Deep integration in EU FTAs. Why so difficult?

1. Deep integration in EU FTAs.Why so difficult? Peter Holmes with colleagues

2. Why Deep Integration? • Market access vs upgrading across whole economy • But losers as well as winners • “internal market” was a public good for old & new EU; standards always have public element • Services can only be liberalised by DI • Leaving it to the market? • Free trade ensures competition? • Proprietary standardisation will be enough? • Deep institutional integration may be stimulated by and further promote deep market integration

3. EU Aims • Global Europe (2005) policy rejects use of FTAs as mainly diplomatic tool • market access in large important markets – India not Pakistan as main goal for FTA • include behind the border deep integration issue, eg SPS/TBT, Competition GP etc – based on EU’s own internal market experience • Harmonisation sought for close partners

4. Result: very little binding DI • Most agreements disappointing in this area (Sapir et al; Bourgeois et al; Houtman) • EEA is exceptional case but required loss of sovereignty • Candidates approximation driven mainly by accession process • Even EU Chile just lays pathway to mutual recognition • EU Competition cooperation provisions fall well short of US-Australia • Only Cariforum accepted deep EPA.

5. Competition • Candidates & Euromed declare anti-competitive practices that distort trade as in Arts 81 & 82 to be “incompatible with” the agreements: did this create binding legal obligations to amend domestic law? • EU rejects hard cooperation obligations even in EU-US, eg exchange of confidential info. • Competition is trade related issue but cooperation can be done outside FTAs – even in “MLATs”

6. SPS & TBT: Market access vs upgrading • Distinguish: Standards, regulations, conformity assessment (CA) and accreditation. • Standards Regulations are not just NTBs: they are reflect market demands, esp where private • Mutual recognition esp of CA requires trust – and is slow cf EU US (not FTA) and EU-Turkey • Fundamental issue is EU rules, eg Food & Feed directive requiring inspection and traceability etc. And private standards eg Eurepgap • Partners must comply with EU rules if they wish to export. • Egypt unwilling to force this on all domestic producers. Morocco thinking about it. • Some agreements provide for consultation and approximation and a pathway to mutual recognition but no obligations, Eg Morocco Chile - and EU India modelled on Chile

7. IPRs, Animal welfare labour standards etc • EU less eager to press for stronger IPRs than the US but India seems keen to have provisions here, eg on GIs • EU Chile and possibly EU India include provisions for “consultation” on Animal welfare – pressure from Greens in EP on this • Cariforum EPA forbids lowering of labour (or environmental) standards as investment incentives

8. Binding character? • Sapir et al find few provisions that are subject to binding wording eg “shall” and create meaningful obligations (e g not just “shall consider”. • What is the point of detailed but non-binding or binding but ill-defined or non-constraining provisions? • NB Garcia Bercero argues EU is gradually extending binding DS in its FTAs, even tho’ new areas exlcuded and little use made. • Association Agreements provide for binding decisions by councils • US has less inflation but NB controversies over investor-state provisions

9. Regions • EEA required adoption of acquis and binding acceptance, but tolerated by close small partners who had to comply with norms of their biggest market anyway. And EU rules are not NTBs top be negotiated away • Latin Americans etc: pointless to demand harmonisation to EU rules but EU seeks to be “model”. NB S.Africa chose EU water quality rules • Cariforum is special case where EPA seen by partner as a way to create intra-regional interal market • Neighbours torn. Sh’d Egypt pay costs? How can Ukraine totally pre-commit to EU norms so as to ensure unconditional market access?

10. EU norms as condition of free access to Internal market “Once satisfactory implementation of competition and state aids policies (by the associated countries) has been achieved, together with the application of other parts of Community law linked to the wider market, the Union could decide to reduce progressively the application of commercial defence instruments for industrial products form the countries concerned, since it would have a level of guarantee against unfair competition comparable to that existing inside the internal market.” Commission, 1994 and 1995

11. What are the motives? • EU is engaging in empty diplomacy because it can do nothing else? • It is seeking to use soft law to build up its influence and support for its views at WTO. • It is seeking to use soft law to build up hard law • It is responding as in Cariforum to partner’s wishes to use trade agreements as instruments for reform as well as market opening

12. Conclusions: what can EU do? • There is a demand for DI: India is spending time on this. Mutual recognition of CA is philosophers’ stone. Allows market access for those who do comply. Does not need harmonisation but needs accreditation of standards infrastructure • Many developing countries want to use RTAs as instruments to upgrade quality and legal norms, but wholesale adoption of acquis unpalatable. • Deep institutional integration can reflect and support but not create the deeper market integration • EEA model unappealing even for most of EEA! • But Catch 22 EU will not give unconditional market access without binding commitments and binding commitments onerous without prospect of quasi accession • Pathway process has merits beyond initial content: it may allow what it does not oblige