European trade policy

READING TIME 15 mins
European trade policy

Overview: EU trade policy processes

EU trade and investment policy – sometimes referred to as the EU’s ‘common commercial policy’ – is an area where the EU has exclusive powers to set the rules for all Member States. Although the EU Parliament and Council determine the framework for EU trade policy, and must consent to new trade deals, most power lies with the EU Commission, which is responsible for trade negotiations. Within the Commission, key players are the Trade Commissioner (currently Cecilia Malmström) who leads trade negotiations and represents the EU at the WTO, and the Directorate-General for Trade (sometimes referred to as ‘DG TRADE’).

Large corporations and their lobbyists have significant influence over EU trade policy. While the EU describes consultations with ‘stakeholders’ as a means to gather the expertise and gauge the concerns of all interest groups, from unions to NGOs to business, the reality is that this process is dominated by large corporations. Indeed, 88% of all closed door meetings with DG Trade on the TTIP negotiation were with corporations, compared to only 9% with public interest groups.

Where a trade agreement contains provisions relating to policy areas in which EU Member States retain powers, Member States must also sign and ratify the agreement in order for it to take effect. These are referred to as ‘mixed agreements’ and can give rise to legal uncertainty over whether the EU, its Member States or both, have ‘competence’ over a specific area.

The UK will be subject to EU trade policy until it formally leaves the EU. At the time of writing this is likely to be April 2019.

In depth: how it works and who decides

What are the steps for creating a new EU trade agreement?

Below are the simplified series of steps through which the EU creates new trade agreements. The role of the EU Parliament (the elected, representative body of the EU) is limited to providing or withholding its consent once negotiations have finished - a cause for concern regarding democratic accountability of the process.

Step 1: Preparation (EU Commission/Council)

The Commission undertakes an informal scoping exercise on the feasibility of a particular agreement and makes recommendations to the Council. The Council must then authorise the Commission to begin formal negotiations, and may issues negotiating objectives (a ‘mandate’). EU Parliament is informed.

Step 2: Negotiation (EU Commission)

The Commission negotiates the trade agreement within the mandate provided by the Council. The Council and Parliament are informed of progress after each negotiating round. Draft texts are not made public.

Step 3: Finalisation (EU Commission)

The Commission agrees on a final text with its counterpart. The text is ‘initialed’ and ‘legal scrubbing’ (a legal check of the agreement for inconsistencies) and translations follow. The Council and Parliament are provided a version of the final text.

Step 4: Signature (EU Commission/Council)

The Council decides whether to authorise the signature and conclusion of the agreement, based on a proposal by the Commission. The Council decides on whether the agreement (or parts of the agreement) can apply provisionally before entry into force. Parliament is informed of the process.

Step 5: Consent (EU Parliament)

For the agreement to enter into force, the EU Parliament must give the Council its consent to conclude the agreement – which requires a majority of all Members of the EU Parliament to vote in favour. The EU Parliament can also ask the European Court of Justice for a Legal Opinion.

Step 6: Entry into force (EU Council/Member States)

Following the EU’s Parliament’s consent, the Council can conclude the agreement. Mixed Agreements will require ratification by all EU Member States at the domestic level.

Step 7: Implementation (EU Commission/Council)

The Commission and Council establish and represent the EU on any implementing bodies required by the agreement (e.g. a trade committee)

Existing EU trade agreements

The EU has multiple types of agreement in place with other countries, and is in the process of negotiating more. These are summarised below.

First, the EU has agreements with Norway, Iceland and Lichtenstein that form the basis of the European Economic Area (EEA). Going further than a typical trade agreement, the EEA extends to Norway, Iceland and Lichtenstein the rights and obligations of the EU’s internal market, for example, the four ‘freedoms’ of the internal market (movement of goods, people, services and capital).

Second, the EU has a customs union with Turkey. The customs union applies only to industrial goods, and eliminates customs duties and quantitative restrictions between the EU and Turkey, and requires Turkey to adopt the EU’s common external tariffs on imports from third countries and preferential agreements that the EU has in place with third countries.

Third are the EU’s Free Trade Agreements (FTAs). The most high profile of these are the planned FTA with the USA (known as TTIP), the text of which is yet to be finalised and progress on which has stalled, and the FTA with Canada (known as CETA), which has been approved by the European Parliament, and large parts of which will come into force provisionally, with Member State ratification still required for full implementation. The EU has concluded only a limited number of FTAs, the most significant of which are those with South Korea, Switzerland and Singapore. It is important to acknowledge that modern FTAs go far beyond trade agreements in the traditional sense (e.g., removing tariffs and quotas), with the removal of so-called ‘non-tariff barriers’, like standards on food and chemicals safety, having huge implications for domestic policy.

Fourth, the EU has in place Deep and Comprehensive Free Trade Agreements with the Ukraine, Georgia and Moldova. DCFTAs grant full access to the EU’s internal market in certain sectors. Similar to FTAs in their trade provisions, DCFTAs have the additional political aim of deepening ties with the EU’s neighbours. DCFTAs are an extension of the Association Agreements which the EU has concluded with multiple Balkan and Eastern European countries. AAs typically liberalise trade in a limited set of goods and services, aim to deepen political ties through financial and technical support, and can be understood within the process of EU enlargement, as a step to membership (‘succession’) of the EU.

Fifth are the EU’s Economic Partnership Agreements (EPAs), negotiated with countries in Africa, the Caribbean and Pacific region. EPAs require developing countries, often among the poorest in the world, to open up their markets to EU exporters, in exchange for access to EU markets. EPAs are controversial for a number of reasons, including the loss of tariff revenue to cash-poor governments, concerns that small scale producers will be exposed to competition from large corporations, concerns that it will hinder the development of more advanced industries in developing countries, and the fact that EPAs are a step backwards for some developing countries compared to the preferential market access to European countries they previously enjoyed with fewer strings attached.

EU non-reciprocal trade arrangements for developing countries

For trade with developing countries, the EU has a set of non-reciprocal arrangements on market access. The first of these is the Generalised System of Preferences (GSP), which reduces EU tariffs on a set of products for all developing countries. GSP is divided into three branches: the first is ‘standard GSP’, which reduces tariffs on around two-thirds of products for thirty developing countries. The second is known as GSP+, and eliminates tariffs on about two-thirds of products for developing countries that ratify and implement international conventions on human and labour rights, environment and governance. Finally, the Everything but Arms (EBA) policy removes EU tariffs and quotas on all products from all ‘Least Developed Countries’ (a group of 49 countries defined by the UN).

The EU’s non-reciprocal trade preferences benefit exporters from developing countries, and benefit the EU by lowering consumer prices for agricultural commodities, textiles and other goods.

EU investment policies

EU corporations are the most active users of Investor State Dispute Settlement (ISDS) – the controversial mechanism that allows corporations to bypass national courts and sue governments before private tribunals in which corporate lawyers act as judges. ISDS is contained in the vast majority of EU Member States’ Bilateral Investment Treaties (BITS), and since the coming into force of the Lisbon Treaty in 2009, the EU Commission has negotiated to include ISDS mechanisms in the EU’s trade agreements.

Following growing public unease with the ISDS system, the EU agreed a ‘reformed’ approach which called for the creation of a permanent Investment Court System (ICS). While the ICS addresses some of the concerning procedural aspects of ISDS (e.g., the ‘revolving door’ where ad hoc tribunalists also work as corporate lawyers) it does nothing to address the substantive problems with ISDS – that vague and far reaching investment ‘protections’, such as the right to ‘fair and equitable treatment’, allow corporations to sue governments over new laws and policies that improve standards on environment, labour and other areas, but threaten expected profits.

ICS is contained in CETA, the EU’s FTA with Canada. Further, the EU Commission is currently working with Canada to establish a Multilateral Investment Court that would hear all investment disputes under BITs and FTAs. Although international fora currently exist to bring investment disputes (such as the World Bank’s International Centre for Settlement of Investment Disputes or ICSID) the Mulilateral Investment Court, if established, would further entrench an unfair system that grants extraordinary powers to private interests to undermine public policy.

Trade and the Public Interest

The EU routinely expresses the aspiration that trade policy is used as a tool to pursue social goods. The Commission’s trade strategy, ‘Trade for All’, declares that ‘one of the aims of the EU is to ensure that economic growth goes hand in hand with social justice, respect for human rights, high labour and environmental standards, and health and safety protection.’ However, in the execution of its agreements, the EU’s record has often failed to live up these aspirations.

Environment: The environmental commitments in CETA and TTIP – flagship EU trade agreements – have been weak, and insufficient to mitigate the environmental threats posed by these deals.

  • The environment chapter in CETA contains only weak, non-binding commitments on environmental protection and a weak enforcement mechanism based primarily on dialogue, with no way for affected citizens to seek redress for the negative environmental impacts that trade can bring.

  • A leaked text of TTIP revealed that the EU Commission was pushing for provisions that would grant the EU unfettered access to fossil fuels from the US, promote industry self regulation on energy efficiency, and prevent the ‘discrimination’ between different types of energy – undermining policies to grant renewable technologies preferential grid access.

Labour rights: ‘Trade For All’ states that the EU Commission will ‘prioritise work to implement effectively the core labour standards’ through its FTAs. Though a welcome aim, the EU's record is patchy.

  • Canada has yet to ratify a number of key International Labour Organization (ILO) standards, yet CETA simply encouragesparties to “strive for” higher labour standards, and does not provide an effective mechanism to enforce commitments in the labour chapter.

  • Similarly, the US has not ratified core ILO conventions, yet the latest version of the TTIP text only recommends that ILO conventions are followed, lacking binding language and an enforcement mechanism.

  • The EU's FTA with South Korea similarly lacks any enforcement mechanism for commitments on labour rights. The Korean government has recently undertaken a crackdown on trade unions, from police raids on union headquarters to the imprisonment of union activists - evidence that it does not view the commitments in its FTA as a constraint.

Human rights: Under the Lisbon Treaty, the EU is bound to refrain from any acts that affect the human rights of persons in third countries and to cooperate internationally to promote the fulfillment of human rights. The EU has increasingly incorporated human rights language into its FTAs and withdrawn GSP preferences for serious and systematic violations of human rights in a small number of countries, including Sri Lanka and Belarus. However it is extremely rare for these provisions to be invoked and there is nothing in the deals to rebalance the negative impacts on human rights of particular provisions, for example the negative impact of intellectual property provisions for the rights to food and health. Efforts to persuade the EU to adopt human rights clauses that permit parties to suspend trade obligations when necessary to comply with human rights obligations, and strengthened monitoring enforcement mechanisms allowing for civil society engagement, have so far failed.