Europe Day at the World Bank: Nuts and Bolts of EU Trade Policies

Submitted by Margaret M. Kim, JD Candidate, Washington College of Law

The European Union (EU), as a single entity, is currently the largest trading block in the world. However, over the next ten to fifteen years, it is estimated that 90% of world demand will be generated outside of Europe.  This is why the EU has set it a key priority to negotiate agreements with its strategic trading partners, in order to open up market opportunities for its businesses abroad.

LJD Week 2014: Economic Treaties: New Directions in EU Trade Policies

On Wednesday, October 22, 2014, the World Bank Group, led by International Centre for Settlement of Investment Disputes (ICSID), hosted a panel discussion titled, “Economic Treaties: New Directions in EU Trade Policies.”  This session was a part of the “Europe Day”, where the World Bank and its partners explored Europe’s legal, economic and social developments, and deliberated about solutions to its contemporary challenges.  The session was moderated by Anabel Gonzalez, the former Costa Rica’s Foreign Trade Minister, who currently holds a Senior Trade and Competitiveness Directorship at the Bank.  The panel consisted of highly distinguished diplomats and academics, representing diverse perspectives on the EU trade policy.  The speakers were: Mr. Collin Bird (Minister-Counsellor of Canadian Embassy to United States); Prof. Steve Charnovitz, (Professor at George Washington Law School); Prof. Jennifer Hillman (Professor at Georgetown Law School); Damien Levie (Head of Section, EU Delegation to the United States); and, Dan Mullaney (Assistant USTR for Europe and the Middle East).

CETA and TTIP: Ambitious Trade Agreements

The EU has demonstrated ambitious efforts in securing “Mega” trade agreements with its strategic partners.  For example, the EU recently signed the Comprehensive Economic and Trade Agreement (CETA) with Canada,[1] after a long negotiation process.  This makes Canada the first of G-7 countries to sign a trade deal with the EU.  CETA still must be approved by the European Council and the European Parliament, but when approved, the agreement will come into effect 2016, eliminating about 98% of the tariffs between the two parties.  Starting July 2013, the EU also engaged in the Transatlantic Trade and Investment Partnership (TTIP) negotiations with the US.  The two parties have undergone seven rounds of negotiations, the most recent one taking place from September 29 to October 3, 2014. 

This Post discusses four key areas of concerns and challenges emerging in the EU negotiation processes: 1) multi-member nature of the EU Bloc; 2) need for regulatory co-operation; 3) stakeholder participation and transparency; and, 4) the implication of ”mega” trade agreements in the context of multilateralism.

Concerns and Challenges of Negotiation with the EU

1. “28-Mothers-in-Laws”?

With respect to challenges in negotiating with the EU, both Canadian and US representatives discussed the importance of transparency and communication with “28 mothers-in-law”; namely, the 28 member countries of the EU.  While the European Commission—through its Deputy General of Trade—remains the official negotiator, recognizing how many divergent interests drive the negotiation is important for the success of the agreement.  After all, under the Treaty of Lisbon, all trade agreements must receive parliamentary consent, and the Commission must also keep the European Parliament informed of trade negotiations, details of which are “spelt out” in the Framework Agreement between the Parliament and the Commission.  This requires having a nuanced understanding of how the issues play from a country to country or at least those who have expressed their concerns more vocally such as Germany.  As Mr. Bird stated, “The importance of having the member state champions for the agreement was critical.”

2. Regulatory Cooperation and Coherence

Given how wide and deep these trade agreements’ aims are, successful negotiation would require a certain degree of creativity, and regulatory processes must also be streamlined, providing stakeholders with opportunities to participate.  The recognition of international regulatory cooperation is gaining greater attention in academia as well, as reflected by a recent ABA Conference’s adoption of a panel titled, “Regulatory coherence and cooperation under TTIP: charting the Way Forward.”  This study, partly financed by the EU, demonstrates a widening attempt of US and EU administrative lawyers to reconcile regulatory differences[2] rather than foreground distributive consequences and ideological tensions behind broad concepts such as participation and transparency.  In the current TTIP negotiation, the US and the EU both aim to achieve greater regulatory convergence, eliminating unnecessary regulatory disparities, while maintaining high levels of regulatory protection and cooperation that prevail on both sides of the Atlantic.

3. Stakeholder Participation and Transparency

Relatedly, the US representative noted that the concept of stakeholders does not just include Americans, but must be considered in a transatlantic context: it includes both civil societies, NGOs, small and large businesses and member states.  The academia has expressed a concern regarding the level of transparency and publicity in the negotiation process.  Trade agreements are cooperative gains, and can easily be enhanced if the current TTIP negotiators reveal the sources.  This would encourage democratic scrutiny.  In the session, all negotiators on the panel acknowledged that even though the text of TTIP has not been released, efforts to enhance stakeholder participation and transparency in regulatory decisionmaking have been new areas of focus in EU’s recent trade negotiations.

4. Mega FTAs: Undermining multilateralism at the WTO?

The proliferation of bilateral and plurilateral trade agreements have raised the concern of whether these trade agreements pose potential conflicts at a multilateral level.[3]  Most famously, Jagdish Bhagwati, the Columbia University economics professor, has described the “Spaghetti Bowl” effect of overlapping Free Trade Agreements (FTAs) creating different standards, leading to trade diversion.  As stated by Ambassador Julio Lacarte-Muro, Former Deputy Secretary of the GATT at its inception, in a recent remark, this phenomenon illustrates that our global trading system has gone in a “full circle” to pre-GATT Agreement days: where privileged treatment in between certain countries was widespread.

Technically speaking, EU’s FTAs are not aligned with the fundamental WTO principles, as they create trade privileges between EU and its counter party, contrary to the GATT Article 1’s Most-Favoured-Nation (MFN) treatment principle.  However, as Prof. Jennifer Hillman observed, the GATT Article 24 provides an exception for customs union and free-trade areas, allowing for a per se violation, if three pre-conditions are satisfied.[4]  First, elimination of duties and other restriction on substantially all trade. As long as the parties do not leave any sectors out, the preferential trade agreement would be acceptable. Second, the FTAs cannot result in higher duties or more restrictive regulation on the commerce on non-members than before.  If it has the “effect” of raising any other non-members’ standards, that would be unacceptable. Finally, elimination of barriers must be done in a reasonable time.  As Ambassador Lacarte-Muro has further noted, this “loophole” was actually created for European Economic Community in the Uruguay round.   

So far, there are 391 regional agreements, among which 213 are free trade agreements. There are currently 9 (please check) Mega FTAs involving US and EU.  In Prof. Hillman’s words, “everybody is guilty because everybody is doing it.”  In fact, only three countries among the WTO Member states are not involved.  As a matter of policy, any “WTO plus” issues that go beyond the disciplines of the WTO, such as in labour, environment, anti-corruption, State-Owned Enterprises (SOEs), and specific investor-state dispute settlement mechanisms (ISDS), pose greatest concerns.[5] 

           

Beyond EU: Relevance of Its Challenges

        These four challenges in trade negotiations with EU are not unique to EU’s trade agreements; these are phenomena that the international trade community must discuss and debate together, especially in light of the historic Trans-Pacific Partnership negotiation among twelve countries.  Economic Treaties: New Directions in EU Trade Policies was a particularly useful session, as it facilitated an honest dialogue between leaders in diplomacy, academia, and global governance.  The World Bank provided an excellent opportunity for this rich discussion to take place, and for that, I would say the Europe Day was an absolute success.

           

---

[1] For a brief overview of why CETA is good for Canada, click here.  For the consolidated text of CETA, click here.

[2] An anecdotal example of such “regulatory differences” between the US and the EU is the recent recall of Fireball Whisky in three European Countries (Sweden, Finland, and Norway (a non-EU country)).  The EU enforces a stricter guideline on recommended levels of propylene glycol, and Fireball shipped its North American formula to Europe, which was found to be out of compliance with European regulations. The Food and Drug Administration (FDA) in the US has “no plans to ban sales of the drink”.

[3] Recall that the World Trade Organization hosted a Public Forum in 2012 addressing this question in greater depth under the title, “Is Multilateralism in Crisis?,” available at http://www.wto.org/english/forums_e/public_forum12_e/public_forum12_e.htm (last visited Oct. 29, 2014).
[4] For services, Article 5 of the General Agreement on Trade in Services (GATS) provides the exemption to the first principle.  See Article V: Economic Integration, General Agreement on Trade in Services, World Trade Organization, available at http://www.wto.org/english/docs_e/legal_e/26-gats_01_e.htm#articleV. 
[5] For detailed discussion on “WTO plus” obligations, see International Law Association, International Trade Law, Conference Report Washington 2014, Int’l L. Assoc., available at: http://www.ila-hq.org/download.cfm/docid/B70C8EC3-1EEA-4152-B2297DEA26732A17.