Preferential Trade Agreements: State of Play in Selected EU Negotiations

The EU is currently working on more than 20 new free trade agreements (FTAs), including with the United States, Japan, various ASEAN states, India, and the Mercosur states. In October 2015 the EU and New Zealand launched talks on an FTA, followed by Australia in November 2015. Alongside multilateral trade liberalisation under the WTO, preferential trade agreements are central to the EU’s trade strategy. In many cases, however, the negotiations are anything but easy.

In October 2015, the European Commission’s DG Trade presented a new trade strategy. While the WTO will remain the EU’s route of choice for liberalising global trade, the Commission wishes to conclude further free trade agreements with important trading partners. Talks with Australia, New Zealand, and the Philippines were initiated at political meetings at the end of 2015. The first round of talks with the Philippines has already been held. The EU is also negotiating so-called economic partnership agreements – which devote particular attention to development aspects – above all with African states.

 

Modern EU- FTAs, including those with the United States, Japan, India, and the Mercosur states, are intended to do more than reduce tariffs. They also seek to improve market access by dismantling non-tariff barriers (for example through regulatory cooperation), liberalise service markets, and open public procurement markets. The scope of these trade agreements extends far beyond the areas regulated by the WTO, with negotiations touching on competition rules, protection of foreign direct investment, and sustainability questions (labour rights and environmental protection). The EU also wishes to expand its older global agreements with Chile and Mexico – which contain only elementary economic aspects – into modern FTAs.

 

One Step Forward, One Step Back: State of Play in Selected EU Negotiations

In most cases, however, the talks are anything but smooth. In some cases there has been no progress for years.

Free Trade Agreements of the EU

India: The talks on a free trade agreement between the EU and India have been deadlocked since 2012. The Indian side cancelled a planned resumption in autumn 2015 at short notice after the EU refused to approve medicines produced in India. Hopes were therefore high that the political summit in Brussels at the end of March 2016 – the first in four years – would achieve a breakthrough and create new perspectives for the free trade agreement. Instead, the promises remained vague on both sides, and a conclusion cannot be expected any time soon.

Indonesia: The EU and Indonesia have been discussing a possible Comprehensive Economic Partnership Agreement (CEPA) since 2011. Its objectives include reducing tariffs and making public tendering more accessible. In April 2016, during the visit of the Indonesian president, Joko Widodo, to Brussels, the EU and Indonesia announced the completion of a scoping paper on the bilateral free trade agreement. The CEPA fits well with Widodo’s economic reform agenda, where he wishes to open his country further to foreign investment. He also visited Berlin, where the Asia-Pacific Committee of German Business (APA) and the Indonesian embassy in Berlin jointly organised an economic forum attended by more than 200 Indonesian and German business leaders and politicians. The talks are likely to begin officially in October 2016.

Japan: The talks with Japan have been stalled since early 2015, as Tokyo concentrated instead on concluding and ratifying the Trans-Pacific Partnership (TPP). Although there is political will to conclude the EU-Japan talks this year, it is unlikely that this will occur. It is hoped that the talks will accelerate in autumn 2016, after a new Japanese government has been elected. The points of conflict include reducing non-tariff trade barriers and effective market access to public tendering in Japan. To date, however, Japan’s offers fail to meet the EU’s expectations. Japan wishes in the first place to abolish the EU’s import tariffs, especially on vehicles.

Canada: In a joint declaration by then Commission President José Manuel Barroso and then Canadian Prime Minister Stephen Harper in September 2014, the EU and Canada announced the official conclusion of their bilateral talks on a Comprehensive Economic and Trade Agreement (CETA). The goal of the agreement is to encourage economic growth in the EU and Canada by increasing bilateral trade and investment flows. CETA is one of the most comprehensive and ambitious free trade agreements the EU has negotiated to date. In line with WTO rules, it liberalises “substantially all the trade”. 99 percent of tariffs will be abolished as soon as the agreement comes into force, and at the latest after seven years there will be no tariffs at all on industrial products. The provisions agreed with Canada supplement the WTO treaties. They are not only more ambitious in their liberalisation goals (for example tariff reduction, liberalisation of services, protection of intellectual property). They also go further than the WTO rules and cover areas that the WTO addresses only partially or not at all (such as investment, competition, public procurement). Both sides have now legally reviewed the text of the agreement, and it was published in English in February 2016. In early July, the German translation was published and the Commission also officially submitted the agreement to the Council as a “mixed agreement”. The signing is planned for an EU-Canada summit in Brussels at the end of October. Provisional application following the European Parliament’s approval is currently expected for early 2017. However, CETA has attracted growing political criticism in the wake of public debate over TTIP, with isolated questioning of the provisional application that has hitherto been standard practice for the EU’s FTAs. Whether the timetable can be upheld will depend on frictionless ratification by the Council and the European Parliament. Experience with the EU-South Korea agreement suggests that subsequent ratification by the member states might take another four or five years.

Mercosur: The European Union and Mercosur began talks on an association agreement as long ago as 2000. The talks were suspended in autumn 2004, in particular on grounds of differences over market access for industrial and agricultural products, but resumed again in May 2010. Now the talks appear to be making progress at last. In October 2015, Mercosur floated an offer on market access covering more than 87 percent of all products, which some EU member states initially regarded as inadequate. In May 2016, the two sides exchanged offers on market access for the first time in years, although the EU has not yet put the sensitive issue of an import quota for beef on the table. A trade agreement would join two of the world’s largest markets. With Argentina, Brazil, Paraguay, Uruguay, and Venezuela as full members, the Mercosur region comprises almost 300 million inhabitants, the EU more than 500 million.

Mexico: Mexico and the EU have agreed to modernise their global agreement dating from 2000. This will also involve talks on a free trade agreement, for which the Council has already adopted guidelines. The first round of negotiations took place on 13th and 14th of June in Brussels; the second is scheduled for autumn 2016. Modern, ambitious agreements are to be sought in areas that are not yet bilaterally sufficient regulated, including investment and public procurement. It is intended for the new agreement to be compatible with CETA and TTIP.

Singapore: Negotiations on the free trade agreement between the EU and Singapore began in 2010 and were formally concluded in September 2013 (investment protection in October 2014). But in November 2014 the Commission announced that it was having the agreement reviewed by the European Court of Justice (ECJ) to clarify whether it falls under the exclusive competence of the EU (pure trade agreement) or also touches on powers reserved for the member states (mixed agreement). A pure trade agreement requires only the approval of the European Council and the European Parliament, while a mixed agreement would also have to be ratified by all the EU member states. In Germany, the Bundestag and the Bundesrat would be responsible. The Commission has submitted its application to the ECJ and the first, written phase of the process has been completed. The agreement will not be signed and applied until the ECJ has made its ruling. Normally such a case takes one or two years to complete, so application of the agreement cannot be expected until 2017. The extent to which the ECJ case will influence other ongoing EU negotiations and ratification processes is not yet apparent.

Turkey: The EU’s early trade agreements with third countries include the customs union between the EU and Turkey established in 1995. The agreement is restricted to commercial goods and processed agricultural products, but excludes unprocessed agricultural products, coal, and steel. The customs union covers neither trade in services nor more recent trade issues such as public procurement, investment, or intellectual property. Turkish trade-restrictive measures and increasing incoherence of trade policies and regimes on both sides have generated growing trade disputes between them. In spring 2015, the two sides agreed a timetable for modernising the customs union, to include services, public procurement, and most agricultural products. In spring 2016, in the scope of an impact assessment, the Commission conducted a public consultation on its modernisation plans in which BDI participated. The Commission plans to finalise a study on the modernisation plans before the 2016 summer break, and to complete the impact assessment process by the end of the year.

United States: Negotiations on a Transatlantic Trade and Investment Partnership (TTIP) have been in progress since mid-2013. According to the negotiators considerable progress has already been made in certain areas, including regulatory cooperation. In others this is not yet the case. The 13th round of talks held in New York at the end of April sought to consolidate the texts of the agreement for as many chapters as possible, including regulatory cooperation, small and medium-sized companies, and customs procedures. Following the 14th round of talks from 11 to 15 July, a stocktaking is planned for September. During the American President’s visit to Hannover in April and at the G7 summit in May 2016 in Japan, Barack Obama and leading German and EU politicians underlined their political will to bring the TTIP talks to a successful conclusion by the end of the year. Meanwhile, the U.S. presidency has confirmed that the Brexit vote in the United Kingdom does not change this objective. Given the number of as yet unresolved questions, however, that goal is regarded as very ambitious.

Vietnam: The negotiated text for the EU-Vietnam free trade agreement was published at the beginning of February 2016. The talks themselves were concluded in December 2015 with a joint declaration by the EU and Vietnam. According to the Commission the agreement will lead to the abolition of 99 percent of tariffs on goods within a maximum of ten years, open market access for services, and make it significantly easier for European firms to bid for public procurement contracts in Vietnam. EU Trade Commissioner Cecilia Malmström believes that it will initiate a new wave of high-value investments in both directions. The agreement’s reformed investment protection chapter includes a permanent investment court and the possibility of appeals. The agreement will now be legally reviewed and translated, before being presented to the Council and the European Parliament for ratification. The member states may also have to ratify.