The European Commission on 4 October unveiled a new trade policy strategy under which Brussels will pursue bilateral free trade agreements with major economies in order to secure new markets for EU companies. It will also push for stronger intellectual property rights and reduced non-tariff barriers in its trading partners. In a speech accompanying the release of the report setting out the strategy, EU Trade Commissioner Peter Mandelson said "the core message of today's review is clear: rejection of protectionism at home; activism in opening markets abroad."

In spite of recommendations favouring bilateral accords as well as other measures on trade, investment, competition, and public procurement that go well beyond current WTO rules, the report insisted that the EU remained committed to reviving the stalled Doha Round trade negotiations. Mandelson dismissed suggestions that the EU was shifting its attention from the WTO to bilateral agreements. "There will be no European retreat from multilateralism," he said. "Doha remains our top priority."

The strategy focuses primarily on the need to identify and lower barriers to market access for the higher-end products and services that make up the bulk of the EU's exports -- in terms of both tariffs and other obstacles to commerce. The Commission says the new agenda outlines how trade policy is to contribute to the EU's attempts to balance its social model with competitiveness and economic reforms, in response to new challenges posed by the emerging economies in Asia and South America. The report singles China out for special attention, describing it as "the single greatest test of Europe's capacity to make globalisation an opportunity for jobs and growth." It also calls for a review of how trade remedies such as anti-dumping duties are used.

The paper emphasised that the European Commission and EU member states needed to ensure that the benefits of trade liberalisation were passed down to consumers. "European citizens expect to see positive results from economic and structural change," it said. "The case for openness is undermined if its benefits do not reach citizens."

Identifies key markets for bilateral FTAs

The EU's new policy says that bilateral accords can address "key issues including investment, public procurement, competition, other regulatory issues and IPR enforcement, which remain outside the WTO at this time." It prescribes seeking free trade agreements (FTAs) with countries and trade blocs based on "market potential (economic size and growth) and the level of protection against EU export interests."

On this basis, it identifies ASEAN (10 Southeast Asian nations), Korea, and Mercosur (Argentina, Brazil, Paraguay, Uruguay, Venezuela) as priority targets, along with India, Russia, and the Gulf Cooperation Council. The EU has already started FTA talks with the Gulf Cooperation Council, which comprises six Arabian Peninsula countries centred around Saudi Arabia. Its FTA negotiations with Mercosur, suspended since 2005 over disagreements on agriculture, industrial goods, investment, and services, are set to resume in November. Brussels and New Delhi are also exploring possibilities for starting FTA talks. The paper did not call for an FTA with China in spite of its large and growing market, saying that the country required "special attention because of the opportunities and risks it presents."

According to the strategy paper, the EU's bilateral FTA talks should aim at the "highest possible degree" of trade, investment, and services liberalisation, in addition to a ban on export taxes and quantitative import restrictions. Regulatory convergence should be pursued, where possible, to address non-tariff barriers, and the EU should push for stronger provisions on IPRs and competition. The report also raised the possibility of provisions on good governance, labour, and environmental standards. Notably, the paper said that the EU would have to take the erosion of its existing trade preferences into account when negotiating FTAs -- which could translate into sheltering certain products from tariff cuts.

Bilateral FTAs have been widely criticised by economists, trade experts, and companies for creating a 'spaghetti bowl' of overlapping trade rules that erode the principle of non-discrimination and raise the transaction costs of doing business (see BRIDGES Weekly, 19 January 2005). Although the report acknowledges some of these criticisms, it maintains that comprehensive FTAs that go beyond WTO disciplines can have a positive impact, and help lay the foundation for future multilateral liberalisation.

Some of the EU's key FTA objectives have met vocal opposition at the WTO from some of the same countries it has identified as potential partners. Investment, government procurement, and competition were originally on the Doha Round agenda -- with the strong support of the EU -- but eventually had to be dropped due to opposition from developing countries. In WTO negotiations, some developing country commodity exporters, such as Argentina, Brazil and India, have rejected the EU's appeals for a ban on export taxes (see BRIDGES Weekly, 26 April 2006).

Even apart from the realm of FTA negotiations, the report called for a renewed focus on addressing non-tariff barriers, export taxes, IPR enforcement, investment conditions, and competition. In addition, Mandelson promised "new proposals for opening public procurement markets abroad." The report labelled public procurement "probably the biggest trade sector remaining sheltered from multilateral disciplines," describing it as an "area of significant untapped potential" for the EU's world-leading public works and utility companies.

Diversifying sources of energy supply and transit is a key EU objective. The strategy paper thus calls for efforts to improve "transparency, governance, and trade in the energy sector in third countries through non-discriminatory conditions of transit and third party access to export pipeline infrastructure." It also says that the links between trade policy and climate change need to be explored further.

Review of trade defence instruments urged

The report says that trade defence instruments such as anti-dumping duties may need to be modernised to strike an appropriate balance between consumers and suppliers, since changes in international production mean that EU-based manufacturers now often compete with products made overseas in factories owned by other EU companies. It called for strengthened transparency requirements to monitor subsidisation and unfair pricing and trading practices, and announced that the European Commission will produce a paper on trade defence instruments later in the year.

Anti-dumping duties have in recent years proven divisive among EU members. Mediterranean countries such as Spain and Italy want to protect Brussels' ability to impose such measures when necessary .They have clamoured for additional duties on products such as textiles to shield their own small companies from what they argue is unfair Chinese competition -- demands that the UK, Sweden, and Germany have called protectionist.

Indeed, the paper's release coincided with EU members' decision to introduce anti-dumping duties on shoes from China and Vietnam, a move that critics in the EU and elsewhere derided as protectionist (see related story, this issue). EU companies producing leather shoes in the two countries are also affected by the measures.

Mandelson indicated that the European Commission will on 24 October publish a comprehensive strategy on economic relations with China.

More information on the EU's new trade strategy is available at http://ec.europa.eu/trade/issues/sectoral/competitiveness/global_europe_en.htm.

ICTSD reporting; "Mercosur meeting postponed for November," MERCOPRESS, 26 September 2006.