Trade policy-making in the EU Andean Community Vice Ministers of Trade Regional Policy Dialogue

1. Trade policy-making in the EU Andean Community Vice Ministers of Trade Regional Policy Dialogue by Pierre DEFRAIGNE Honorary Director General at the European Commission Director of Eur-Ifri Lima, April 23-24, 2007

2. Introduction Just a short reminder of what EU is about.

3. Why the EU ? The EU allows Europe to remain a master of its own destiny in an era of globalization • where size matters more, • where the world economy is shifting towards a new international division of labour, • where the new strategic balance of power is tilting towards Asia ,

4. MAP OF EU 27

5. The European Union today is a coalition • of 27 countries • home to 493 million • securing 30,30% of world GDP • and speaking 23 different languages but determined to achieve « Unity through Diversity » on the basis ofdemocracy and of shared values encompassing individual freedom andsocial justice

6. Population % share of EU in world population % million inhabitants 8 600 7 525 6 450 Amsertam Nice (1997) Maastricht (2001) (1992) Single European Act 5 375 (1986) 4 300 Rome Treaty 3 225 (1957) 2 150 1 75 0 0 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1977 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 EC6 EC9 EC10 EC12 EU15 EU25 EU27 Gross Domestic Product % share of EU in world GDP % Billion current US$ 35 14 30 12 25 10 Amsertam (1997) Nice Maastricht (2001 (1992) 20 8 15 6 Single European Act (1986) 10 4 Rome Treaty 5 2 0 0 2003 2004 2005 2006 2007 2002 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 EC6 EC9 EC10 EC12 EU15 EU25 EU27 Source: European Commission (Trade A2), Chelem DataBase

7. Most of the European continent is now organised within the EU • With its own institutions • partly federal • partly intergovernmental • Issuing its own legislation which takes precedence over national ones • Deciding through ‘qualified majority voting’ for most economic matters and through unanimity in foreign affairs and in internal affairs (i.e. immigration, police, civil law) to the extent they belong to EU sphere of competences • Sharing a Single Market without internal border controls and passport-free for the EU 27 • Sharing a common currency for the EMU-13 (eurozone) • Carrying out key flanking policies aiming at sustainable and equitable development • Playing a growing role in regional and world affairs

8. The defining choices • the route • the institutions

9. (1) The Community way: the economy Two routes lead towards regional integration The ‘high politics’ route through diplomacy, defence and currency; in the aftermath of World War Two, that route was blocked for Europe because its security mainly rested then on Nato – see the failure of the European Defence Community in 1954; The ‘functional route’ through market integration : as economic interdependence increases among partners, further steps are taken towards a single market with a common currency, and political integration takes place gradually; The European Economic Community route proved the right one: from EEC-6 in 1957, it lead to EU-27 in 2007!

10. (2) The Monnet method: the institutions In Monnet’s vision, institutions mattered : leadership makes breakthroughs, but institutions make them irreversible ; irreversibility is the key to the commitment of the business to develop EU-wide strategies • The European Commission the supranational Executive, is exclusively focused on the ‘common good’ of the European Union as such; it initiates proposals and carries out policies; • The Council, made up of Member state Ministers representing national interests decides on policies, mainly through qualified majority voting in areas of EU competence; • The Parliament, directly elected across the whole Union by its citizens and organized along political party lines, co-decides the EU legislation, the budget and controls the Commission ; • The Court of Justice exerts all the prerogatives of a Constitutional Court and of any jurisdictional nature on EU matters

11. How does the EU move forward? • The dynamics of economic integration acts as the driving force: the bicycle theory • External challenges and pressures from the outside have proved sometimes divisive (Iraq war), but more often helpful: the Cold War, the Suez crisis (1956), the collapse of the Bretton Woods system (1971) the fall of Berlin Wall (1989), 9/11, immigration, globalization, climate change • EU integration has always proceeded through crisis solving: initial disagreements have eventually lead to dynamic compromises such as de Gaulle's empty chair in the 60’s, UK financial rebate in the 80’s; the constitutional crisis maybe provides us with a new opportunity

12. 4. Three defining parallelisms • between integration inside and liberalization outside • between enlargement and deepening • between economic integration and political cohesion

13. More about economic integration The 4 steps of EU integration

14. Step oneCustoms Union (1958-1968) • Getting rid of « at the border » obstacles i.e. tariffs and quotas between member countries • Building up a common external tariff (100% harmonized) whose revenues accrue to the EU • Imported and domestic goods move freely across borders within the EU

15. Step two Single Market without borders (1958-1992) • Extending free movement of goods to factors (capital and labour) and services; right of establishment for business across the EU • Doing away with internal border controls (1992) by coping with “behind the border” obstacles through a new Treaty (Single Act 1987) which extended the QMV (Qualified Majority Voting) on: • Norms and standards • Technical Regulations • Taxation • Government aids • through three approaches • either abolition or banning: all imports restrictions, distorting national aids • or harmonization or mutual recognition: health, environment, industrial standards, food safety, equivalence of academic degrees… • or competition among rules (unanimity) in the social and taxation field (the Achille´s heel of EU social model)

16. Step three The Economic Union (gradually from 1958 onwards) • Common Policies centralized at EU level (EU exclusive competences) • commercial policy (a single voice in trade negotiations) • competition policy (governments and firms) • common agricultural an fisheries policy (substituting for national ones with EU funding) • regional and cohesion policy aiming at real convergence (GDP/head) among regions and countries, funded by EU budget and by the EIB • EU budget blocked at a ceiling of 1% of EU GDP • Common actions: either EU regulations or EU interventions with EU funding (EU and national shared competences) • Environment, health and consumer protection • Transport (interoperability and interconnection of neighbours, labour conditions, safety, financing, negotiations with third countries) • Social regulations: equality between men and women at work, minimum labour standards • Development aid to developing countries • Energy Policy (still in the early making) • National policies coordination/ cooperation among Member States in an EU framework, in view of coping with remaining market externalities and policy spill-over's

17. Step fourThe Economic and Monetary Union (1992-1999) • Eurozone (13 countries out of 27) - Trading off national monetary policies for lower transaction costs and for a shelter from external economic shocks, after a nominal convergence phase prior to joining the EMU • Centralized monetary policy (ECB) aimed at internal currency stability • Coordinated national fiscal policies through the Growth and Stability Pact (mandatory limits on government deficit and public debt) • Economic governance of the Eurozone by the Eurogroup (Commission and Finance ministers)

18. The EU as a global economic player is still far from punching its full economic weight in global economic governance • Trade pillar : one single voice and active leadership in multilateral (WTO) and bilateral negotiations; • Financial pillar: so far absent from the boards of the Bretton Woods’ Financial Institutions (IMF and World Bank) and keeping a low profile in G8, despite the fact that the EU is the largest source of savings, of FDI and of official development aid. • Norms setting pillar: EU is a leading normative power in multilateral negotiations with respect to the environment, health, sanitary and phyto-sanitary, prudential ratios and accounting standards

19. EU trade policy in a nutshell • Trade policy is the most ancient common policy and it remains still today the most advanced branch of EU external policy : • full EU membership (unlike eurozone and schengen) • strictly unified set of rules and procedures ( with national customs acting as EU agents) • EU competences are mainly exclusive, with only a few shared competences, • dominant role of the Commission , • final say with the Council (Foreign Affairs Ministers ) • mainly through qualified majority voting;

20. EU trade policy today • Today , it pursues three sets of objectives: • Political:mainly pre-enlargement and neighbourhood policy, but also war on terrorism ( see extension of the drug regime to Pakistan after 9/11), non proliferation and WMD clauses in trade pacts, embargo on arms (China), dual-use technology monitoring, Russia’s market economy status, • Development: attempt to combine aid and trade preferences ( tariffs), and FTAs in order to encourage reforms and regional integration among DCs ( Asean, Mercosur, Mediterranean countries, ACP, Andean Pact and Central America) • New trade policy : focus on competitiveness and market opening in the context of globalization But EU trade policy, for its multiple dimension , remains first and foremost an economic policy

21. EU trade policy: The Institutional framework • The decision-making process 1) The competences battle between EU and its MS - exclusive - mixed 2) The voting procedures - qualified majority voting (QMV) - unanimity - political consensus 3) The present state of play : Art133 (Treaty of Nice, 2000)

22. B. The negotiations in practice 1) The mandate - DG Trade/DG Relex initiative - DG Trade draft discussed with all DG’s - Proposal adopted by the Commission - Discussion by the Council • Amlat Group • Committee 133 ◦ senior ◦ deputy ◦ sectorial (textiles, services, steel) • COREPER • General andForeign Affairs Council decide

23. 2) The negotiations 3) The ratification - either exclusive EU competences : through adoption of the final text by the Council - or mixed EU competences : through a twin procedure • adoption by the Council • ratification by MS - temporary implementation of EU exclusive competences section of the agreements