EU trade policy on FTAs

Prior to the last decade, the EU had previously entered into limited ‘traditional’ FTAs focussed on tariffs, such as that with Mexico in 2000, and had also included aspects of trade liberalisation as part of wide association agreements with close geographic partners. The defining feature of the last decade of EU trade policy has been the pursuit of ambitious and comprehensive FTAs globally. Partially, this is due to the fact that the Lisbon Treaty gave the EU exclusive competence over more aspects of trade policy than it had previously, for example foreign investment, which means that the EU’s trade agreements can be more comprehensive than before. However, it can also be seen as part of the recent failure of the WTO to progress liberalism in trade on a multilateral basis, in particular in areas which are novel but of increasing significance, such as digital trade.

A traditional FTA can be described as an agreement which takes advantage of at least one of the two key exemptions from the general obligation under WTO law not to discriminate between WTO members. These exemptions are contained at Article XXIV of the GATT and Article V of the GATS. They allow individual members to provide favourable tariff or market access treatment for services to another WTO member, provided that they do so on a widespread basis. The EU’s recent comprehensive FTAs move beyond this traditional model by including measures that, broadly speaking, do one or more of three things:

Measures which provide even greater direct market access outside of the scope of reduced tariff access or improved market access for providers of services, such as those on public procurement.

Measures which promote greater regulatory alignment between the FTA partners. In general, these measures are intended to consolidate direct market access gains that have been made, such as provisions on the mutual recognition of standards. However, other measures, such as on labour standards and the environment, target the establishment or consolidation of global civic standards.

Measures which are intended to promote greater economic integration between the two economies. Provisions on investment and investment protection are the most prominent example of this.

In the past decade the EU has completed what can be categorised as comprehensive FTAs with South Korea, Canada, Singapore and Japan. An FTA with Vietnam is expected to come into force during 2020, following ratification by Vietnam. Negotiations of FTAs with Australia, New Zealand and the South American members of MERCOSUR, as well as an updated comprehensive FTA with Mexico are ongoing. However, the EU has also met with two notable recent failures.

In 2007, the EU originally pursued a region-to-region FTA with the Association of South East Asian Nations. This strategy was replaced by pursuing bilateral FTAs with individual ASEAN members, only one of which, with Singapore, is now in force, following significant delays, and having been shorn of its ambitious investment chapter. Another, with Vietnam, should enter into force shortly. But negotiations with Thailand, Malaysia, the Philippines and Indonesia have all stalled.

The other major failure is TTIP, undoubtedly the negotiations to attract the most significant attention. A combination of widespread public criticism, in particular over the perceived features of the Investor-State Dispute Settlement mechanism, conflict between the parties on key issues such as regulatory standards for agriculture, and increasing isolationism on the part of the Trump administration resulted in the agreement of a deal becoming a step too far.

As a result, the EU’s recent success in negotiating FTAs can be regarded as mixed. It should be admitted that external factors, such as the 2014 military coup in Thailand, and President Trump’s election, have contributed to this. However, this highlights that there is no certainty that an FTA will be concluded once negotiations have been opened: there is no guarantee that the EU and the UK will reach agreement on their future trading relationship, especially within the restrictive timeframe.

The potential for no agreement to be reached is heightened by an increasing assertiveness to recent EU trade policy, which may make it more difficult for trade partners, including the UK, to agree to what is being asked of them in return for favourable access to the EU market.

In its 2015 policy document ‘Trade for All’ DG Trade stated that, “By engaging partners in regulatory cooperation, the Commission can exchange ideas and best practices and promote EU standards in a way that will help consumers everywhere to benefit from the highest and most effective levels of protection. Trade agreements are a way to give political momentum to this kind of dialogue. However, regulatory cooperation is not about give and take or trading one regulation for another.”

But, in its 2019 Trade Management Plan, former European Commission President Juncker is quoted as saying that FTAs “help us export Europe’s high standards for food safety, workers’ rights, the environment and consumer rights far beyond our borders.”

Similarly, in 2020, in a speech at the Centre for European Reform, available on the European Commission’s website, Trade Commissioner Hogan stated that, “When we sign deals with global partners, we expect them to meet our standards.”

The EU has therefore moved from a position where FTAs are seen as a way of promoting European standards to one where they are seen as a way of enforcing European standards.