Monthly Archives: December 2016

EU Trade Policy-Making: “The Times They Are A Changin’”

 

State of play & Perspectives

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The twilight of EU trade policy ?

Nicolas RENARD, 13/12/2016.

With Brexit, the CETA[ii] saga and the election of Donald Trump in the US, future is not looking good for EU common commercial policy (CCP) and we should really start asking ourselves if times are changing for EU trade. In this article, I analyze the consequences of the ‘CETA saga’. I will not discuss the content of the agreement, such as the controversial ISDS mechanism, but rather focus on the trade policy-making process itself. To broaden the debate, I will try to draw up a state of play, capture the current trends and go over some perspectives for EU trade policy.

  • At the basis of trade policy making in the EU

First, the basics – how does the EU negotiate trade agreements? According to the Treaties, Member States (MS), through the Council[iii], authorize the European Commission (EC) to start and conduct the negotiations while the Council monitors the talks before voting to sign and conclude the deals. With the entry into force of the Lisbon Treaty in 2009[iv], trade was reinforced as an exclusive competence of the EU, encompassing new areas such as services, investment, etc. In theory, with those new areas covered by EU’s exclusive competence, the conclusion of free trade agreements (FTAs) cannot be blocked by MS or depend on the ratification by 28 national parliaments. The EU – which has legal personality – has the full powers to sign trade agreements.

In practice, two kinds of FTAs can be distinguished[v]: regular trade agreements covering exclusive EU competences, and ‘mixed’ agreements. So called ‘mixed-agreements’ have a much broader coverage – encompassing not only EU exclusive competences but also shared and even MS exclusive competences – and thus require a different legal basis. Mixed-agreements need to be signed, concluded and ratified by both Member States – and thus national parliaments – and the EU. According to the Treaties and practice, they can be provisionally applied – i.e. before ratification by the national parliaments. Though, a recent decision of the German Constitutional Court stated that national Parliaments, despite signature by the EU Council and their government, could veto the ratification process and thus block its conclusion.

If the distinction between regular and mixed trade agreements may appear evident, here comes the tricky part: there are no references to those ‘mixed-agreements’ in EU Treaties. Hence, “the choice of the proper legal basis of an agreement is often controversial”[vi]. In fact, a highly expected ECJ decision on the EU-Singapore FTA[vii] should clarify how to determine the nature of trade agreements – i.e. which part of an agreement can be considered as ‘mixed’.

In recent years, the EU has been negotiating more and more ambitious trade agreements, so called ‘comprehensive free trade agreements’, not only focusing on removing tariffs for goods but also including trade-related areas (or WTO + issues) such as investment, public procurement, sustainable development in the negotiations. The majority of recent EU “new generation” FTAs are thus considered as ‘mixed agreements’ – despite Lisbon’s developments – and MS are increasingly interfering with EC’s prerogative. That’s precisely what is happening with CETA.

  • The ‘CETA saga’ and its consequences on trade policy making

The ‘CETA saga’

About a month ago, the EU and Canada finally signed the CETA, after months of uncertainty. At one point, after having vetoed the signature of the agreement by Belgium and thus the EU[viii], Wallonia’s representatives started negotiating directly with Canada trade representatives, a grande première in the history of EU trade policy-making.

How did we end up here? A few months ago, pressured by MS, the EC stated that CETA should be considered as a mixed-agreement – and thus would have to be signed and ratified by both the 28 MS and the EU. As a result, we ended up with one region, Wallonia, representing only 0.45% of EU trade with Canada[ix], blocking the EC, the Council, and the whole ratification process.

Finally, the CETA was signed at the EU-Canada Summit on 30 October 2016, after the Walloon government negotiated the inclusion of an intra-Belgium Statement and a Joint interpretative declaration, putting a (very) temporary end to the ‘CETA saga’.

Consequences on EU trade policy-making

As Politico puts it, it seems that “Wallonia sends EU trade policy back to the drawing board”. Of course it might be a bit too soon to scrap EU trade policy and its policy-making processes, but it is true that doubts are raising and the CETA/TTIP saga won’t go without consequences[x].

Indeed, not only it reveals “Treaties’ structural flaws” but it can be analyzed as a major step back for EU trade policy-making. First, as recalled above, trade policy has historically been a core exclusive competence of the EU – even more with the Lisbon Treaty: “The origins of the EU’s role as an international actor lie the CCP”[xi]. Of course, the balance between supranationalism and intergovernmentalism has always been sensitive (and the distribution of competences a controversial process, inherent to the construction of the EU itself) but this episode illustrates how MS are increasingly and dangerously pressing to retake trade power over the EC. The risks being that they will use it as a bargaining chip as well as for domestic purposes unrelated to trade.

Secondly, it can also be perceived, especially from the point of view of our trade partners, as a blow to EU trade power. It questions EU’s ability to negotiate and conclude trade deals. The EU is often perceived as a “trade power”, thanks to its economic and trading weight, but also as a power “in” and “through” trade[xii]. Indeed, this ‘economic power’ gives the EU the possibility to be heard on the international scene and to influence its partners. The fact of not being able to secure and conclude trade deals, mainly because of internal disputes, will most certainly affect on-going and future negotiations[xiii]. Wolfgang Münchau from the Financial Times, even states that the “CETA debacle heralds a period of disintegration for the EU”.

In addition to the above structural and internal challenges, it is interesting to rise above the clouds and take some time to analyze the global trends and current factors affecting the EU and its trade policy:

  • A shifting trade strategy: For a long time, the EU had privileged the forum offered by the WTO. However, the successive failures of the negotiations in the framework of the Doha Round, within an organization crystallizing tensions and rivalries between ‘developed’ and ‘developing’ countries, set up a new deal and forced the EU to adopt a “second-best” approach. In fact, since the mid-2000s, EU’s approach to promote its economic, regulatory and political agenda has evolved. Focusing at first on regional agreements, it currently mainly negotiates free trade agreements (FTAs) bilaterally. The “new generation” FTAs mentioned above fall within this trend.
  • A global trade slow-down: Recent reports from the ECB and the IMF have shown that trade growth has been “dangerously” slowing down since 2012. If the IMF attributes this trend mainly to the decline in investment[xiv], the ECB isolated two main types of factors: (1) “compositional factors” such as “shifts in the geographical, sectoral and demand composition of global activity”; (2) structural factors such as the slowing growth in the global value chains, the rising protectionism – also within the EU – and “a declining marginal impact of financial deepening”. On the other hand, some economists such as Daniel Gros welcome this slowdown as an opportunity to end the dangerous “hyper-globalisation narrative”.
  • Other clouds include the dragging debate on the modernization of EU trade defense instruments, linked to the debate on whether or not to grant China Market Economy Status. As Charles De Marcilly writes, it is about “showing [EU’s] ability to protect itself by using adapted instruments”[xv].
  • But certainly, the main ‘threat’ for EU trade policy comes from the peoples themselves and the increasing inequalities dividing our societies. It is essential to differentiate the sound questioning of mega-trade deals such as CETA and TTIP by citizens and Civil Society Organizations (CSO) – partly explained by an opposition to an “unstoppable globalization”, unregulated finance and multinationals – from the rise of euro-skepticism and populism “giving voice to the anger of the excluded” as Dani Rodrik warns[xvi].

The first embodies the increasing need for transparency and involvement of civil society in the policy-making process to ensure public understanding and support. Certainly, the EC is well aware of this and multiplies public consultations, impact assessments, dialogues, etc. With a rising impact of public opinion on EU trade policy-making[xvii], EU institutions need to step up the pace – starting with a coherent communication strategy for the EC (especially on values, standards and norms), questioning of MS inconsistencies at the Council and greater implication of the European Parliament.

The second, pushing forward a fierce opposition to free trade liberalism and globalization leads to national downturn, economic protectionism and isolationism. Brexit and the election of Donald Trump, two dramatic results of this (economic) disintegration trend, will certainly have a dreadful impact on EU trade policy.

  • Perspectives: What’s next for the EU trade policy-making process?
  1. Re-focus on core trade competencies? The EC could limit future negotiations and deals to ‘regular’ trade areas such as trade barriers and tariffs. It would mean the end of mega-trade agreements. In the current global context, it though seems unlikely and dangerous for the EU to leave out WTO+ and WTO-X areas[xx].
  1. Adjust the trade policy-making process?
    • Two-track trade agreements as a pragmatic second-best solution? MEPs such as Daniel Caspary and Manfred Weber came up with an alternative path: negotiating two-track trade agreements. At the first level, the EC would have full competencies whereas at the second level, MS and national parliaments would have their say and the ability to veto.
    • For Guillaume Van Der Loo, an alternative solution could be to require unanimity for Council’s decisions and votes on trade. Replacing the Qualified Majority Voting (QMV) rule “could mitigate the risk that a member state will hold an FTA hostage for domestic (non-trade related) reasons”.
    • David KLEIMANN and Gesa KÜBEK see democratic representation as EU’s main weakness and suggest three policy recommendations: (1) strengthen the role of national parliaments; (2) “strengthen the democratic capacity of the European Parliament”; (3) restore public trust in the European Commission[xxi].
  1. Re-build the CCP? Some MS and national politicians are asking for a CCP reform addressing the “democratic need”[xxii]. Exclusive trade powers could be withdrawn from the EC so that national parliaments and “regional powers” would also have the ability to negotiate. Wallonia also unveiled its own proposal for a new way to negotiate trade agreements, based on three clusters: “Respect for democratic procedures”, “Compliance with socio-economic, sanitary end environmental legislation”, and “Guarantee of public interest in the dispute resolution mechanism”.

A key question remains: would national political stakeholders, CSO and citizens throw themselves into less mediatised and ‘ideological’ trade agreements? Despite foreseeing similar provisions to CETA, EU-Japan FTA negotiations could be concluded in the months to come without any questioning. Moreover, avoiding that one country could block the whole negotiating process with domestic issues, and preventing national interests from interfering with the general interest – aren’t they the reasons why trade policy-making power was transferred to the EC in the first place?

In any case, many of these proposals could not happen without a reform of the Treaties, which is very difficult to foresee in the months – or even years – to come; not to mention that they could further weaken EU’s trade “power”. Maybe one additional option could be to go for WTO again? Although very unlikely, a multilateral system of governance remains the first-best solution for gathering EU’s and its partners’ trade and global interests[xxiii].

***

Trade policy, one of the symbols of EU integration and MS delegation of power to the EC, is going through difficult times. It is clear that the trade policy-making process needs to fully integrate all stakeholders from the very beginning and address their fears so as to regain public support and legitimacy; which is essential to its success. But this should not mean to renationalize trade policy or “politicize” the policy-making process by involving national parliaments. This is especially vital as, while ‘hyper-globalisation’ should give way to a more “moderate globalization[xxiv], EU trade policy weakening also means that the EU could lose part of its “normative power” in the promotion of high standards and regulatory rules[xxv].

 

Nicolas Renard – Falcone & Borsellino promotion (IRD 2014 – 2015) – works as Project Manager, notably in trade and private sector development (Brussels – nicolas.renard@coleurope.eu). 

 

References

BENDINI Roberto, “The Future of the EU trade”, European Parliament, DG EXPO/B/PolDep/Note/2015_227, July 2015

DE MARCILLY Charles, “Confronted by internal challenges, an ambitious trade policy is compromised”, Fondation Robert Schuman, European Issues n°407, 18 October 2016

GSTÖHL Sieglinde, “The European Union’s Trade Policy”, Ritsumeikan International Affairs, vol. 11, 2013, pp. 1-22

GSTÖHL Sieglinde & Dominik HANF, “The EU’s Post-Lisbon Free Trade Agreements: Commercial Interests in a Changing Constitutional Context”, European Law Journal, vol. 20, no. 6, 2014, pp. 733-748

Keukeleire  Stephan & Tom Delreux, The Foreign Policy of the European Union, Basingstoke, Palgrave Macmillan, 2nd Edition, 2014

KLEIMANN David & Gesa KÜBEK, “The Signing, Provisional Application, and Conclusion of Trade and Investment Agreements in the EU The Case of CETA and Opinion 2/15”, EUI Working Papers, RSCAS 2016/58

MEUNIER Sophie & Kalypso NICOLAÏDIS, “The European Union as a Conflicted Trade Power”, Journal of European Public Policy, vol. 13, no. 6, 2006, pp. 906-925

POLITICO, “Is free trade dead?”, Symposium Politico, 7 October 2016

PUCCIO Laura, “A guide to EU procedures for the conclusion of international trade agreements”, European Parliament, Briefing, October 2016

RENARD Nicolas, “Is ‘Green’ Really the Colour? Protecting the Environment through Trade Policy: EU’s Biased and Uncertain Approach”, Master Thesis, College of Europe, May 2015

TAYLOR Paul, “Europe’s trade genie is out of the bottle”, POLITICO, 24 October 2016

VAN DER LOO Guillaume & Jacques PELKMANS, Does Wallonia’s veto of CETA spell the beginning of the end of EU trade policy?, CEPS, CEPS Commentary, 20 October 20016

VAN DER LOO Guillaume, CETA’s signature: 38 statements, a joint interpretative instrument and an uncertain future, CEPS, CEPS Commentary, 31 October 20016

VAN DER MAREL Erik, “Why concluding CETA is so important for the EU”, ECIPE, ECIPE Bulletin No. 2/2016

VON DER BUCHARD Hans, MARKS Simon and MUCCI Alberto, “Wallonia sends EU trade policy back to the drawing board”, POLITICO, 24 October 2016

 

[i]The Times They Are A-Changin’”, song written by Bob Dylan, 1964.

[ii]Comprehensive Economic and Trade Agreement (CETA)

[iii]aka. the Council of the European Union

[iv]The Lisbon Treaty also gave increasing powers to the European Parliaments (EP) which now has a “veto-power” on the adoption of trade agreements. Also more implicated during the negotiations, this is leading to an increasing “politicization” of trade negotiations but also guarantees a better integration of civil society.

[v]For clarity reasons, I differentiate here two kinds of FTAs: regular and mixed-agreements. In reality, “three types of trade-related agreements can be distinguished: trade, cooperation and association agreements”. See Sieglinde GSTÖHL & Dominik HANF.

[vi]Ibid.

[vii]Follow the case here or here.

[viii]Considered as a mixed agreement covering areas such as agriculture, non-tariff barriers, services, public procurement, investments, IPR, competition policy with a disputes settlement mechanism, CETA required unanimity at the Council for the adoption of the decision concluding the agreement. For Belgium to be able to ratify the agreement, Belgium federal entities first had to allow it.

[ix] For more figures on EU-Canada trade, see Bruegel’s blog post.

[x] On the contrary some analysts see it as a “stand for democracy” and a lesson to meditate, putting its consequences into perspective.

[xi]Stephan KEUKELEIRE & Tom DELREUX, p. 200.

[xii]Sophie MEUNIER & Kalypso NICOLAÏDIS, pp. 906-925.

[xiii]In fact, concrete consequences of the ‘CETA saga’ can already be observed. Vietnam, with whom FTA negotiations were concluded in January 2016, will send its ambassador to address Walloon parliamentarians in order to avoid a similar blockage.

[xiv]For the IMF, other factors include the rise of protectionist measures, the decline in the growth of global value chains and the evolving nature of demand for ‘non tradables’.

[xv] Charles DE MARCILLY, p. 5.

[xvi] Here a selection of articles on “anti-globalization” from Project Syndicate. Also read Bjørn LOMBORG’s opinion on “the free-trade miracle” and Paola SUBACCHI “Free Trade in Chains” from Project Syndicate. Dani RODRICK states that we shouldn’t “cry over dead trade agreements”.

[xvii] It is interesting to note the relative lack of academic studies on the link between ‘public opinion’ and trade policy. Understanding its role/impact on the policy-making process but also analyzing how to better inform and increase citizens’ participation is, I believe, essential to ‘solve’ the legitimacy and democratic crisis.

[xviii] On Brexit, also read Simon EVENETT, “Are trade agreements passé? Deal-making after Brexit”, published on http://www.ictsd.org/, 19 July 2016.

[xix] Also read “Trumping Trade”, a review of economists’ assessments on Trump’s trade policy proposals during the campaign, written by Silvia MERLER for Bruegel, 3 October 2016. “Europe in the Trumpworld: EU trade and security under the new US executive” by Fredrik ERIXON and Hosuk LEE-MAKIYAMA for the ECIPE.

[xx] See “Beyond the WTO? An anatomy of EU and US preferential trade agreements” by Henrik HORN, Petros C. MAVROIDIS and André SAPIR, for a distinction between trade-related areas.

[xxi] David KLEIMANN & Gesa KÜBEK, “The Signing, Provisional Application, and Conclusion of Trade and Investment Agreements in the EU The Case of CETA and Opinion 2/15”, EUI Working Papers, RSCAS 2016/58

[xxii] http://www.lemonde.fr/economie-mondiale/article/2016/11/08/apres-le-psychodrame-du-ceta-la-france-veut-reformer-la-politique-commerciale-europeenne_5027649_1656941.html

[xxiii] See Wade JACOBY and Sophie MEUNIER, “Europe and the management of globalization”, Journal of European Public Policy, vol. 17, n°3, pp. 299-317.Also, “Mega-regional Trade Agreements: Implications for the African, Caribbean and Pacific Countries” by Peter DRAPER, ECIPE, April 2014. On the state of play at the WTO, read Ricardo MELÉNDEZ-ORTIZ, “What’s ahead for the WTO: Looking around the corner and beyond”, published Voxeu.org, 26 July 2016.

[xxiv] Also read Paul DE GRAUWE, “How far should we push globalisation?”, CEPS Commentaries, 4 November 2016.

[xxv] As a complementary point of view, read MEP Bernd LANGE’s opinion in Politico, 14 November 2016.