulation – enables other Member States to apply these controls directly to their exporters. In other words, they can choose to subject items, which have been included in the National Control Lists by other Member States, to authorization (and potentially deny their export).
This mechanism, therefore, allows the EU to overcome the crisis of the multilateral export control regimes and to react quickly to serious misuse of existing technologies or new risks associated with emerging technologies, without having to wait for a consensus to be reached within the multilateral control regimes. In this way, therefore, the EU is beginning to strengthen its strategic autonomy in a particularly sensitive area.
4.4 EU White Paper on Export Controls
The adoption of National Control Lists by individual Member States poses the risk of creating a patchwork of control measures within the EU and undermining the cohesion of the Single Market. This uncoordinated proliferation of national controls is creating loopholes, diminishing the effectiveness of export controls and threatening the integrity of the Single Market.
In this context, the EESS has highlighted the urgent need for more coordinated and timely actions at the EU level in the area of dual-use export controls and to make full use of the mechanisms provided by the Dual-Use Regulation. In this regard, through the White Paper on Exports, the European institutions have outlined several proposals to address the current challenges.
In the short term, the proposals designed to address these problems are: (1) amending the list in Annex I of the Dual- Use Regulation through a legislative act to add items from National Control Lists; and (2) making the process of establishing National Control Lists more multilateral by providing for a prior notification by the state intending to adopt such a list, thereby allowing the Commission and the other Member States to provide feedback.
For the longer term, the Commission has proposed: (1) creating a forum for political coordination between Member States and the Commission to discuss the EU export control policy; and (2) advancing the evaluation of the Dual-Use Regulation from the originally planned 2026–2028 period to 2025. According to the Commission, this is made necessary by recent international events.
5. AMORE EFFICIENT ENFORCEMENT THROUGH BETTER COOPERATION AND REVISION OF THE UNION CUSTOMS CODE
5.1 The Role of Enforcement in the EESS
A key leitmotif of the EESS is the imperative to enhance cooperation between EU enforcement and licensing authorities to ensure the consistent and effective application of trade rules across the bloc. Indeed, more effective control over international trade ensures an enhancement in the economic, social and national security of the EU.
In the previous section, we examined the significance EU institutions place on controlling the export of dual use goods by subjecting them to licensing by the competent national authorities. However, EU trade control regulations extend beyond dual-use items, encompassing all sensitive goods, including military goods.
Trade control rules are closely linked to customs regulations, whose consistent and effective enforcement is vital for reinforcing EU security. In light of this, the European Commission has launched a significant reform of the EU Customs Code aimed at ensuring greater coherence and efficiency in the application of EU customs law.
5.2 Role of the Union’s Customs System
As clarified in Commission Staff Working Document SWD(2023) 140 final dated 17 May 2023, since its founding in 1968, the Customs Union has been the basis and the guardian of the EU Single Market. Indeed, the Customs Union manages the EU’s external border by enforcing the rules governing the cross-border movement of goods, while allowing goods to move freely within the internal market.
Over the years, the role of customs has evolved significantly, now acting as the ‘first line of defence’ to protect EU citizens from non-compliant, dangerous or counterfeit goods from third countries and EU businesses from unfair competition. Indeed, over the past twenty years, nonfinancial sectoral legislation applicable to goods (so-called ‘prohibitions and restrictions’) has increased exponentially, in line with growing expectations for safety, sustainability, security, health and human rights protection.
The increasing burden of customs responsibilities, combined with recent global crises, has put considerable strain on the EU customs system, exposing significant shortcomings and deficiencies. Under the current EU Customs Code and governance framework, the EU holds exclusive responsibility for setting customs legislation and tariffs, while Member States are responsible for its implementation. According to the European Court of Auditors, this approach leads to substantial and largely undesirable discrepancies in the application of customs legislation between Member States, weakening the Customs Union, hampering the EU’s financial interests, and allowing non-compliant operators [to] target EU points of entry with lower levels of controls.
For these reasons, the Commission has repeatedly highlighted the ‘indisputable need’ for a structural modernization of the EU customs system, proposing a reform based on an integrated European approach to bolster customs operations, focusing on process improvements, enhanced data management, and a revised governance framework. Indeed, this reform is intended to significantly enhance the EU’s capacity to enforce national requirements on imported goods, ensuring a level playing field. It also aligns with broader Commission priorities, such as promoting the European way of life, advancing the European Green Deal, preparing Europe for the digital age, and strengthening Europe’s global standing.
5.3 Weaknesses of the Union’s Customs System
In the above-mentioned Commission Staff Working Document, the European Commission identified five problem areas in the current EU customs system: (1) Customs authorities struggle in their mission to protect the EU; (2) Compliance with customs formalities is burdensome for legitimate trade; (3) The customs model is not fit for e-commerce; (4) Limited data quality, access and analysis; and (5) Member States diverge significantly in the application of the customs rules.
These problems stem, according to the Commission, from three main factors: (1) the inadequacy and excessive complexity of the customs processes; (2) a fragmented and complex customs digitalization; and (3) a fragmented Customs Union governance structure. Because of these problems, (1) not all customs duties are collected, (2) dangerous, non-compliant or counterfeit products still enter or leave the EU single market, and (3) illegal goods are smuggled into the EU.
In light of this framework, therefore, the European Commission has identified five specific objectives of equal importance and weight to be achieved through customs reform: (1) Strengthen EU customs risk management, (2) Reduce the administrative burden and simplify the procedures for traders, consumers, and customs authorities, without jeopardizing effective customs supervision; (3) Ensure a level playing field between e-commerce and traditional trade as regards customs, in line with the VAT rules, (4) Enhance access and use of data for strategic customs action, and (5) Enable the Customs Union to act as one by ensuring effective EU-wide protection, irrespective of where the good crosses the border and adopting EU-wide approaches that are more than the sum of individual national efforts.
5.4 Revising the Union Customs Code
The reform of the Union Customs Code is built on three main pillars: (1) fostering a new partnership with businesses, (2) adopting a smarter approach to customs checks, and (3) modernizing the handling of e-commerce.
Regarding the EESS, this reform will certainly enhance the enforcement of import and export regulations, establishing a more harmonized and coordinated approach among the Customs Authorities of the Member States.
A key role in this process will be played by the newly established EU Customs Authority, which will centralize expertise and knowledge currently spread across Member States. This authority will provide guidance, coordination, and support to national customs authorities, ensuring strengthened oversight of supply chains.
Additionally, the reform aims to create an EU Customs Data Hub, which will be governed by the EU Customs Authority. This platform will enable businesses wishing to import goods into the Union to register all relevant product and supply chain information in a single, unified online system. Leveraging cutting-edge technologies such as machine learning, artificial intelligence, and human oversight, customs authorities will be able to analyse the data provided by businesses, gaining a comprehensive, 360-degree view of supply chains and the movement of goods.
As a result, customs controls and EU governance will become more harmonized and efficient, supporting the EESS objective of preventing the uncontrolled export of critical items and ensuring that products entering the market comply with the various requirements set forth by EU regulations.
6. CONCLUSIONS
Recent developments in international politics have made the global order more unstable and fragile. The once homogeneous and de-spatialized world of globalization, consisting of nodes and uninterrupted flows of goods, people and capital, is increasingly being perceived by international actors as heterogeneous, both in terms of interests and values.
In this context, the EESS represents the EU’s response to this new international scenario. The primary goal of the strategy is to achieve strategic autonomy for the EU through a delicate balancing between trade liberalism and the protection of economic, social, and national security.
This strategy compels economic operators to fundamentally reassess their approach to international trade. After decades of globalization and unfettered economic liberalism, companies must now confront the reality that doing business with third countries is more challenging than ever before. The newly elected President Trump and his administration’s actions are likely to add additional complexity to international trade rules and practices by enhancing divisions in respect of multilateralism and commonality of approach. It is still to be seen whether present EESS fits with the new approaches taken by the forthcoming US Administration, also taking into account the relatively fragile architecture of EU governance combined with a quite limited military capacity.
Exporters will be required to have a thorough understanding of the products they trade, whether or not they are subject to export controls, and to be fully aware of the end users in order to prevent diversion and ensure compliance with ethical, security and environmental requirements. All operators will have to adopt highly structured procedures ensuring a continuous control over their international trade activities. The challenge ahead is to strike the right balance between ensuring compliance with the regulations aiming at respecting the ethical and security objectives the EU set to itself, and avoiding losing competitiveness in the global marketplace.
Importers, for their part, will have to navigate complex and sometimes ethically questionable supply chains. To mitigate the increased costs and compliance burdens associated with imports, operators will need to reconsider their purchasing strategies. They will have to seek out trustworthy suppliers who are willing to disclose sensitive information regarding their industrial processes, supply chains, and products – ensuring greater transparency and reducing risk. This could end up in an increased cost or in an indirect re-shoring or near-shoring, which on its turn could have negative consequences on international trade, particularly if combined with aggressive policies adopted by the ‘US’.
Undoubtedly, the EESS will make international trade more expensive for EU-based operators and could also cause certain diversions of international trade flows, which will very likely go in parallel with other pressures imposed by the Trump administration. Compliance with stricter regulations will require increased investments in resources and personnel. However, this cost is not without its long-term benefits. While EESS will raise the price of doing business, it will simultaneously enhance the security of international trade for EU operators and, potentially, for external markets as well. By fostering more transparent, ethical, and resilient supply chains, the EESS will contribute to reducing the proliferation of sensitive items and encourage third-country operators to adopt more secure and sustainable practices. But above all, if combined with a unified European approach to security and sustainability, EESS could contribute to enhance European resilience in the forthcoming global challenge between the US and China.
