The European Union is now increasingly using trade and investment instruments to achieve its strategic foreign policy objectives. Clara Weinhardt and Ferdi de Ville It is argued that these geoeconomic changes are neglecting development priorities and causing friction with developing countries..
In recent years, the EU has increasingly adopted a geoeconomic approach to trade and investment, leveraging economic tools for foreign policy objectives, security and sustainability. The EU has created a variety of new unilateral trade and investment instruments to improve competitiveness against strategic competitors, address security concerns, or promote the transition to a green economy.
These changes reflect broader global dynamics, including deepening U.S.-China tensions, concerns about the resilience of vulnerable supply chains, and the urgency of climate action. But this geoeconomic shift is not without consequences. By taking these “autonomous measures” alone, the EU risks alienating the international community. Developing countries are disproportionately affected by the new tool (as many of them rely heavily on exporting affected products to the EU). This is especially true for countries that prioritize sustainability.
Going forward, the EU will need to pay more attention to how geoeconomic trade changes affect its global role, as new unilateral tools increase tensions between trade and development goals. Paying greater attention to the impact of European law on non-EU countries is in line with European Commission President Ursula von der Leyen’s political guidelines for the new Commission (2024-2029).
The most controversial trade-related sustainability tools
The EU has introduced three new types of geoeconomic tools to its trade policy toolbox. The first focuses on competition and seeks to address market distortions to ensure fair conditions for EU businesses. The second follows a security logic and aims to ensure that economic policy is consistent with security objectives. The third aims at sustainability and reducing environmental damage associated with trade and investment.
These tools impact low- and middle-income countries differently, with sustainability-related tools creating greater conflict between geoeconomic and development policy objectives than the other two types. The recent unilateral competition and security measures we have analyzed often have limited impact in developing countries.
An example of a recent EU autonomous trade tool related to sustainability that has a significant impact on developing countries is the Carbon Border Adjustment Mechanism (CBAM). CBAM is a cornerstone of the EU’s green trade agenda. By imposing tariff-like prices on carbon-intensive imports such as steel, cement and aluminum, it aims to provide a level playing field for European industries that comply with stricter emissions standards.
But we found that this policy disproportionately affects low-income countries. In these countries, exporters may lack the financial and technical capacity to switch to greener production methods. For example, Mozambique risks losing a significant portion of its aluminum export revenues (about a fifth of total exports) due to the phasing in of CBAM.
Figure 1: Country exposure to the EU’s Carbon Border Adjustment Mechanism (CBAM)
Note: Please refer to the author’s accompanying paper for further details. Politics and Governance.
Likewise, the EU’s deforestation rules prohibit products linked to deforestation, such as cocoa, coffee and palm oil, from entering EU markets unless they meet strict due diligence requirements. These regulations are intended to protect forests and biodiversity around the world, but they impose significant compliance costs on smallholder farmers in countries like Ghana and Ivory Coast where agriculture is the mainstay of their economies. The absence of differential treatment or financial support mechanisms amplifies these problems.
Figure 2: Country exposure to EU deforestation regulations
Note: Please refer to the author’s accompanying paper for further details. Politics and Governance.
Friction with the Southern Hemisphere
Geoeconomic competition has made coordinating the different objectives of EU foreign policy more difficult than in the past. The new geoeconomic approach more explicitly recognizes that trade liberalization can have significant risks and negative impacts on development, the environment and security.
We find that the EU’s geoeconomic shift towards autonomous trade instruments is closely linked to a backsliding of development goals. This conflicts with the Treaty’s obligation to ensure policy consistency for development. In particular, tensions are growing between the EU’s sustainability and development goals.
Many countries in the Global South see the EU’s rules as imposing burdens without sufficient consideration of development needs or economic realities. However, calls for exemptions or financial support, especially for least developed countries (LDCs), have been largely ignored.
For example, the European Parliament initially proposed to compensate LDCs for their losses with CBAM through decarbonization funds, but this provision was removed from the final regulations. Such oversight risks alienating the partners the EU seeks to engage, especially as it attempts to offset China’s influence in the Global South. The EU’s credibility as a development partner is at stake.
Balance of geoeconomics and development
The EU’s geoeconomic policy highlights the challenge of how to resolve trade-offs between foreign policy objectives. Overemphasizing competitiveness or sustainability at the expense of development risks widens global inequality, impedes climate cooperation and weakens strategic partnerships in a multipolar world.
Balancing strategic autonomy and development partnerships will be key as the European Commission, led by Ursula von der Leyen, tackles global challenges including the US-China rivalry and the climate crisis. A balanced approach can help the EU position itself as a leader on climate action and trade without harming its vulnerable economies.
Measures such as exemptions, technical assistance, and access to green technologies can help low-income countries adapt and offset potential negative economic impacts. Moreover, better and earlier consultations are needed with potentially affected low-income countries, including existing contacts with their ministers. Tools such as international procurement mechanisms that exempt the poorest provide examples of more equitable policy decisions.
For more details, please refer to the author’s attached paper. Politics and Governance
Note: This article gives the views of the author and not the position of EUROPP (European Politics and Policy) or the London School of Economics. Featured image credit: European Union
