Trade and the European UnionObjectives & Characteristics

[Article 133]

Omar CutajarMalta Business Bureau

Wednesday, 9th November 2005

Explaining Trade Policy

Trade policy regulates the commercial exchanges of broad categories of items with trade rules varying by product categories with different countries enjoying competitive advantages in different products and sectoral segments.

Trade policy regulates the commercial exchanges in:1. Goods – covering all types of tangible goods, such as food,

clothing, raw materials and machinery.2. Services – covering things like tourism, banking and

telecommunications3. Intellectual property – including trade and investment in

commercially viable ideas and creativity: copyrights, industrial design, artists’ rights.

4. Foreign Direct Investment (FDI) – an alternative to conventional trade flows and an ever-more important pillar of globalisation. FDI trade does not include financial investments, where the owner of the capital investments enjoys no direct influence on the running of a company in which he earns shares.

DG External Trade

The context – where does the EU stand in international trade? EU: a major trading power First exporter and second

largest importer Political economic considerations: strong interest in open

markets and clear international trade regulatory regimes besides protection of EU domestic industry interests

FACTS! EU-25 ms account for 20% of world trade;

18.4% of world trade in goods 27% of world trade in services (EU=largest world

traders in services) EU-15 are the source of 46% of the world’s FDI stocks

(Eur235 billion) whilst hosting 20% of the world’s FDI (Eur119 billion)

"Trade Policy Review Report" - European Commission, 2004

The context: developments in EU international trade EU domestic production slump reflected in in the block’s

international trade performance Fall in EU exports registered in 2003 whilst imports remained

relatively stable On average EU imports increased by 7.7% annually from 1995-

2003 whereas EU exports rose by 6.9% annually over the same period

Most notable recent increases in trade with China (imports +16%, exports +17%), Russia (imports +9%, export +9%) and Turkey (imports +9%, exports +15%)

EU largest trade partners remain the US, China, Switzerland, Japan and Russia.

EU is also the largest importer and exporter of agricultural products absorbing around 85% of Africa’s agricultural exports despite CAP protectionist mechanisms.

EU Trade Policy: a macro-snapshot Main EU Import Partners

Rank Partners Million Euros

%

World 1 027 580 100.00

1 USA 157 386 15.3

2 China 126 712 12.3

3 Russia 80 538 7.8

4 Japan 73 505 7.2

5 Switzerland 61 398 6.0

EU Trade Policy: a macro-snapshot Main EU Export Partners

Rank Partners Million Euros

%

World 962 305 100.00

1 USA 233 803 24.3

2 Switzerland 74 957 7.8

3 China 48 033 5.0

4 Russia 45 662 4.7

5 Japan 43 053 4.5

Source: Eurostat [EU Trade in Goods 2004]

EU Trade Policy: a macro-snapshot

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

EUImports

of Goods

EUExports

of Goods

ManufacturedProducts

Energy

Other PrimaryProducts

AgriculturalProducts

EU Trade Policy Framework (1) EU has developed common external economic policies

in parallel to the development of internal economic integration due:

1. The need to preserve the coherence of the single market2. The political option of promoting EU economic interests in the

global arena

Consequently 3 types of external economic policies have developed:

A single set of rules regulating goods imports into the EU internal market constitute the Common Commercial Policy

Bilateral and multilateral trade agreements between the EU and other actors

Development-aid related cooperation agreements with developing countries

EU Trade Policy Framework (2) EU trade policy with a strong underlying liberal objective of free

trade is enshrined in Article 131 of the EU Treaty. This article sets the objectives of the common commercial policy as being to…

“ contribute, in the common interest, to the harmonious development of world trade, the progressive abolition of restrictions on international trade and the lowering of customs tariffs.”

This blends seamlessly with the general aims of the Treaty [Article 2]: “to promote…the harmonious, balanced and sustainable development of economic activities, a high level of employment and social protection…a high degree of competitiveness and improvement of the quality of the environment, the raising of the standard of living and the quality of life…”

EU Trade Policy – working mechanisms Article 131 sets out the general principles underpinning

the Common Commercial Policy however it is Article 133 which sets out in detail the scope, instruments and decision-making procedures.

Article 133 is comprehensive in scope covering: Trade in goods, services and trade-related related

aspects of intellectual property rights Special provisions for specific fields notably trade in

cultural and audiovisual services, educational services and human-health services

Article 300 establishes the current inter-institutional procedure for concluding international agreements

Article 133: discerning the substantive contents of EU Trade Policy Article 133(3) regulates the process for the negotiation and

inception of trade agreements with third countries, regional economic groupings of states and international organisations

Article 133(5): permits agreements regulating trade in services and the commercial aspects of intellectual property to be negotiated and concluded.

Also stipulates the non-encroachment on each individual member state’s legislative ability to pursue its own trade policy by concluding trade agreements with other countries or international organisations.

Article 133(6): defines those policy areas where the exclusive competence of the EU institutions to conclude trade agreements is not valid in particular those areas where there is as yet no EU-wide harmonisation of laws between the 25 member states.

Article 133(6) also lays down the policy areas requiring the shared competence of the Community and its Member States besides the general exception of applicable exclusively to the field of transport.

Article 133: the institutional structure

Beyond the legal text

Article 133 Committee

What? A special committee provided for by Art. 133.

How? Appointed by the Council to assist the Commission. A council working party meeting regularly tackling different trade policy sectors (steel, textiles) within the ambit of the General Affairs and External Relations Council (GAERC).

Why? It serves as a permanent and continuous link, thus an effective trade policy sounding board between the Commission and the EU-25 member states. A platform for business advocacy in EU trade matters that needs to be better exploited especially at national member-state level.

Article 133: scope and competences (1) EU trade policy formulation is regulated by a decision-

making process based on a mixture of ‘exclusive and shared competences’.

Exclusive competence: horizontal trade agreements in goods and a ‘qualified’ exclusive competence in relation to trade in services and commercial aspects of intellectual property

Shared competence in the negotiation and conclusion of trade agreements relating to:

Trade in culture & audiovisual services Educational services Social and human-health related services Transport (aviation and maritime services)

Article 133: scope and competences (2) ‘Exclusive competence’ refers only to the coordination at

Community-level of trade policy All the remaining trade activities remain at the discretion of

the EU-25 member states. Every MS retains control of its investment and external trade

promotion agencies FDI-promotion policies are also regulated at national level Import and export procedures remain distinctly coordinated

by the respective national customs authorities. Trade obligations of EU membership: inception of Common

Customs Tariff on third-country imports into the internal market; setting up of Border Inspection Posts and full membership (voting rights) in the Article 133 Committee.

Article 133: Explaining the EU trade policy process (1) Trade agreements concluded on the basis of Article

133 and in the context of the CCP are essentially the responsibility of the Commission and the Council.

However, it is in reality an inter-institutional process involving more often than not also consultation (though not legally obligatory) with the EP (International Trade Committee)

Commission negotiator on behalf of the EU-25 member states

Commission recommends the Council (GAERC) that the EU should seek to conclude a trade agreement with a third country, regional trade block or international organisation.

Article 133: Explaining the EU trade policy process (2) Following COREPER evaluation, the Council is the ultimate

decision-maker ruling on the basis of the Commission Proposal whether trade negotiations should proceed.

Working within the mandated framework granted by the Council, the Commission negotiates on behalf of the EU-25 member states

DG External Trade and RELEX normally take the lead in the negotiations but often involve also other line DGs notably DG Competition and DG Agri.

Throughout the negotiations, the Commission is continuously in touch with the Article 133 Committee to review, discuss and liaise with the GAERC Council on the evolving trade negotiations.

The Council then approves the result of the negotiations (generally by QMV) however there are exceptions as stipulated in Art. 133 when unanimous political agreement is required.

Article 133: Explaining the EU trade policy process (3) In the meantime, the EP is kept informed by the

Commission on the trade agreements negotiations via the International Trade Committee.

However, consultations with the EP are not obligatory yet they do take place.

The EP is only requested to give “assent” on major trade agreements (cooperation & association agreements) ratifications often covering more than trade arrangements.

Assent Procedure: the EP must consider the proposal at a single reading and with no provision for amendments.

Finally, Council approval is always necessary for trade agreements to be formally authorised and signed prior to ratification in the national Parliaments.

Article 133: how the trade policy process COULD change! Constitutional Treaty: Common Commercial Policy – Chapter III – Articles

314-315 International Agreements – Chapter VI – Article III –

323-325Major salient changes:1. Extension of scope of trade policy to all foreign direct

investment arrangements (Chapter III – Article 315 Section 4)2. Extend political remit of EP over EU trade policy formulation

EP to be obligatory kept informed of trade negotiations like member states

3. EP consent via “co-decision procedure” with the Council taking decisions on a QMV basis throughout the procedure (Chapter VI – Article 325 Section 8)

EU Trade Policy: the success stories A considerable number of regional trade agreements

– a total of 64 trade agreements! EU commitment at developing trade relations with

other trade partners {integration through economic spill over effect} via:

1. Bilateral agreements2. Bi-regional agreements3. Regional agreements Trade agreements providing the EU with a broad

geographical coverage underpinning the EU’s economic outreach

Bilateral and regional trade initiatives complement EU’s multilateral trade commitments with the WTO

EU Trade Policy: European Economic Area Agreements (EEA)

EEA Agreements with Norway, Iceland and Liechtenstein

EEA – internal market of EU-25 ms + 3 EFTA states

Taking on most of EU political & economic obligation without a stake in decision-making

EEA – originally included Austria, Finland & Sweden besides Iceland, Norway & Liechtenstein

EEA – post-1st May 2004 = 28 members

EU Trade Policy: EU-Switzerland FTA

EU-Switzerland trade relations: Swiss commitment to 7 different trade agreements

1. Free movement of persons2. Aviation agreement3. Land transport4. Scientific & Technological co-operation5. Agriculture6. Conformity assessment7. Public procurement

EU Trade Policy: Euromed Association Agreements (1) Association Agreements between the EU and

Mediterranean partner countries replacing non-reciprocal Co-operation Agreements (1970s)

9 Euromed Association agreements concluded (Tunisia, Morocco, Jordan, Egypt, Lebanon, Algeria, Israel & the Palestinian Authority + EU-Turkey Customs Union)

Turkey: special status (Ankara Agreement 1963); opening of accession negotiations 3rd October 2005)

Aim: creation of Euromed Free Trade Area by 2010 Similar trade provisions/conditions in the agreements

progressive elimination of tariff and non-tariff trade barriers to industrial manufactured products

EU Trade Policy: Euromed Association Agreements (2)

Partner Signature Entry into force

OJ Reference

Turkey Customs Union

1st January 1996

OJ L36/1996

Tunisia 17th July 1995 1st March 1998

OJ L97/1998

Israel 20th Nov 1995 1st June 2000 OJ L147/2000

Morocco Feb. 1996 1st March 2000

OJ L70/2000

Palestinian Authority

24th Feb 1997 1st July 1997 OJ L187/1997

EU Trade Policy: Euromed Association Agreements (3)

Partner Signature Entry into force

OJ Reference

Jordan 24th Nov 1997 1st May 2002 OJ L129/2002

Egypt 25th June 2001 1st June 2004 OJ L304/2004

Lebanon 17th June 2002 1st March 2003 OJ L262/2002

Algeria 22nd June 2004

1st September 2005

OJ L265/2002

Syria (initialled)

19th October 2004

Ratification process

_____//_____

EU Trade Policy: Trade relations with the Western Balkans EU committed to strengthen the political stability and

economic development of the Western Balkans Framework arrangement via ‘Stabilisation and Association

Agreements’ concluded on the individual countries’ economic merits

SAAs concluded with Croatia and the FYR of Macedonia SAAs ongoing negotiations with Albania whilst initiated with

Serbia & Montenegro and Bosnia Herzegovina (21st October 2005)

SAAs supersede existing autonomous trade measures reducing tariffs

SAAs provided for political dialogue and legislative approximation thus preparing the signatory countries for eventual EU membership (similar enlargement policy approach to ‘Europe Agreements’ with CEECs)

EU Trade Policy: PCAs (Partnership & Co-operation Agreements)

PCAs regulate the EU trade relations with Russia and most of the CIS states

PCA = a 10-year bilateral treaty between EU and the individual CIS states concerned

Twofold main objectives:1. Promotion of trade and investment2. Support for WTO accession processes (ex:

bilateral market access negotiations for the WTO accession of the Russian Federation)

Tangible financial support through TACIS (launched in 1991) granting technical assistance for capacity-building

EU Trade Policy: Trade relations with Developing countries ACP-EC Partnership Agreement (Cotonou Agreement) GSP Scheme (2006-2015) – EBA initiative Negotiations on a bi-regional FTA between EU and

MERCOSUR Towards an EU-GCC FTA EU-GCC Cooperation Agreement in existence since

1989 September 2003 Riyadh EU-GCC Economic Dialogue Three successful bilateral FTAs with South Africa Mexico Chile

The future of EU Trade Policy: The new EU Neighbourhood Policy

The Constitutional Treaty envisages that the EU is to develop “privileged relations” with its new neighbouring nations

A new external relations policy instrument has been devised – ENP

Commission Communication: “A New Framework for Relations with our Eastern and Southern Neighbours”

European Neighbourhood Policy envisages an one fundamental novel element

- Meant to aid the new neighbour states to reach a “higher level of integration”, by allowing a degree of participation in the EU internal (4 freedoms)

The future of EU Trade Policy: the new EU Neighbourhood policy

EU Neighbourhood policy is aimed at intensifying and improving the EU’s relationship with neighbouring countries beyond the diplomatic outreach

A policy implemented on a bilateral basis (EU-ENP states) through joint “Action Plans” drawn up by the EU and various neighbouring countries

The added value is that of passing from external relations traditionally based on commercial and political cooperation to a discrete degree of economic integration

Innovative aspect: internal market stake is an incentive for faster reforms and trade liberalisation

Consequently, a strong policy framework for the inception of a more “regional” approach to EU’s external trade relations.

The future of EU Trade Policy: the new EU Neighbourhood policy

On the economic front, the EU Neighbourhood policy “offers” to neighbouring countries

Growth in scope of the preferential tariff arrangements already in existence or else planned to be initiated

A “stake” in the internal market conditional on the adoption of parts of the acquis and faster implementation of reforms in accordance with EU norms

Increase in technical and economic assistance through the new financial instrument for neighbouring countries and the European Neighbourhood Policy (ENPI); extension of TACIS.

The improvement of the ‘interconnectivity’ with the EU in specific sectors such as energy, transport, and digital technology developments

The possibility of participating in various EU programmes such as in research and development (FP7)

Conclusions

Small states’ experience – greater ability to conclude trade agreements thus expanding international market access for indigenous industry

WTO – Doha Development Agenda (Hong Kong Ministerial Meeting)

Opening markets (agricultural and industrial goods, services) some clampdown on market-distorting agricultural subsidies

Better regulatory framework (rules on fair competition, investment, procurement

Responding to stakeholders’ & civil society expectations

Thanks for your attention!

Omar CutajarMalta Business Bureau

Tel: (+356) 21 251 719

Fax: (+356) 21 245 223

Email: ocutajar@mbb.org.mt

Web: www.mbb.org.mt