European Union policy towards Free Trade Agreements - ECIPE
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<ul><li><p>European Union policy towards Free Trade Agreements </p><p>Stephen WoolcockStephen Woolcock (email@example.com) is a Lecturer in International Political Economy in the Department of International Relations at the London School of Economics. Dr. Woolcock also heads the LSE International Trade Policy Unit (ITPU) and is a Member of ECIPEs Advisory Board.</p><p>AbstrAct</p><p>The European Union has recently shifted to a trade policy that envisages a greater use of Free Trade Agreements (FTAs). In particular the EU is working on a number of new FTA initiatives. Policy statements also reiterate the EUs commitment to multilateralism in trade and to the completion of the stalled Doha Development Agenda. This paper considers the background to the shift towards a more active use of FTAs, the motivations and forces that have brought about the shift in policy, and the likely EU objectives with regard to the content of the FTAs. Unlike the US the EU has no model FTA to form the basis of negotiations with all partners. In assessing the outlines of the EU negotiating mandates for these new FTAs it is, however, possible to also draw on recent policy statements and the studies and reports produced on each possible new FTA. Finally, the paper discusses whether the EU can reconcile this greater emphasis on bilateral FTAs with its commitment to multilateralism in trade.</p><p>EcIPE WorkIng PAPEr no. 03/2007</p><p>www.ecipe.org</p><p>Phone +32 (0)2 501 53 08 Fax +32 (0)2 501 53 20 firstname.lastname@example.org rue Du Luxembourg 3, b-1000, brussels, belgium</p><p>Keywords: Trade Policy, Free Trade Agreements, International Political Economy</p><p>JEL Code: F02, F13, F53, P59</p></li><li><p>2</p><p>ECIPE WORKING PAPER</p><p>No. 03/2007</p><p>IntroDuctIon *</p><p>The European Union has recently shifted to a trade policy that envisages a greater use of FTAs.1 In particular the EU is working on a number of new FTA initiatives. At the Vienna EU-Latin America summit in May 2006 a decision was reached to negotiate an EU Central American FTA, some-thing that has been under consideration for some time. The EU has also agreed to negotiate an FTA with ASEAN and with India and is exploring an FTA with South Korea.2 The EU has, of course, made considerable use of FTAs and RTAs for some time. Policy statements also reiterate the EUs commitment to multilateralism in trade and to the completion of the stalled Doha Development Agenda.3 This paper considers the background to the shift towards a more active use of FTAs, the motivations and forces that have brought about the shift in policy, and the likely EU objectives with regard to the content of the FTAs. Unlike the US the EU has no model FTA to form the basis of ne-gotiations with all partners. In assessing the outlines of the EU negotiating mandates for these new FTAs it is, however, possible to also draw on recent policy statements and the studies and reports produced on each possible new FTA.4 Finally, the paper discusses whether the EU can reconcile this greater emphasis on bilateral FTAs with its commitment to multilateralism in trade. </p><p>bAckgrounD</p><p>The EU has been a significant user of FTAs and region-to-region negotiations. These fall into a number of categories. There are the Association Agreements with the states in south eastern Eu-rope/western Balkans and the Euro-Med partners that have been largely motivated by a desire to promote economic development and political stability in EUs near neighbourhood. There are the Economic Partnership Agreements (EPAs) with the Africa Caribbean and Pacific (ACP) states that are largely motivated by development policy objectives. Finally, there have been the bilateral FTAs concluded with South Africa, Mexico, and Chile and the region-to-region negotiation underway with MERCOSUR that have been more commercially motivated. In addition to these full-fledged FTAs there are a range of other co-operation agreements, including efforts to promote regulatory co-operation with the United States. See table I for a list of existing agreements and for agreements currently being negotiated or envisaged.</p><p>From 1999 until the recent policy shift the EU exercised a de facto moratorium on new FTA negotiations. This was not a formal policy, but was based on a consensus of the Member States and the Commission during the preparations for what was then to be called the Millennium Round of the WTO. Under the direction of the then EU Trade Commissioner Pascal Lamy, the priority was on a comprehensive multilateral round. This remained the policy of the EU despite the difficulties in launching a new round. </p><p>After the Cancun WTO Ministerial at which the EU effectively allowed three of the Singapore is-sues (investment, competition, and transparency in government procurement) to be dropped from the Doha Development Agenda (DDA), the EU continued to favour multilateral negotiations. In a policy statement in November 2003, the Commission articulated the view that the DDA remained the priority, but FTAs would not be ruled out in principle, if they offered clear economic ben-efits and, in cases of region-to-region agreements, the EUs partners showed evidence of progress towards regional integration. Only as the prospects of an ambitious comprehensive round have </p><p>* the EcIPE Working Paper series presents ongoing research and work in progress. these Working Papers might therefore present preliminary results that have not been subject to the usual review process for EcIPE publications. We welcome feedback and recommend you to send comments directly to the author(s).</p></li><li><p>3</p><p>ECIPE WORKING PAPER</p><p>No. 03/2007</p><p>diminished has the pressure for FTAs with Asian states grown. During the Prodi Commission, the DG Trade Commission held to the moratorium because new bilateral negotiations would have weakened the EUs position in pushing for a comprehensive multilateral round.5 </p><p>Before discussing the factors that brought about the shift in EU policy the following section dis-cusses the various policy aims that have motivated EU FTAs to date.</p><p>MIxED MotIvEs</p><p>In the case of EU FTAs, as with all FTAs, there have been a number of factors motivating each EU initiative. But some FTAs have been shaped more by foreign/security policy and others more by commercial considerations.6 </p><p>The more political motivationsForeign policy and security interests have predominated in the agreements with the EUs eastern and southern neighbours. For example, the Europe Agreements negotiated with the central and east European countries from 1990 were motivated by a desire to create a stable post Cold War European economic and political order. The Euro-Med Association Agreements negotiated with the EUs southern neighbours were also largely motivated by a desire to promote economic and thus political stability in the Mediterranean. By assisting economic development the Euro-Med process was intended to check large-scale outward migration from the region and provide the economic basis for political stability, thus tackling the potential causes of fundamentalism and instability in the region. European security is also the major motivating factor behind the Stability and Associa-tion Agreements that are being negotiated with the states in the western Balkan. Together with the accession of Romania and Bulgaria, these are intended to promote economic development and integration in the region with a view to reducing and ultimately eliminating the risk of renewed political tensions and war.</p><p>The agreements negotiated with the ACP states such as the Lome, Cotonou, and the envisaged Economic Partnership Agreements currently under negotiation, are motivated by development aims. In the current EPA negotiations the EU has been criticized for placing too much emphasis on reciprocity and not enough on development aims, but all 78 ACP states account for only 3 % of EU exports (and 4 % of EU imports). Few of the ACP states constitute very large markets, so in comparison with large emerging markets such as China and India, they are not large enough to justify FTAs, were it not for the EUs existing commitments to these developing countries.</p><p>Commercially motivated FTAsOne can identify three broad commercial motivations for FTAs; neutralizing potential trade diversion resulting from FTAs between third countries; forging strategic links with countries or regions experiencing rapid economic growth; and enforcement of international trade rules.</p><p>The EU-Mexico FTA is a classic case of neutralizing trade diversion. Following the conclusion of NAFTA, EU trade with Mexico experienced a dramatic decline. The EUMexico agreement was therefore motivated by a desire to neutralize such trade diversion and was, as a result, nego-tiated with the objective of gaining NAFTA equivalent access to the Mexican market.7 The EU negotiations with Mercosur (and Chile) were initiated as a region-to-region agreement in order to promote EU relations with Latin America and support the process of regional integration within Mercosur. Negotiations were initiated with Chile because of Chiles aim of becoming an associate member of Mercosur. But the importance placed on EU Mercosur and EUChile has been influ-enced by the prospects of the FTAA (Free Trade Agreement for the Americas). The FTAA was in-tended to form a free trade area from Alaska to Chile (excluding only a few countries such as Cuba </p></li><li><p>4</p><p>ECIPE WORKING PAPER</p><p>No. 03/2007</p><p>on the way). In other words the EUMercosur and EUChile negotiations were in part motivated by a desire to neutralize the potential trade diversion in favour of the US in Latin America. As the prospects of the FTAA faded so did the impetus behind EUMercosur. When the US concluded an FTA with Chile, however, the EU pressed for a bilateral that ensured equivalent access for EU exporters and service providers.</p><p>Other EU FTA initiatives, such as the EUCentral America FTA negotiations, EUASEAN and EUSouth Korea, have also followed FTAs negotiated or envisaged with the US (CAFTA, USSin-gapore, USThailand and USMalaysia, and USKorea) and to a lesser extent Japan.</p><p>Strengthening strategic links with important emerging markets also appears to be a key motivat-ing factor behind EU FTAs with Mercosur (which experienced rapid growth when the regional agreement was initiated), but more especially South East Asia and India. Here the aim is simply to strengthen trade and investment links with markets that will be important in the future. </p><p>Finally, FTAs are seen as a means of strengthening the implementation of existing international trade rules, such as intellectual property rights. This aim is given some prominence in the recent European Commission paper on the EU in global competition, that provided the vehicle for setting out the current approach to FTA policy.8 As a general rule the EU FTA policy requires that there be a clear economic case for any FTA, which can generally be interpreted as meaning some real increase in market access in addition to that achieved at the multilateral level in the WTO.</p><p>Promoting the European model of integrationAs will be illustrated below in the discussion of the content of EU FTAs, the EU has not used a model FTA. All agreements appear to be negotiated flexibly to suit the EU and its partners in each specific case. Nor does the EU make offensive use of the acquis communautaire. Clearly the acquis shapes the EUs negotiating position, just as domestic policies shape a single countrys position in any negotiation, but the EU has not (to date) been very aggressive in pushing for harmonization la acquis communautaire. The EU has however, been explicit about its desire to promote regional integration in other regions of the world. In this sense it has sought to export the idea of regional integration more than the specific acquis communautaire. The EU has a policy of promoting region-to-region agreements in which the EU links an FTA or Association Agreement to progress towards integration in the partner region, as a means of encouraging regional integration in the partner region. This is reflected in the negotiations with Mercosur. The EPAs are also being negotiated with regional groupings of ACP states such as ECOWAS (West Africa), COMESA (East Africa and Egypt), CARICOM (Caribbean) and SADC (Southern Africa but excluding South Africa). The EU also envisages a regional-to-regional negotiations with Central America and the CAN (Andean Community) as well as ASEAN.</p><p>The EU does this because regional integration is seen as a means of promoting economic and political stability following the European experience. Needless to say, this is something that the Eu-ropean Commission favours and the EU Member States can scarcely oppose. In practice, however, region-to-region agreements have been difficult and slow to negotiate, in no small measure because the EUs partner region is often unable to make much progress towards integration. Mercosur and most of the ACP regions are struggling to make progress with their integration. Region-to-region negotiations with ASEAN also look problematic given the diverse levels of economic development of the ASEAN members and political difficulties with certain countries (human rights in Burma).</p><p>Although the EU does not make aggressive use the acquis communautaire as a model for FTAs, it is motivated by a desire to achieve in FTAs what it has failed to achieve in multilateral negotiations. This goes for market access as well as aspects of trade and investment rules, such as the inclusion of the Singapore issues (trade facilitation, transparency in government procurement, investment and competition) in one form or another in FTAs.</p></li><li><p>5</p><p>ECIPE WORKING PAPER</p><p>No. 03/2007</p><p>WhAt hAs LED to thE shIFt In Eu PoLIcy on FtAs?</p><p>The move from a de facto moratorium on new FTA negotiations has been brought about by a number of factors.</p><p>First, there have been the difficulties in multilateral negotiations within the WTOs Doha De-velopment Agenda and the EUs failure to achieve its aim of a comprehensive WTO agenda. The EU persevered with the effort to promote a comprehensive agenda in the WTO, but its interest in the round was diminished when it had to give up transparency in public procurement, investment and competition, at or shortly after the Cancun Ministerial in 2003. Failure to make progress on services and non-agricultural market access (NAMA) suggested that the ambition of the DDA was limited, even in established WTO policy areas.</p><p>A second factor has been developments in US trade policy. During the 1990s US policy was to see FTAs as fulfilling a pathfinder role. In other words CUSFTA, NAFTA and APEC were seen as a means of showing other countries how to carry the trade agenda forward. As such US trade policy saw FTAs as a bilateral means to the end of multilateral liberalization and rule making. From about 2000 the US interpretation of competitive liberalization has been rather one that saw FTAs more as an alternative to multilateral liberalization.9 The US also pressed ahead with an active agenda of FTAs ranging from CAFTA to US - So...</p></li></ul>
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