EU Policy Review Highlights Trade Negotiating Agenda, WTO Ministerial Prep

13 July 2017

WTO members conducted a comprehensive review of the EU’s trade policies last week, examining issues such as the implications of Brexit on the bloc’s trading relationships; the EU’s investment court system and wider negotiating agenda; and the global trade body’s upcoming ministerial conference in Argentina this December.

The two-day meeting was held on 5 and 7 July at the organisation’s Geneva headquarters. As one of the WTO’s four largest traders, the EU’s Trade Policy Reviews (TPRs) are held every two years. The other three members who face the same requirement are China, Japan, and the United States, with others facing reviews on different timetables.

The process includes the production of two reports – one by the member under review and the other by the WTO secretariat. These cover topics such as the macroeconomic environment, along with specific trade issues over a selected review period. The rest of the membership also submits questions both before and during the review itself, with the EU TPR drawing over 1000 questions ahead of the 5 and 7 July meeting.

This EU TPR came at a time of potentially significant changes for the bloc– including the recently launched Brexit negotiations, the preparations for a post-2020 Common Agricultural Policy (CAP), and the efforts underway to clinch a host of new trade deals with non-EU countries.

It also comes during the continued effort across the European Union to improve its economic recovery and ink a host of new or updated trade deals with partners across the globe, with EU Deputy Director-General of DG Trade Joost Korte telling WTO members last week that 31 million jobs in the bloc depend on trade in some way. He also affirmed that the EU will continue its efforts to develop deeper trade ties, given that 90 percent of economic growth is likely to be generated by other economies.

“The EU is a major trading bloc not just because it is a big market of over 500 million people but also because it has an open and transparent trade and investment regime,” said Ambassador Juan Carlos González of Colombia, serving in the role of TPR chair, in concluding remarks on Friday.

“It was also noted that the EU faces several internal problems,” the chairperson added, flagging the economic recovery as an area that remains especially challenging. The WTO secretariat report similarly refers to the issues surrounding the EU’s “gradual albeit uneven economic recovery since the financial crisis,” noting that the bloc “has not rebounded as fast as some other large economies, nor as fast as in previous downturns.”

The report also says that among the challenges that the bloc has faced and will likely continue to deal with include the results of the Brexit referendum, along with political uncertainty from EU elections and crises such as terrorism.

EU trading strategy, Brexit

Geneva sources told Bridges that the Brexit talks were one area of particular interest for members, with questions raised on what this might mean for the EU’s own WTO schedule of commitments; predictability in the international business environment; and the wider global economy.

“In this regard, members expected that any process to make adjustments to the schedule of the EU as a result of Brexit would be open, transparent, WTO-compliant, and include consultations with third countries,” said González on Friday in summing up those discussions.

WTO members also raised in their questions ahead of the review the issue of the European Court of Justice (ECJ) ruling on the EU’s competences in its bilateral trade deal with Singapore, along with what this means for the bloc’s wider trading strategy.

“You have certainly noted in our replies that the Court determined the following areas that are under the Union’s exclusive competence: trade in goods and services; protection of foreign direct investment; [intellectual property rights]; public procurement; competition; trade and sustainable development; transparency; state-to-state dispute settlement when applied to these areas,” said Korte in his opening remarks to members last week.

Korte also noted the questions raised by some WTO members on the EU’s investment court system (ICS) and goals for developing an eventual multilateral investment court. That objective was announced by EU Trade Commissioner Cecilia Malmström in 2015, with the new ICS included in the trade deals that the EU has negotiated with Canada and Vietnam. It remains under discussion in the efforts to finalise a trade agreement with Japan, and was not included in the political deal announced last week. (See Bridges Weekly, 7 May 2015 and 6 July 2017)

“This will require building consensus and we, together with Canada, have kicked off discussions on that project with a view to having a broad and inclusive process. The multilateral court would need to be a legal entity under international law but it is too early today to say whether it would be a new stand-alone body, or be docked into an existing international organisation,” said Korte.

Trade defence, agriculture draws interest

WTO members also asked the EU about its use of trade defence instruments, along with its recent efforts to modernise those instruments. For example, some asked about the various EU investigations into iron, steel, and chemicals, while China reportedly asked about the changes to its anti-dumping methodology, to which the EU responded that it has acted to update its trade toolbox and noting that the matter is currently the subject of a WTO dispute and should be addressed in that forum.

“In a world where a level playing field is a distant dream, where dumping is more common that we would like, and where massive amount of subsidies are threatening the competitiveness of our businesses and leading to overcapacity, trade defence will remain an integral and necessary part of our trade policy,” said Korte last week.

According to the WTO secretariat report, the EU has been “one of the WTO’s most significant users of trade remedies, as it ranks third overall in terms of anti-dumping initiations and second in terms of countervailing duty initiations.” The report found a slight increase in recent initiations compared to the year 2013, among other data, while noting that measures already in place have generally stayed at the same levels.

The EU’s agricultural policy also drew scrutiny last week in Geneva, with some members reportedly asking about the bloc’s shift of its farm support from the trade-distorting “amber box” to the “green box,” which does not face limits and is meant to be only minimally trade-distorting, if at all. Others raised questions about high agricultural tariffs, particularly relative to industrial goods, along with sanitary and phytosanitary measures (SPS) as potential barriers to trade.

Geneva sources note, for example, that some members asked questions over when the EU plans to update its WTO schedule to reflect the decision agreed nearly two years ago at the Nairobi ministerial conference to eliminate export subsidies. Korte told members on Friday that the bloc is preparing an updated schedule to reflect those changes, which should be submitted shortly.

On the issue of amber box versus green box support, the EU official urged others to work towards transitioning their domestic payments from the former to the latter category.

Multilateral trading system, Buenos Aires ministerial

The EU official also raised a series of concerns that the bloc has over different challenges facing the multilateral trading system, along with describing what Brussels would like to see achieved when trade ministers meet in December for the WTO’s Eleventh Ministerial Conference.

“Unfortunately, the period since our last TPR has shown that all is not well in the multilateral system. A serious and concerted effort is needed to strengthen it. We are concerned that there is a growing disconnect between the principles underpinning the system – which the EU is strongly supporting – and reality, between theory and practice, and between what this organisation does (as a member-driven organisation) and what it should actually be doing,” said Korte.

The EU official raised, for example, concerns over trade barriers imposed by other WTO members, along with the need to improve the submission of notifications under the WTO’s regular bodies and support the dispute settlement arm. Korte also flagged the slow progress of some issues in the trade negotiating process as particularly worrisome, citing the recent situation where a General Council meeting was suspended over a disagreement on whether investment facilitation should be discussed in that space. (See Bridges Weekly, 11 May 2017)

“Other discussions on issues, including domestic regulation and e-commerce, continue to be stalled by endless procedural points and unjustified concerns. At the same time, there are constant demands for work in specific areas, often coming from those who prevent broader discussions,” said Korte.

The EU official credited these and other concerns as part of the reason that the bloc has been actively pursuing bilateral deals with individual trading partners or country groups, while stressing that the EU remains committed to the multilateral system.

Noting the global geopolitical environment around trade and globalisation, the EU official highlighted various areas where the bloc would like to see progress ahead of the WTO’s ministerial conference in Buenos Aires, Argentina, this December.

These include advancing on disciplining harmful fisheries subsidies and addressing domestic agricultural support; addressing industrial subsidies; developing an “enabling environment for online transactions”; and helping smaller companies take a greater role in trade.

On that subject, Korte confirmed last week that the bloc had submitted an updated proposal for the WTO’s rules negotiations on fisheries. Rules negotiators are meeting repeatedly in the common days to advance progress before the WTO’s summer hiatus, looking at new or revised proposals along with other issues. (Editor’s note: A follow-up article on new fisheries proposals and the upcoming meetings is forthcoming in Bridges.)

ICTSD reporting.

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