By Jose Antonio Buencamino | Commercial Counselor, Philippine Trade and Investment Center (PTIC)-Brussels and Jeoffrey Houvenaeghel, Trade Assistant, PTIC-Brussels
In this new article, we take a closer look at the EU’s record in terms of FTAs negotiated, concluded and implemented. We also delve into the highly complex processes that bind the EU and its member-states with FTA partners.
The EU’s commitment to free trade
THE EU is a keen supporter of trade agreements, because it represents the world’s largest trading bloc formed by its 28 member-states. It has been estimated by the International Monetary Fund that 90 percent of global demand will come from outside the EU over the next several years. As a result, the EU has most to gain from global trade liberalization through bilateral FTAs. By our count, the EU has in place FTAs with 65 countries, which take on different forms and names.
There are three types of agreements the EU negotiates and concludes: (1) free trade, economic partnership and association agreements; (2) customs unions; and (3) partnership and cooperation agreements.
A free-trade and economic partnership agreement is a legal framework that significantly reduces or completely removes tariffs in bilateral trade. An association agreement is a treaty that creates a framework for cooperation and includes political, social, cultural, trade and security dimensions. It is a step further than an FTA as it aims to align the third country with the EU’s standards and values.
A customs union is a free-trade area or trading bloc where regional barriers to trade (tariffs and non-tariff barriers) are reduced or removed and members of the bloc have a common external tariff and external trade policy.
A partnership and cooperation agreement is a bilateral framework that further defines the political and economic relations between the two parties, but it does not (yet) reduce or eliminate tariffs.
The status of the EU’s FTAs
THE following link provides an overview of all the current FTAs (with 65 countries) and agreements that have been concluded but still need to be implemented (32 countries): http://philembassy.be/images/stories/files/fta.pdf.
Looking back, the EU concluded 5 trade agreements in the 1970s, but none in the 1980s likely because the EU took a step back from bilateral trade agreements in the 1980s to concentrate on the Uruguay Round of multilateral trade negotiations which led to the creation of the World Trade Organization (1986 to 1994).
The EU resumed bilateral free trade negotiations in the 1990s and concluded trade agreements with 8 countries by the end of that decade. This trend continued in the period from 2000 to 2005 when the EU concluded trade agreements with 9 countries.
In 2006, the EU drastically invigorated its external trade policy to strengthen its global competitiveness by establishing newly defined objectives, priorities and approaches outlined in the EU’s communiqué ‘Global Europe: Competing in the world.’ This resulted in an immediate impact where the EU from 2006 to 2010 concluded trade agreements with 30 countries. Since 2011, the EU has concluded trade agreements with 19 countries and 32 more countries will follow in due course as they await formalities before implementation of their trade agreements.
One possible explanation for the EU’s momentum since 2006 is probably the void left by the lack of progress in the WTO Doha round of multilateral trade negotiations, which was launched in 2001.
The EU’s process to start FTA negotiations
THE European Union can act alone to initiate and negotiate international trade agreements as trade policy is an exclusive competence of the EU. The European Commission (EC), European Parliament (EP) and Council of the EU discuss any potential plan to negotiate a trade deal with a country. The EC starts a public consultation on the substance of the potential trade agreement and conducts an assessment of the impact of the agreement on the EU and a third country. Afterwards, the EC starts an informal dialogue process known as a scoping exercise to determine the substance and feasibility of the agreement with the third country.
The EC then obtains formal authorization from the Council (with tacit approval from the EP) to start the negotiations with the third country. This authorization is also known as negotiating directives, which set the main objectives of the negotiations.
The negotiation process is led by Directorate General for Trade of the European Commission by a chief negotiator and his team with support from the rest of directorate-generals. Based on the analysis of the Philippine Trade and Investment Center in Brussels, the typical length for negotiations to be completed is 3 years to 5 years. It generally takes around 6 years to conclude an FTA with the EU, from the scoping exercise to provisional application.
The general substance of the agreement
EVERY trade agreement concluded by the EU is unique and does not cover the exact substantive content as other EU bilateral trade agreements because it depends on the level of ambition and development of the countries involved as well as the economic capacity of both partners. For example, an FTA with a developed country would be economically focused whereas that with a developing country could be focused on development as well.
The topics generally covered during the negotiations but may vary from agreement to agreement are: Market access for goods and services, trade remedies, technical barriers to trade, sanitary and phytosanitary measures, customs and trade facilitation, non-tariff barriers to trade, investments, government procurement, intellectual property, competition and dispute settlement.
The EU-Canada Comprehensive Economic and Trade Agreement (CETA)
ONE recent FTA negotiation concluded by the EU that caught the attention of international business, politicians and media was that with Canada.
The Comprehensive Economic and Trade Agreement (CETA) between the European Union and Canada was finally signed on October 30, 2016, during the EU-Canada Summit in Brussels.
But CETA was not without plenty of drama from the launch of negotiations in 2009, to its near demise in mid-October when the tiny Belgian region of Wallonia blocked the Belgian vote for the trade deal. This required marathon negotiations between the European Commission, Canada, the federal government of Belgium, and the Walloon regional government. On October 27, 2016, Wallonia lifted its rejection of the trade deal, and Belgium was eventually able to join CETA’s unanimous approval by the 28 EU member-states on October 30.
The climax in the CETA drama started to build up in early September when the European Commission conceded to the member-states’ demand this trade deal was one with “mixed” competences, particularly in matters that deal with investments, social protection, and public transport. In short, in these areas, each EU member state has a say in their implementation. And in the case of Belgium, the federal timber requires consensus among its three regional governments (Flanders, Brussels Capital Region, and Wallonia). While there were also reservations from other EU member-states over certain provisions of CETA, the Commission was able to secure their acquiescence by crafting a joint interpretative instrument that became a legally-binding part of CETA.
As provided in the text of CETA, the Council of the European Union approved the provisional application on February 17, 2017 of the provisions of the agreement where there is “EU competences,” provided the European Parliament (EP) gives its consent for its conclusion. The matter has been tabled for voting by the EP’s International Trade (INTA) Committee on December 5, 2016, and then for Plenary voting (under a single reading to formalize consent for conclusion) on February 14, 2017.
As an agreement with “mixed“ competencies, the CETA will be provisionally applied while all the 28 member-states (through their respective national parliaments, or regional parliaments in the case of Belgium) will have to ratify the agreement according to their national constitutional requirements. Some foresee this process taking two years or longer.
EU competences and mixed agreements
THE CETA experience highlighted the EU’s competences and the phenomena of mixed-trade agreements. The EU and its member-states established a legal division of policy competences between each other. This catalogue of competences is divided into 3 categories: Exclusive (EU acts alone), shared (member-states and EU act together) and coordinated competences (member-states’ policies coordinated at an EU level). Exclusive competences are when the EU can act alone and legislate and adopt legally binding acts such as for the common commercial policy and customs union.
According to Geert De Baere, associate professor of EU law and international law at the KU Leuven (Catholic University of Leuven), a mixed agreement is when both the EU and its member-states share their competences within the scope of the agreement. It legally obligates the EU to include the member-states to participate within the negotiations and conclusion of the mixed agreement. The EU is well known for concluding many mixed agreements since the 1970s as it is the general rule in the EU that external competences are usually shared with its member- states so acting externally together is a very typical EU feature.
De Baere asserts the EU can legally conclude international trade agreements by itself based on the EU’s exclusivity in the common commercial policy. But under the encouragement of its member-states, it still becomes a mixed agreement. The reasons are the member-states would like to represent themselves externally because foreign policy is a high-profile act of sovereignty as well as it can be part of their own national interest to represent themselves in the negotiations.
De Baere said member-states before the Lisbon treaty created a mixed agreement by simply adding “political dialogue” to the agreement because it falls under member- state competence, justifying its participation in international agreements that fall under EU exclusivity.
But post-Lisbon treaty, member-states cannot use “political dialogue” anymore to justify mixed agreements. Their current solution is to interpret article 218 of the Treaty on the Functioning of the European Union (TFEU) in such a way that allows Member States to act externally together with the European Union. The member-states do not have to interpret it this way, but they want to.
Implications of Mixed Agreements
WITHIN the EU, there have been many discussions surrounding the issue of mixed agreements, especially as it is internally very unmanageable and time consuming as the EU needs the approval of every single parliament in every single member-state whose difficulty has been exemplified by the Wallonia-CETA incident.
The Commission is currently waiting for a decision of the European Court of Justice (ECJ) in Luxembourg in regard to a clarification of a case it filed in November 2015, on the delineation of competences under the EU-Singapore FTA. Previously, the Council of the EU had disputed the EC’s interpretation the EU-Singapore FTA is an exclusive EU competence in regard to the specific areas of transport services, investments, sustainable development, and IPRs. The ECJ may decide on this by early 2017.
The clarification of the ECJ should answer the question whether the agreement falls entirely under the EU’s exclusive competences, or whether the member- states will also have to be involved, at least in certain aspects of the agreement (i.e., a situation of “mixed“ competences).
No one can predict how the ECJ will clarify the competences issues. The ECJ may, or may not, take a heavy cue from the concession the Commission gave in September on CETA. But the phenomenon of mixed competences is likely to continue within the EU. And the acceptance or ratification process of any FTA the Commission will conclude will now take longer, and be at risk of serious challenges (if not total rejection) by individual EU member states. Indeed, the demonstration of competence – once savored – will always be sought.
Original publication: http://www.businessmirror.com.ph/doing-ftas-with-the-european-union/