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The European Union Trade Policy May 2007

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  1. The European UnionTrade PolicyMay 2007

  2. Contents 1. A few facts about World Trade 2. The EU in world trade 3. EU Trade Policy - Basic features 4. EU Trade Policy - How it works 5. EU Trade Policy – Competing in the world 6. EU Trade Policy – WTO Context Conclusion

  3. 1. A few facts about world trade GLOBALISATION TECHNOLOGICAL TRADE DEVELOPMENTS OPENING • IMPLICATIONS • Opportunities for growth, but disruptive effects • Need for global governance -> multilateral rules and institutions to ensure level playing field and better distribution of benefits • Need to reinforce the competitive position of the EU economy

  4. World PVD EU 1. A few facts about world trade Bn €

  5. 2. The EU in world trade 19% of world trade, 17.1% world trade in goods (2006), 26% world trade in services Second largest importer A MAJOR TRADING POWER First exporter • Foreign direct investment: EU-25 a major source of the world’s FDI (€171.8 billion) and host of the world’s FDI (€ 94.1 billion) in 2005

  6. 2. The EU in world trade A MAJOR TRADING POWER

  7. 2. The EU in world trade EU-25 Trade in goods: Exports by region (2006, billion euro) EFTA 129 CIS 104 NAFTA 313 China & Hong Kong 85 Japan & Korea 67 MED10 106 SAARC 30 GCC6 54 ASEAN48 Andean 5 ACP 54 MERCOSUR 27 Australia & New Zealand 24

  8. 2. The EU in world trade EU-25 Trade in goods: Imports by region (2006, billion euro) EFTA 153 CIS 171 NAFTA 206 China & Hong Kong 204 Japan & Korea 114 MED10 99 SAARC 33 GCC6 36 ASEAN78 Andean 9 ACP 58 MERCOSUR 40 Australia & New Zealand 14

  9. 2. The EU in world trade EU Foreign Direct Investments by region in 2005 Source: Eurostat

  10. 2. The EU in world trade % Source: World Bank

  11. 2. The EU in world trade Sources: Eurostat, World Bank

  12. EU Imports from Developing Countries(Billion euro) 20 EU Imports from Least Developed Countries(Billion euro) 15 10 5 0 1999 2000 2001 2002 2003 2004 2005 Manuf. Products Agr. Prod. Energy Other 2. The EU in world trade Source: Eurostat

  13. EU Exports to Developing Countries (Billion euro) EU Exports to Least Developed Countries(Billion euro) 2. The EU in world trade Source: Eurostat

  14. 3. EU Trade policy - basic features Being the leading trade region • Strong interest in: • Open markets • Clear regulatory frameworks • Responsibility to: • EU citizens • Rest of the World Need to reinforce EU competitiveness on world markets

  15. Policy concept A competitive European economy in an open world trade system organised by multilateral rules 3. EU Trade policy - basic features • Ensure that the European economy is open to the world and competitive in foreign markets • Secure real market access in foreign countries • Support a strong multilateral trading system • Most effective means of managing trade and enforcing rules • Promote European values • on democracy, rule of law, environment, social rights... Enforce sustainable development

  16. Bilateral/ Regional Multilateral Unilateral 3. EU Trade policy - basic features 3 DIMENSIONS

  17. Multilateral • Includingthe promotion of EU values : • Environmental concerns • Food safety • Cultural diversity • … and how to promote core labour standards ? 3. EU Trade policy - basic features Mostly implemented in the framework of the WTO (= the most effective means of managing trade) aiming at promoting market access with rules, in the context of effective global governance.

  18. Bilateral/regional 3. EU Trade policy - basic features In addition to the WTO's multilateral negotiations, the EU concludes bilateral agreements with third countries and regional areas. 121 countries potentially linked to the EU by regional trade agreements, many negotiated in the 1990s. • EU policy rationale for bilateral agreements • Trade expansion and rules-making (WTO+) • Fostering development and... • … promoting regional development • Key EU bilateral agreements include: • Economic Partnership Agreements in negotiation with ACP countries (Cotonou) • Free Trade Agreements with EFTA, EEA, Euromed, Mercosur (in negotiation), Mexico, South Africa... • Customs Unions with Turkey, Andorra and San Marino • Partnership and Cooperation Agreements with Russia and Ukraine

  19. Unilateral 3. EU Trade policy - basic features The EU implements unilateral measures as an additional trade policy instrument in the interests of development and/or political stability in line with the Union’s key political priorities: General System of Preferences (GSP): the classic instrument for fostering development is by granting tariff preferences. Grants products imported from GSP beneficiary countries either duty-free access or a tariff reduction. “Everything But Arms” initiative (EBA): a special GSP arrangement for the least developed countries. Grants duty-free access to imports of all products from LDCs without any quantitative restrictions (except to arms and munitions). Asymmetrical preferences e.g. for the Balkans and Moldova, with the aim of ensuring peace, stability, freedom and economic prosperity in the region.

  20. Key Facts on the General System of Preferences (GSP) 3. EU Trade policy - basic featuresThe EU is the most open market for poor countries 178 developing countries and territories are beneficiaries of the EU’s GSP. In 2003, EU imports benefiting from GSP preferences amounted to €50 billion. Bangladesh leading beneficiary country followed by China, Pakistan, Brazil, Malaysia and India. The GSP is implemented following cycles of 10 years, providing stability to traders and economic operators. New guidelines for 2006-2015 prepared. The 49 Least Developed Countries (EBA - "Everything But Arms") benefit from duty-free and quota–free access for practically all exports of originating products to the EU for an unlimited period of time.

  21. General scheme: increase of product coverage from 6900 to 7200 (mainly agriculture and fishery sector of interest for developing countries). • Special scheme for Least Developed Countries: Everything But Arms. • New special GSP+ for vulnerable countries = duty free on 7200 products if the country meets criteria : 3. EU Trade Policy – basic features New GSP system 2006-2015 : simplifies graduation mechanism and reduces the system to 3 schemes • Ratification and implementation of 27 key international conventions • Few benefits under the GSP • A poorly diversified economy.

  22. The reduced rate provisions of the GSP The GSP provides tariff reductions without quantitative limitations. Reductions are modulated according to the sensitivity of products. While non-sensitive products enter the EU market duty free, the rate for sensitive products, with some exceptions, is reduced by a flat rate of 3.5 %. Special incentive arrangements honour beneficiary countries’ efforts to comply with certain internationally agreed environmental and labour standards. Meant to foster sustainable development by providing additional trade preferences. Provide a reduction of a further 5 %. 3. EU Trade policy - basic features

  23. Historic development … to “behind the border” issues 4. EU Trade policy - How it works From tariffs and quotas... The new shape of trade policy Developed from trade liberalisation in goods… … to services and rules on investment, intellectual property, public procurement Evolution reflected in the Treaty of Nice (2001) Extended the EU trade competence to services and commercial aspects of intellectual property rights with qualified majority voting

  24. How it works NOW Articles 131 and 133 explain the way the common commercial policy shall operate in principle – “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 barriers”, instruments and scope.” Article 133 sets out the scope, instruments and decision-making procedures. Article 300 establishes the current inter-institutional procedure for concluding international agreements – principally by the Council, not legally obliged to consult the European Parliament on trade agreements, but consultations do, however, take place. 4. EU Trade policy - How it works The EC Treatyestablishes the overall aims and objectives of EU trade policy: Article 2 sets the general aims – including to promote the development of economic activities, high employment and competitiveness, and environmental protection.

  25. How it works NOW 4. EU Trade policy - How it works Article 133 of the EC Treaty provides in more detail for the common commercial policy • Rests on: • Shared, uniform concept of policy • A decision-making process based on a mixture of ‘exclusive and shared competences’ • Comprises: • Trade in goods, services and trade-related aspects of intellectual property rights • Special provisions for specific fields (e.g. audiovisual, cultural, educational, social and health services)

  26. How it works NOW • The Commission is the negotiator • On behalf of the 25 Member States • The Council is the decision maker • Mandate = determined by the Council on the basis of a Commission proposal • The Commission negotiates on the basis of this mandate • The Council approves the result of the negotiation (generally by qualified majority) • The European Parliament • Is informed by the Commission of trade policy developments • Gives “assent” on major treaty ratifications (covering more than trade) 4. EU Trade policy - How it works The negotiating process

  27. EP to be informed of negotiations like Member States Further extension of qualified majority voting for trade agreements To extend the scope of trade policy to all foreign direct investment PROPOSALS IN THE EU CONSTITUTION To increase parliamentary control: co-decision for all autonomous acts of legislative nature, assent for major trade agreements 4. EU Trade policy - How it works How it could change …

  28. A comparison between the EU and the US Efficiency Transparency Legitimacy • Exclusive EU competence • Council acts on the basis of QMV • Member States usually stick to common line Legal texts quite complicated following the adoption of the Treaty of Nice • Community mandate from Council • European Parliament only plays a limited role (but due to change) EU • Congressional constitutional responsibility, “leased back” to Administration • Congressional ‘fast track’ procedure time-limited, politicised Political debate over Trade Promotion Authority (adopted in 2001) heightened public awareness, allowed debate on trade policy priorities Congress retains final say thanks to constitutional responsibility US 4. EU Trade policy - How it works

  29. The trade defence instruments 4. EU Trade policy - How it works “Defensive” instruments to ensure fair trade and defend the interests of European companies… ... have been designed in line with specific WTO agreements recognising the right of members to counter unfair practices: Anti-dumping measures created to counter dumping practices, the most frequently encountered trade-distorting practices. Dumping occurs when manufacturers from a non-EU country sell goods in the EU below the sales price in their domestic market, or below the cost of production. Anti-subsidy measures designed to combat subsidies, which are made available to manufacturers by public authorities and which can also distort trade when they help to reduce production costs or cut the prices of exports to the EU unfairly. Safeguards: A WTO member may restrict imports of a product temporarily if its domestic industry is seriously injured or threatened with injury caused by a surge in imports.

  30. The trade defence instruments Since 1995, EC AD/AS activity is stable, with yearly fluctuations • For the past 10 years, the EU was the n°3 global initiator of new AD/AS investigations • Top of the league is India (over 400 cases) then the US (over 300) and EU (over 200). Only 0.45% of total imports of goods into the EU are covered by AD/AS measures. Key Facts on Anti-Dumping (AD) and Anti-subsidy (AS) activity(as at 31/12/2005) Most EU AD/AS cases initiated over the last 10 years were in the iron & steel, chemicals & allied, textiles & electronic products sectors. In terms of the principal users by AD/AS measures in force, the EU ranks 3rd behind the US and India. The biggest target of AD/AS measures is China. The EU is ranked in 2nd place. 4. EU Trade policy - How it works

  31. The offensive trade policy instruments 4. EU Trade policy - How it works “Offensive” instruments to open markets and eliminate obstacles to trade... … across the multilateral, bilateral and unilateral fronts: The Trade Barriers Regulation (TBR) gives EU industry the opportunity to lodge a complaint with the Commission when encountering trade barriers that restrict their access to third country markets. The TBR is then used to investigate whether there is evidence of violation of international trade rules, resulting in adverse trade effects -this could lead to the initiation of the WTO dispute settlement mechanism. Market Access Strategy of which the EU’s Market Access Database provides: information about market access conditions in non-EU countries; a systematic way for the Commission to follow up complaints from business about barriers to trade in non-EU countries; and a means of ensuring that our trading partners abide by their international commitments.

  32. The offensive trade policy instruments 4. EU Trade policy - How it works • Monitoring of third country trade defence measures: • Ensuring third countries do not misuse the trade defence instruments (anti-dumping, anti-subsidy, safeguard) against EU exporters. • Given the overall escalating use of these instruments important that there is full compliance with international rules. • The Commission provides information and advice to all interested parties, identifies individual and systemic infringements of WTO rules by third countries, addresses these issues in the appropriate bilateral or multilateral forum.

  33. The trade policy instruments Towards a new generation of FTAs: “WTO++” 4. EU Trade policy - How it works • Opening markets for trade in goods • + investments, services, rule-making, standards, non tariff measures • >> EU-Chile an example

  34. 5. EU Trade policy – Competing the world The EU’s external trade policy contributes to Europe’s competitiveness in foreign markets. Being an open economy, the EU aims at securing improved market access for its industries, services and investments, as well as enforcing the rules of free and fair trade (intellectual property rights, trade defence rules…) (Commission Communication on «Global Europe: Competing in the World» of 4 Oct. 2006)

  35. 5. EU Trade policy – Competing the world Trade Balance (Billions euros) Source: Eurostat, by Sitc groupings

  36. 5. EU Trade policy – Competing the world Good performance in high-quality products Ratio quality products / exports (%) Source: Cepii

  37. 5. EU Trade policy – Competing the world Market shares trends in world trade(%) Source: Eurostat, IMF, all products in value, excluding intra-EU trade

  38. 5. EU Trade policy – Competing the world 200 100 EU25 0 USA -100 -200 Japon -300 Chine -400 -500 -600 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Comparative tradebalance trends (bn euros) Source: Eurostat, IMF all products in value, excluding intra-EU trade

  39. 5. EU Trade policy – Competing the world EU trade not focused enough on rapidly growing markets Source: Cepii

  40. Policy initiatives 5. EU Trade policy – Competing the world • Maintain the WTO at the centre of the international trading system, • Propose a new generation of free trade agreements, • Strengthen intellectual property enforcement, • Open up public procurement abroad, • Reinforce the EU Market Access Strategy, • A reflection process on EC trade defence, • Ensure that our policy making process factor in global competitiveness challenges

  41. Trade Pillar WTO 1 state/ 1 vote EU, member key actor Financial Pillar Bretton Woods, IFIs + BIS 1 dollar/ 1 vote EU indirect role (MS on the board) Normative Pillar ILO, MEAs, WHO, FAO, Codex Alimentarius ITU, WIPO... 1 state/ 1 vote EU member, participant or observer 6. EU Trade policy - WTO context Global governance & the role of the EU

  42. The core of the multilateral rule-based system Unique forum for trade negotiations, rule setting, resolution of disagreements • Objectives • To boost international economic growth • To ensure business confidence • Core principles • No country may apply quantitative restrictions or similar measures • Non-discrimination - ‘Most Favoured Nation’ principle • National Treatment - no country may discriminate between its own products and imported products • Transparency - all rules affecting trade must be transparent; publication, notification, discussion, trade policy reviews Functioning Consensus = each country on an equal footing 6. EU Trade policy - WTO context

  43. 6. EU Trade policy - WTO context • Membership • Quasi universal: 149 member countries • Covers 95% of world trade • Enforcement controlled by Dispute Settlement Mechanism • All WTO members can seek redress • Dispute Settlement Body (DSB) rulings are binding • DSB may authorise retaliation • Regulatory framework • Trade pillar of global governance • Rounds and agreements

  44. The United States… • 84 cases brought in the WTO • Around 21 against the EU • 10 of the cases v. the EU won or solved, success rate of 48%. • The European Union… • 73 cases brought in the WTO • Around 30 against the US • 18 of the cases v. the US won or solved, success rate of 60%. The statistics show a rough parity between EU/US use of the Dispute Settlement System, but that the EU has a higher success rate 6. EU Trade policy - WTO context Key Facts on use of the WTO Dispute Settlement System N.B. Cases settled are considered as "won" by the complainant when a mutually agreed solution is notified or the complainant otherwise acknowledges that it considers the issue solved. Cases that go through litigation are considered as "won" when the complainant prevails in at least one of the claims.

  45. A round of trade negotiations launched in 2001 • To pursue market opening • To strengthen rules, improve global governance • To integrate developing countries in world trade • A development round • Special and Differential Treatment • Addressing developing countries’ concerns • Aid for Trade • Special measures for LDCs Development - a key component of the WTO round 6. EU Trade policy - WTO context The DohaDevelopment Agenda

  46. Opening markets • Agricultural goods • Industrial goods • Services • EU seeks real new MA Development Sustainable development (to respond to concerns of developing countries and civil society) Regulatory framework Improving existing rules (e.g. anti-dumping, geographical indications) and creating new rules (e.g. “trade facilitation”) 6. EU Trade policy - WTO context The 3 legs of the DDA

  47. The Cancún setback (September 2003) Meant as a half-way point of the Round, the Ministerial broke up without decision. Serious divergences on agriculture and Singapore issues. 6. EU Trade policy - WTO context • New balance of power in the WTO: • Emergence of vocal developing country groupings (G20, G90) • Rise of Brazil and India as key members of the WTO • => New negotiating dynamics: as of 2005, “FIPs”, then G4/G6 progressively to replace “old” Quad

  48. Agriculture – more farm trade liberalisation, cuts in trade distorting subsidies. • Industrial products – more tariff cuts. • Services – improved offers to be tabled by May 2005. • Trade facilitation – guidelines for negotiation (other «Singapore Issues» dropped from the DDA). • Development dimension – strengthening of Special and Differential Treatment (SDT) and Aid for Trade (technical assistance) 6. EU Trade policy - WTO context The July 2004 Agreement: Back on track In July 2004 WTO members reached an agreement on key parameters for further negotiations:

  49. Limited progress : • Decision to phase out all forms of export support in agriculture by 2013 • Decision to grant duty free / quota free access for imports from LDCs (though with a possibility to carve out 3% - US request) • Decision to step up Aid for Trade • Clarification of certain modalities in NAMA, agriculture and services • New deadlines: Agreement on modalities for agri and NAMA: end-April 2006; new services offers by end-July 2006 6. EU Trade policy - WTO context The Hong Kong Ministerial (December 2005)

  50. 6. EU Trade policy - WTO context After the suspension (July 2006): relaunching the Round • EU remains committed to a successful and reasonably ambitious outcome to: • Create business opportunities and market access, • Improve multilateral trade rules, • Contribute to development • All key Members confirmed their commitment to the DDA • No real alternative to the WTO • Objectives: narrow the gaps between Members on agricultural tariffs, agricultural subsidies and industrial tariffs • In the short-term: to seek agreement on package of development initiatives and resume technical work in Geneva