IR 313 EU AS A GLOBAL ACTOREU TRADE POLICY

EU POSITION IN WORLD TRADE

• The EU is in prime position when it comes to global trade.

• The openness of its trade regime has meant that the EU is the biggest player on the global trading scene and remains a good region to do business with.

• The EU has achieved a strong position by acting together with one voice on the global stage, rather than with 28 separate trade strategies.

• Europe is the world's largest exporter of manufactured goods and services, and is itself the biggest export market for around 80 countries.

• Together, the European Union's 28 members account for 16% of world imports and exports.

TRADE IN GOODS AND COMMERCIAL SERVICES 2013

Trade in goods and commercial services 2013, € billions

Country or region Imports Exports

EU 2188 2415

United States 2079 1688

China 1716 1817

Japan 750 648

South Korea 468 506

EU POSITION IN GLOBAL MARKET

• The EU is the largest economy in the world.

• Although growth is projected to be slow, the EU remains the largest economy in the world with a GDP per head of €25 000 for its 500 million consumers.

• The EU is also the world's largest trading block. The EU is the world’s largest trader of manufactured goods and services.

• The EU ranks first in both inbound and outbound international investments

GOODS AND SERVICES

• Goods and services are increasingly linked together. Having access to services is a prerequisite for economic performance of many manufactured products.

• For example, producers and exporters of textiles, cars or computers cannot be competitive without access to efficient banking, insurance, accountancy, telecom or transport system. And the purchase of many products nowadays often comes with a service component.

• The rise of cloud computing means that technical infrastructure, platforms and software are increasingly provided as services on a global basis. What used to be hardware installed at the premises of a company is becoming a service provided cross-border, demonstrating how services can substitute goods in certain cases.

EU TRADE POLICY

• Trade policy is an exclusive power of the EU – so only the EU, and not individual member states, can legislate on trade matters and conclude international trade agreements.

• The EU manages trade and investment relations with non-EU countries through the EU's trade and investment policy.

• The scope of EU's exclusive powers covers not just trade in goods, but also:

• services

• commercial aspects of intellectual property

• foreign direct investment

HOW EU TRADE POLICY IS MADE

• The European Parliament decides jointly with the Council on the framework of EU trade policy

• While the Commission maintains the right of initiative, for its proposals to be formally adopted, agreement has to be reached between the co-legislators.

• International agreements are adopted by the Council, after the Parliament has given its consent.

HOW TRADE AGREEMENTS ARE NEGOTIATED

• The Commission negotiates with the trading partner on behalf of the EU. It does this, working closely with the Member States in the Council and keeping the European Parliament fully informed.

• The Commission must request an authorisation to negotiate a trade agreement with a trading partner from the Council, which sets out the general objectives to be achieved. While the negotiations are going on the Commission reports regularly to Council and the European Parliament.

HOW TRADE AGREEMENTS

• The trade agreement enters into force once it is fully ratified but parts of the agreement can be provisionally applied if the Member States agree to do so.

• Once the Commission has completed the negotiations, it presents the deal to the Council and the European Parliament. They are the ones to formally agree the outcome and prepare the way for signature and ratification of the deal with the trading partner.

EU AND WTO• The WTO is a member-driven organization composed of governments and

customs territories (such as the EU). It sets the framework for trade between its members with decisions taken on a consensus basis. Its core activities are:

Forum for multilateral trade negotiationResolving trade disputes between statesSetting the legal ground rules for trade in the form of AgreementsMonitoring member trade policy

• Becoming a WTO member requires compliance with the WTO rules in force and negotiations with the existing members on the acceding country’s commitments. These negotiations are concluded when there is a decision taken by the WTO Ministerial Conference.

WHY THE WTO MATTERS TO THE EU

• The EU is committed to multilateralism and has acknowledged the fundamental importance of WTO in the international trade system.

• Being the world's major global player in the international trade, the EU supports the work of the WTO on multilateral rule-making, trade liberalisation and sustainable development.

• Sustainable development - The EU wants its trade policy to support economic growth, social development, and environmental protection. Coherence and mutual supportiveness among these three elements are the basis for achieving sustainable development.

EU TRADE POLICY AND THE WTO

• The EU's active involvement in multilateral trade means more products on sale at competitive prices, more growth and more jobs …

• By actively promoting a fairer and a more stable international trade system, the EU strives to:

• Ensure new markets for European companies

• Observe the rules and make sure others also play by the rules

• Create tangible benefits in the everyday life of EU citizens

ACCESSING MARKETS

• Accessing markets outside the EU is crucial for jobs and growth within the EU. The EU works to keep markets open and to keep trade flowing through a variety of specific trade policies.

• An open and fair international trading system is one of the foundations of Europe's competitiveness.

• Addressing barriers to EU exports in other countries accounts for the bulk of the potential to improve the competitive position of the EU industry.

• Its leading trading partners are less open than the EU; sometimes significantly so.

ACCESSING MARKETS

• The EU stands to gain from the further opening of markets worldwide.• When tariff or non-tariff barriers block the flow of primary goods into Europe

or the access of European companies to markets outside Europe, Europe's competitiveness suffers.

• When anti-competitive practices distort or undermine resulting trade, Europe's competitiveness suffers.

ACCESSING MARKETS

• Europe's market must be open to supplies of intermediary goods and raw materials for European producers of value-added products.

• Restricting this flow of goods raises costs for European companies, making them less competitive: the EU needs to import to export.

• The EU has consistently removed these barriers to its own economy and now has one of the most open markets in the world.

INVESTMENTS

• Foreign direct investment (FDI) consists in making capital available from one country for carrying out an economic activity in another country, with a view to exercising a form of control, such as the ability to influence business decisions.

• The most common form of FDI is the creation or acquisition of a company, like a plant to produce cars.

• Other forms of investment are portfolio investment, through which the investor does not seek control, or any other assets including for example intellectual property rights.

INVESTMENTS

• FDI plays a crucial role in establishing businesses, creating jobs at home and abroad, as well as in setting up global supply chains.

• Investment and trade are inter-dependent and complementary. Around half of world trade takes place between affiliates of multinational enterprises that exchange intermediate goods and services.

• The investor is the key decision maker over where production of goods and services takes place and their decisions have a direct impact on trade, jobs and capital movements.

TRADE DEFENCE

• The EU stands firm against unfair trade practices through anti-dumping and anti-subsidy measures. This is necessary to uphold the EU’s commitment to open markets. The EU is one of the main users of trade defence instruments globally. It ensures that procedures are followed rigorously and takes all the Union’s interests into account.

• Dumping - A company is dumping if it is exporting a product to the EU at prices lower than the normal value of the product (the domestic prices of the product or the cost of production) on its own domestic market.

• Subsidy is a financial contribution from a government or public body which, in the case of trade, affects the pricing of goods imported into the EU. The EU may impose duties to neutralise the benefit of such a subsidy on imported goods when the subsidy is limited to a specific industry or group of industries.

TRADE DEFENCE

• Safeguards are intended for situations in which an EU industry is affected by an unforeseen, sharp and sudden increase of imports. The objective is to give the industry a temporary breathing space to make necessary adjustments – safeguards always come with an obligation to restructure.

THE ROLE OF TRADE DEFENCE

• Open trade is a recognised engine for growth and job-creation but it requires that fair competition, without distortions, is maintained between domestic and foreign producers.

• The use of trade defence is based on rules set out by the World Trade Organisation. The EU is an efficient user of these instruments and applies a number of conditions additional to the WTO rules to ensure their use is measured.

• There has been a constant decrease in the percentage of EU imports affected by EU anti-dumping and anti-subsidy measures. Less than 0.5% of total EU imports are currently affected by such measures.

EU TRADE DEFENCE POLICY

• The EU applies trade defence instruments in accordance with EU and WTO law. The European Commission monitors the application of these instruments, follows up the enforcement of measures and negotiates future rules with international partners.

• The EU also monitors trade defence investigations in other countries around the world and guides EU producers affected by such investigations.

• The European Commission is responsible for investigating allegations of dumping by exporting producers in non-EU countries. It usually opens an investigation after receiving a complaint from the EU producers concerned, but it can also do so on its own initiative.

DISPUTE SETTLEMENT

• International trade rules are effective when they are properly applied. Therefore, dispute settlement mechanisms are set up in most trade agreements to ensure the agreements can be enforced and that disputes can be settled.

DISPUTE SETTLEMENT

• Provides a rapid and effective means of settling disagreements on whether a country has acted in conformity with its international obligations;

• Applies the agreements, and develops the interpretative understanding of the agreements

• By preventing retaliation before a dispute settlement procedure has been completed, trade damaging unilateral action is avoided

• The system of dispute settlement at the WTO has worked very well.

• The European Union has included dispute settlement mechanism based on the WTO dispute settlement mechanism in all of its Free Trade Agreements since 2000

• Since 2009 the European Union also includes investor-to-state dispute settlement mechanisms in trade and investment agreements

EU TRADE POLICY AND DISPUTE SETTLEMENT

Dispute settlement at the World Trade Organisation

• The Understanding on Dispute Settlement at the WTO provides WTO Members with a set legal framework for resolving disputes that arise in implementing WTO agreements.

• Ideally disputes are resolved through negotiations.  If this is not possible, WTO Members can request a Panel to settle the dispute. The Panel’s report can also be appealed before the WTO Appellate Body on questions of law. If a Member does not comply with the recommendations from dispute settlement, than trade compensation or sanctions, for example in the form of increases in customs duties, may follow.

• Many WTO members, including the EU, make active use of this system so that violations of trade rules are corrected. However, the EU only initiates a dispute settlement case where other ways of finding a solution have not been productive.

EU TRADE POLICY AND DISPUTE SETTLEMENT

• Resolving differences between States under international trade agreements

• Often known as bilateral dispute settlement, the EU includes a mechanism in all its trade agreements concluded after 2000 so that the countries concerned can resolve their differences on the basis of this mechanism. This mechanism allows these countries to use a dispute settlement mechanism specifically designed to deal with disputes arising under the agreement. The system allows for the rapid settlement of disputes and is modelled on the WTO dispute settlement system.

EU TRADE POLICY AND DISPUTE SETTLEMENT

• Investor-to-State dispute settlement within international trade agreements

• The Treaty of Lisbon included foreign direct investment as part of the EU common commercial policy. As a consequence, the European Commission now negotiates on behalf of the EU on both the liberalisation and protection of investment. The EU is gradually negotiating investment provisions in certain Free Trade Agreements or in self-standing investment agreements.

• These new provisions on investment will set up a legally binding level of protection for investment. They will be accompanied by investor-to-state dispute settlement mechanisms, which permit investors to bring claims alleging that one of the investment protection obligations has been breached. These provisions create a specific procedure for an investor to bring a case before an international tribunal.

GROUP PROJECTS

• List the parties involved in the case studies

• Describe the trade disputes in each of the cases. What are the disputes about?

• What are the mechanisms used to settle the disputes?

• What are the actions taken by the parties involved?