Trade policy-making in the EU

1. Trade policy-making in the EU By Pierre DEFRAIGNE Honorary Director General at the European Commission Director of eur-IFRI San José Nov. 3O Dec 1 2006

2. EU trade policy in a nutshell • Trade policy is the most ancient common policy and it remains still today the most advanced branch of EU external policy : • full EU membership (unlike eurozone and schengen) • strictly unified set of rules and procedures ( with national customs acting as EU agents) • EU competences are mainly exclusive, with only a few shared competences, • dominant role of the Commission , • final say with the Council (Foreign Affairs Ministers ) • mainly through qualified majority voting;

3. Eu trade policy history at bird’s eye • It originates as early as 1958 when, as a newly formed Customs Union , EC negotiates within the Gatt, its CET with third countries (art XXIV.6); • At the start it’s mainly a typical mercantilist policy (‘tit for tat ‘with other industrialized countries in manufactured goods) but it already allows for a preferential trade regime (reciprocity) granted to former French and Belgian colonies ( Yaoundé); • this changed with the entry of UK in the EU (1973): granting of non reciprocal preferences( Lomé Convention extended to all Africa and Mediterranean policy) and creation of the EU GSP scheme in the early seventies ( first oil shock raising the fear of a ‘commodities power’ ) • Gradually though, with the successive enlargements (Spain and Portugal in 1986 and Central and Eastern Europe in 2004) new geographical partnerships emerge whereas with the progress of the’ political cooperation’ ( embryonic common foreign policy in the 70’s) and the Common Foreign and Security Policy ( from the 9O’s), trade policy becomes more complex;

4. EU trade policy today • Today , it pursues three sets of objectives: • Political:mainly pre-enlargement and neighbourhood policy, but also war on terrorism ( see extension of the drug regime to Pakistan after 9/11), non proliferation and WMD clauses in trade pacts, embargo on arms (China), dual-use technology monitoring, Russia’s market economy status, • Development: attempt to combine aid and trade preferences ( tariffs), and FTAs in order to encourage reforms and regional integration among DCs ( Asean, Mercosur, Mediterranean countries, ACP, Andean Pact and Central America) • New trade policy : focus on competitiveness and market opening in the context of globalization But EU trade policy, for its multiple dimension , remains first and foremost an economic policy

5. EU as a Trade partner • EU as a trade partner is not a country, but it’s more than a coalition: • mix of federalism ( exclusive competences, single voice , QMV ) and remnants of intergovernmentalism (residual shared competences); • mix of cooperation ( trade regime) and national rivalries (exports promotion and FDI regime) under fair competittion constraints though • lack of an EU-wide welfare costs and benefits redistribution scheme ( but for a new tentative ‘liberalisation shock facility) and therefore need for balanced packages of offensive and defensive interests for each Member-state;

6. The Mechanics of the decision making • The competences • Ever more trade competences : from a Customs Union to a Single Market (AETR jurisprudence) …and a 12 Member-Eurozone ( the ‘non exchange rate policy’). • Ever more EU exclusive competences • Ever more qualified majority voting (see new article 133 in the Nice Treaty, 2003) Yet at the start (mandate) and by the end (agreement) unanimity still prevails because of the residual competences and because in important matters such as major agreements, consensus is deemed optimum and achieved…..under the threat of being cornered by QMV

7. The growing size : weight and/or power • Eu is getting bigger : one quarter of world output and one fifth of world trade in goods • More of Member-states: from 6 to 27…and more to come (30 + EU ) • More different: from ’France and its neighbours’ to a mix of both very advanced and still backward economies; from old to new democracies; from market economies to former planned economies; There is always a trade off between dimension (economies of scale) and diversity (heterogeneity of collective preferences); yet in the trade area, the ‘pro-open market’ stance still prevails and thrives as of today

8. The procedures • Commission (Trade Commissioner) plays the key role in drafting the mandate and in conducting the negotiations • But the final say remains with the Council (Ministers of Foreign Affairs) both with regard to the mandate and to the conclusion of the Agreement • And meanwhile the 133 Committee ( tits, deputies and sectoral sub-committees) exerts a close monitoring on the work of the negotiators • Coreper acts as a referee (between MS and between trade and political committees) during the critical phases of the negotiation • the Parliament might instil some political inputs at some stage of the procedure; moreover PE assent is requested in bilateral agreements; • Ratification : for exclusive EU competences, Council decision suffices; for shared competences, MS ratify as well – sometimes through parliamentary procedure; but the EU part enters into force without waiting for the last MS ratification

9. Lobbies and civil society • Lobbies are very active in the margin of the negotiation: either at a strategic level ( ERT, UNICE: getting the priorities and the sequencing right) or as special interests groups on specific items; they act at Commission level and through 133 representatives and some MEPs; • Trade Unions and NGOs, both developmental and environmental , follow the negotiations and intervene at Commission level and through the European Parliament (Committees or geographical Delegations);

10. (2) The roadmap is changing • Whereas the Doha Round is suspended ,bilateralism makes a tentative breakthrough for some and a comeback for others with the usual caveats ( stepping or stumbling blocks towards multilateralism; domino effect and cancelling out of preferences; spaghetti bowl of RoO, strategic gains for the first mover and permanent distortions); • EU geographical focus in bilateral deals is shifting towards • neighbourhood ‘s stabilization • the globalization challenge and the rise of Asia • The emphasis is put more and more on competitiveness and market access because of the ’global output chain’ requirements • Tariff preferences are substituted by’ WTO plus’ FTAs: Yet, regionalism (region-to-region deals) remains a strategic priority for the EU:

11. (3) CONCLUSION • Regional integration and a drastic change in the development paradigm is the only way to set CA at the start of the FTA queue in the negotiation with EU. But in return EU should be willing to reward such move. This is the geopolitical challenge EU and Central America are confronted with today .