1 the european union trade policy the european union trade policy may 2007

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The European UnionThe European UnionTrade PolicyTrade Policy

May 2007

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ContentsContents

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

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1. A few facts about world trade1. A few facts about world trade

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

GLOBALISATIONGLOBALISATIONTECHNOLOGICAL TRADE

DEVELOPMENTS OPENING

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1. A few facts about world trade1. A few facts about world trade

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

2000 2005

Evolution of world trade : 2000-2005(world trade = exports + imports, except intra- EU trade)

Sources: Eurostat, OMC

Bn €

World PVD EU

5

2. The EU in world trade2. The EU in world trade

19% of world trade, 17.1% world trade in goods (2006), 26% world trade in services

First exporterSecond largest

importer

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

A MAJORA MAJOR

TRADING POWERTRADING POWER

6


EU2526,0%

United States18,4%Japan

6,9%China3,8%

Others44,9%

Source: Eurostat

SHARE IN WORLD TRADE IN SERVICES (2005)

Others50,6%

China9,6%

Japan6,6%

United States16,0%

EU2517,1%

SHARE IN WORLD TRADE IN GOODS (2006)

Source: EurostatA

MAJORTRADINGPOWER

7

NAFTA 313

2. The EU in world trade2. The EU in world tradeEU-25 Trade in goods: Exports by region (2006, billion euro)

Andean5

MERCOSUR27

EFTA129

ACP 54

CIS 104

China & Hong Kong 85

Japan &

Korea67

ASEAN48

Australia & New Zealand 24

GCC6 54

MED10 106

SAARC30

8

Andean9

EFTA153

Australia & New Zealand

14

CIS 171

MERCOSUR40

ACP 58

China & Hong Kong 204

Japan &

Korea114SAARC

33

ASEAN78

MED10

99 GCC6 36

2. The EU in world trade2. The EU in world tradeEU-25 Trade in goods: Imports by region (2006, billion euro)

NAFTA 206

9

EU Foreign Direct Investments by region in 20052. The EU in world trade2. The EU in world trade

Canada1

1,9

8,0

EFTA

19

,9

20

,0

Russian Federation

4,1

9,0

South Korea

1,24

,2

Mexico

2,5

0,8

Candidates (4)

0,6

10

,3

Medit. Countries *

0,51,6

China

0,4

5,7

Japan

10

,9

6,2

Other L. America

8,5

1,6

India

0,22,2

ASEAN (10 countries)

-1,3

6,3

Mercosur (4 countries)

4,2 5,9

Sub-Saharan Africa

0,5

16

,6

Australia & New Zealand

6,0

-6,0

Outflows Inflows

(Billions of ECU/euro)

EU25 Flows in 2005

United States

17

,1

29

,5

Source: Eurostat

10


30,028,1

10,2

5,0

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

EU25 United States Japan China

Share of GDP in world GDP (2005)share = GDPi / GDPw%

Source: World Bank

11


18,2

20,3

56,4

18,2

EU25

Japan

China

USA

Degree of insertion in world economy (2005)RATIO Total Trade = (Imports+Exports, excl. Energy)/GDP

Sources: Eurostat, World Bank

12


EU Imports from

Developing

Countries

(Billion euro)

0

100

200

300

400

500

600

1999 2000 2001 2002 2003 2004 2005

Manuf. Products Agr. Prod. Energy Other

Source: Eurostat

EU Imports from Least Developed Countries(Billion euro)

0

5

10

15

20

1999 2000 2001 2002 2003 2004 2005


13


0

100

200

300

400

500

1999 2000 2001 2002 2003 2004 2005


EU Exports to

Least Developed

Countries

(Billion euro)

EU Exports to

Developing

Countries

(Billion euro)

0

2

4

6

8

10

12

14

16

1999 2000 2001 2002 2003 2004 2005


bil €

Source: Eurostat

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3. EU Trade policy - basic features3. 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

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Policy concept

A competitive European economy in an open world trade system organised by multilateral rules

Ensure that the European economy is open to the world and competitive in foreign marketsSecure real market access in foreign countries

Support a strong multilateral trading systemMost effective means of managing trade and enforcing rules

Promote European valueson democracy, rule of law, environment, social rights... Enforce sustainable development

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MultilateralMultilateral Bilateral/Bilateral/RegionalRegional

UnilateralUnilateral

3 3 DIMENSIONSDIMENSIONS

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Multilateral

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.

Including the promotion of EU values :

• Environmental concerns

• Food safety

• Cultural diversity

• … and how to promote core labour standards ?

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3. EU Trade policy - basic features3. EU Trade policy - basic featuresBilateral/regional

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

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Unilateral

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.

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3. EU Trade policy - basic features3. EU Trade policy - basic features The 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 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.

The GSP is implemented following cycles of 10 years, providing stability to traders and economic operators. New guidelines for 2006-2015 prepared.

Key Facts on the General

System of Preferences

(GSP)

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33. . EU Trade Policy – basic featuresEU Trade Policy – basic features

New GSP system 2006-2015 : simplifies graduation mechanism and reduces the system to 3 schemes

• 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 :

• Ratification and implementation of 27 key international conventions

• Few benefits under the GSP

• A poorly diversified economy.

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The reduced rate

provisions of the

GSP

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 %.

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 %.

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4. EU Trade policy - How it works4. EU Trade policy - How it worksHistoric development

From tariffs and quotas...

… to “behind the border” issues

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

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4. EU Trade policy - How it works4. EU Trade policy - How it works

The EC Treaty establishes the overall aims and objectives of EU trade policy:

How it works NOW

Article 2 sets the general aims – including to promote the development of economic activities, high employment and competitiveness, and environmental protection.

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.

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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)

How it works NOW

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The negotiating process

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)

How it works NOW

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PROPOSALS IN PROPOSALS IN THE EU THE EU

CONSTITUTIONCONSTITUTION

To extend the scope of trade policy to all foreign direct investment

Further extension of qualified majority voting for trade agreements

To increase parliamentary control: co-decision for all autonomous acts of legislative nature, assent for major trade agreements

EP to be informed of negotiations like Member States

How it could

change …

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A comparison between the EU and the US

• Exclusive EU competence

• Council acts on the basis of QMV

• Member States usually stick to common line

• Congressional constitutional responsibility, “leased back” to Administration

• Congressional ‘fast track’ procedure time-limited, politicised

• Community mandate from Council

• European Parliament only plays a limited role (but due to change)

Congress retains final say thanks to constitutional responsibility

Legal texts quite complicated following the adoption of the Treaty of Nice

Political debate over Trade Promotion Authority (adopted in 2001) heightened public awareness, allowed debate on trade policy priorities

Efficiency Transparency Legitimacy

EUEU

USUS

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4. 4. EU Trade policy - How it worksEU Trade policy - How it worksThe trade defence instruments

“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:

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.

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.

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4. 4. EU Trade policy - How it worksEU Trade policy - How it worksThe 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).

In terms of the principal users by AD/AS measures in force, the EU ranks 3rd behind the US and India.

Most EU AD/AS cases initiated over the last 10 years were in the iron & steel, chemicals & allied, textiles & electronic products sectors.

Only 0.45% of total imports of goods into the EU are covered by AD/AS measures.

The biggest target of AD/AS measures is China. The EU is ranked in 2nd place.

Key Facts on Anti-Dumping (AD) and Anti-subsidy (AS)

activity(as at 31/12/2005)

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4. 4. EU Trade policy - How it worksEU 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.

The offensive trade policy instruments

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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.

The offensive trade policy instruments

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The trade policy instruments

Towards a new generation of FTAs: “WTO++”

• Opening markets for trade in goods

• + investments, services, rule-making, standards, non tariff measures

>> EU-Chile an example

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5. EU Trade policy – Competing the world5. 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)

35Source: Eurostat, by Sitc groupings

Trade Balance Trade Balance (Billions euros)(Billions euros)


59,8

-22,2

46,4

49,0

-31,1

4,8

8,4

5,9

-13,0

148,9

29,4

69,0

77,4

-43,1

2,8

7,4

7,2

1,0

Manufacturing

Machinery

Transport equipment

Chemicals

Textiles and clothing

Iron and steel

Paper and articles of papers

Non-metal. Mineral

Other products 20002006

36

Ratio quality products / exports (%)

Good performance in high-quality products

0

10

20

30

40

50

60

Source: Cepii


37

Source: Eurostat, IMF, all products in value, excluding intra-EU trade

0

2

4

6

8

10

12

14

16

18

20

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

EU25

USA

Japan

China

Market shares trends trends in world trade (%)


38

-600

-500

-400

-300

-200

-100

0

100

200

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

EU25

USA

Japon

Chine

Comparative trade balance trends (bn euros)

Source: Eurostat, IMF all products in value, excluding intra-EU trade


39

EU trade not focused enough on rapidly growing markets

% of total exports to more/less rapidly growing markets

Contribution to growth in world

imports

1995-2002US Japon EU25

10 most rapidly growing markets

79% 76% 48% 93%

20 least rapidly growing markets

8% 12% 13% -5%Source: Cepii


40


Policy initiatives

• 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

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6. EU Trade policy - WTO context6. EU Trade policy - WTO context

Global governance & the role of the EUGlobal governance & the role of the EU

Trade PillarTrade Pillar WTO 1 state/1 vote

EU, member key actor

Financial Financial PillarPillar

Bretton Woods,

IFIs + BIS

1 dollar/1 vote

EU indirect role (MS on the board)

Normative Normative PillarPillar

ILO, MEAs, WHO, FAO,

Codex Alimentarius ITU, WIPO...

1 state/1 vote

EU member, participant or

observer

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6. EU Trade policy - WTO context6. EU Trade policy - WTO contextThe core of the multilateral rule-

based system

Unique forum for trade negotiations, rule setting, resolution

of disagreementsObjectives

– To boost international economic growth

– To ensure business confidence

Functioning

Consensus = each country on an equal footing

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

43


Membership

– Quasi universal: 149 member countries

– Covers 95% of world trade

Regulatory framework

– Trade pillar of global governance

– Rounds and agreements

Enforcement controlled by Dispute Settlement Mechanism

– All WTO members can seek redress

– Dispute Settlement Body (DSB) rulings are binding

– DSB may authorise retaliation

44


Key Facts on use of the WTO Dispute Settlement System

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 rateN.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


The DohaThe Doha Development AgendaDevelopment Agenda

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

Development - a key component of the

WTO round

A development round

– Special and Differential Treatment– Addressing developing countries’

concerns– Aid for Trade

– Special measures for LDCs

46

6. EU Trade policy - WTO context6. EU Trade policy - WTO contextThe 3 legs of the DDAThe 3 legs of the DDA

Regulatory framework

Improving existing rules (e.g. anti-dumping, geographical indications) and creating new rules (e.g. “trade facilitation”)

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)

47


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

The Cancún setback (September 2003) 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.

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)

The July 2004 Agreement: Back on trackThe 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


The Hong Kong Ministerial (December 2005)The Hong Kong Ministerial (December 2005)

50

6. EU Trade policy - WTO context 6. EU Trade policy - WTO context

After the suspension (July 2006): relaunching After the suspension (July 2006): relaunching the Roundthe 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

51

ConclusionConclusionGlobalisation has Globalisation has put trade issues at put trade issues at

the centre of the centre of citizens’ concernscitizens’ concerns Opening markets Opening markets

can provide can provide opportunities…opportunities…

… … if harnessed by if harnessed by collective rulescollective rules

Towards fairer trade...Towards fairer trade...

… … if EU economy if EU economy sustains sustains

competitivenesscompetitiveness

1 the european union trade policy the european union trade policy may 2007

Documents

imf world trade

ev of world trade

world trade3

eu tradesources

total trade

world tradebn chart110809

eu mio euroimport995

commerce total10