Modern Tendencies of the EU Trade Policy and Its Priorities

Tamar Beruchashvili, PHD in Economics, Professor Emir Eteria, PHD in Economics, Associate Professor

The European Union currently unites 27 member states and is one of the important world economic powers and impressive example of integration practice in the modern world.

Moreover, The European Union gradually deepens its economic relations with a large number of countries in whole world and creates new opportunities for their economic development.
The European Union is an offspring of strong, democratic and developed nation states. Delegation of some functions from nation states to the European Union’s supranational institutions did not weaken, but on the contrary, strengthened them. Supranational approaches are exercised only in those fields, where more effective policies can be implemented. Trade and trade policy is one of them.
The EU is active supporter of development of global international trade system and regards promotion of deep economic integration at regional level. In this regard development of regional integration is the response to current challenges of international trade system, particularly little progress of the Doha Development round.
Considering development of Georgia-EU trade relations and in the light of future opportunities, start of negotiations on Deep and Comprehensive Free Trade Agreement (DCFTA) between Georgia and the European Union it is particularly important to comprehend the major tendencies and priorities of EU’s trade policy in the modern globalized economy.
Promoting development – Aim of European Union Trade Policy
It is well known fact that international trade played a major role in the development of modern industrial countries, especially in South-East Asia. Rapid growth of these countries has been primarily associated with large-scale and gradual trade liberalization and export-oriented industrial policies. Consequently, increase in per capita incomes in these countries has led to significant poverty reduction.
In the European Consensus on Development1, the EU addresses the above issue and declares poverty eradication as the main objective of EU development cooperation. Moreover, the European Consensus highlights important role that trade and regional integration can play for the development and how the EU intends to help poor countries to really benefit from trade. Market access, differential treatment and assistance in the implementation of Agricultural Policy reform are considered as main factors for achieving this aim. The European Consensus specifically mentions development-friendly conclusion of Doha Development Round of Multilateral Trade Talks in the framework of World Trade Organization (WTO), as well as the Economic Partnership Agreements with Africa, Caribbean and Pacific countries and necessity for differential treatment approach regarding their implementation.
The European Union as the pioneer in implementation of Generalized System of Preferences (GSP), grants GSP privileges since 1971 to the developed and less developed countries, which is an autonomous trade agreement compliant with WTO rules. Furthermore, considering the fact that market access is not enough for achieving development goals, in 2007 the European Union approved its Strategy on Aid for Trade2 to help developing countries to build necessary capacity for trade and committed to increase its spending on trade-related assistance to ˆ2 billion per year from 2010.
It is worth of mentioning that the EU remains committed to a successful conclusion of Doha Development Round, but this renders to be a very difficult task at this moment. After the very optimistic launch, crisis began in Cancun (Mexico) in 2003 due to disagreements between developed and some major developing countries. In the following years, there were numerous efforts to solve the problem through negotiations. On 21 July 2008 at the Trade Ministers meeting, the EU made a proposal offering high tariff cuts in farming and industrial goods. However, on 29 July the talks failed once again due to a disagreement between India and China, on the one hand, and the US, on the other, over the special agricultural safeguard mechanism clause for developing countries (SSM), a mechanism to protect farmers in developing countries against increase of imports and price falls on agricultural products. Although, Trade Ministers and the EU Commissioner for Trade Baroness Catherine Ashton among them expressed their commitment to attain a balanced agreement in Doha Development Round Trade Talks. In addition, on April 2 2009, at the London Summit, G203 leaders made a commitment to renew the round of world trade talks. However, the chances of completing the round soon or reaching ambitious results are not high.
Experts believe that in case if Doha Development Round finally fails, the major losers will be poor countries.4 Developed countries would lose the opportunity of better market access to both developed countries and to the growing economies (ex. Brazil, China, and India), which is of critical importance as South-South trade represents a growing share in the general volume of developing countries’ trade. The Doha Development Round also aims at achieving progress in trade related issues that are vital to promote development. Among them, one of its main objectives is trade liberalization in agriculture and reduction and gradual abolition of agricultural subsidies that would significantly benefit developing countries, as well as, promoting issues related to trade development, avoiding tariff escalation and improving conditions of market access for all Least Developed Countries (LDCs).
Currently, in the light of problems of multilateral liberalization in the framework of WTO, the most probable alternative will be liberalization at bilateral and regional levels through Free Trade Agreements (FTAs). Regardless of the fact that FTAs are seen as less efficient than multilateral liberalization5 and despite the intense debate on above issues, it is clear that development of regionalism in an international trade is objective reality.
Based on the evaluation of regional integration trends, it could be concluded, that countries of developing and transition economies benefit more by engaging in the regional integration with developed countries rather than with the countries with similar economic situation. The following factors could be reason of above:
§ Homogenous structure economy that hinders development of intersectoral trade;
§ Significant parts of the export from developing and transition countries are labour-intensive and/or raw materials, which has low rate for differentiation, therefore, the potential for development of intersectoral trade is quite low;
§ The potential for complementarity of these economies is rather low, which is one of the major preconditions for efficient integration practice.
Main Directions of the European Union Trade Strategy
Currently, the European Union considers negotiation of new Free Trade Agreements (FTAs) with a number of developing countries with growing economies and regional blocs, mainly in Asia and Eastern Neighborhood. This is rather a novelty on the part of the EU as so far its trade efforts had previously been focused on Doha Development Round, on the conclusion of FTAs with Africa, Caribbean and Pacific countries (ACP), its Eastern and Central European Countries, former Yugoslavia and the Mediterranean countries (see ANNEX).
This move towards bilateralism in the EU’s trade policy is partly due to lack of the progress in Doha Development Round and also to the serious changes of balance in global economic system. The main competitors of the EU, the US and Japan, with growing economies like China and India, actively pursue FTAs with these countries. This position of the US and Japan gave additional impetus to the EU to deepen relations with China and India in order to avoid its exports discrimination in these extremely important markets. In addition, the refusal of the developing countries to include the EU’s main interests (ex. the Singapore issues6) in the Doha Development Round talks forced the EU to initiate new bilateral FTAs.
The EU’s decision to progress towards the FTAs is closely linked to the launch of a strategy to increase competitiveness and attain the Lisbon goals7. The document “Global Europe: Competing in the World’8 regards the EU trade policy as one of the main instruments for development of EU competitiveness. This approach calls for further compatibility of domestic and foreign policies in order to increase competitiveness. It requires additional trade liberalization, improving market access for European companies to compete, and as a result create new opportunities for growth and development for European economy. As practice shows, together with the correct internal policies, greater degree of openness and fair, transparent rules in markets are necessary for competitiveness.
“The Global Europe: Competing in the World” pays particular attention to the multilateral approach that is crucial to achieve the policy goal. Nevertheless, as the current status of the Doha Development Round talks show, the expected agreements will not satisfy all EU expectations and there is a real need for the EU to pursue not the simple FTAs, but new Deep and Comprehensive Free Trade Agreements (DCFTAs). The comprehensive approach of these agreements requires greater degree of liberalization and covers the sectors that fall outside the WTO (so called WTO+).
These agreements are not limited by simple tariff reduction and require reduction of non-tariff barriers, as well as, trade related reforms and cover the following sectors of economic regulation: sanitary and phitosanitary issues (SPS), government procurement, trade facilitation and competition. The EU has special interest to “force” its partners to implement significant harmonization in these sectors. As an example: the access to the new markets for EU businesses is seriously reduced without appropriate IPR protection mechanisms in other countries; government procurement is considered an area of unused potential for the EU exporters, since EU companies are world leaders in this field. As to the competition, anticompetitive practices as well as state-aid rules in third countries limit market access as they lift up new barriers to trade. Also, in the area of services European export has great potential for growth.
The introduction of EU norms and standards in above sectors would insure higher level of market compatibility, increased access to resources and better investment opportunities for trade partners (together with other reforms), and as a result, support of their economic development.
The declared strategy requires a hard line on the part of the EU, with a focus on economic potential. Therefore, the key economic criteria for new FTAs should be market potential (size of economy) and the level of protection of EU’s export interests. The competition issue matters in relationship with those countries which have signed FTAs with competitors to EU (US and Japan). It is obvious that the EU in the partner countries’ markets tries to ensure full equality in relation to its main competitors.
Taking into account that many key issues cannot be addressed through the multilateral system, the EU is negotiating FTAs with several regions in the world. In this regard, EU’s priority directions are Association of South-East Asian Nations (ASEAN), South Korea, India and the Gulf countries. These are large markets demonstrating strong growth and are actively engaged in negotiating FTAs with EU competitors. Russia is believed to be a main partner, but the current situation leaves out the opportunity to conclude an FTA9. As to China, it is deemed to be a special case that needs an individual approach.
Conclusion
In the modern world of globalized economy absence of efficient institutional system of regulation at the global level force the individual economic powers to deepen relations at the bilateral and regional levels.
Last years, world witnessed a significant transformation of EU’s trade policy priorities. Remaining the active supporter of the timely conclusion of the Doha Development Round negotiation at the multilateral level, in parallel, EU tries to gradually deepen its trade relations on bilateral level through new Deep and Comprehensive Free Trade Agreements (DCFTAs).
The main reason of such transformation of the EU’s trade policy is increased competition at global level, particularly from the side of USA and Japan. The further trade liberalization with individual countries, mostly with growing economies and regional blocs, are considered as one of the main instruments to increase the competitiveness of the EU. In parallel, developmental component of EU’s trade policy is its one of the main priorities.
E-mail: tberuch@caucasus.net