WHAT IS A TRADE BLOC?

A regional trading bloc is a group of countries within a geographical region

that protect themselves from imports from non-members. Trading blocs are
a form of economic integration, and increasingly shape the pattern of world
trade. There are several types of trading bloc:
Preferential Trade Area
Preferential Trade Areas (PTAs) exist when countries within a geographical
region agree to reduce or eliminate tariff barriers on selected goods
imported from other members of the area. This is often the first small step
towards the creation of a trading bloc.
Free Trade Area
Free Trade Areas (FTAs) are created when two or more countries in a region
agree to reduce or eliminate barriers to trade on all goods coming from other
members.
Customs Union
A customs union involves the removal of tariff barriers between members,
plus the acceptance of a common (unified) external tariff against nonmembers. This means that members may negotiate as a single bloc with 3rd
parties, such as with other trading blocs, or with the WTO.
Common Market
A common market is the first significant step towards full economic
integration, and occurs when member countries trade freely in all economic
resources not just tangible goods. This means that all barriers to trade in
goods, services, capital, and labour are removed. In addition, as well as
removing tariffs, non-tariff barriers are also reduced and eliminated. For a
common market to be successful there must also be a significant level of
harmonization of micro-economic policies, and common rules regarding
monopoly power and other anti-competitive practices.

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There may also be common policies affecting key industries, such as the
Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP) of the
European Single Market (ESM).

Trading blocs are groups of countries that have reached a common

agreement to lower trade barriers throughout the group (e.g., NAFTA,
ASEAN, and the European Union).

HISTORY
The European Union is an organization of 27 nations. Its original aim was to
form an economic union but, as time went on, the EU developed into a far
greater organization.

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According to the Congressional Budget Office, since the end of World War II
there has been significant support, especially from the United States, to
eliminate artificial trade barriers and to support a greater liberalization of
international trade. The General Agreement on Tariffs and Trade (GATT) was
created shortly after World War II, between twenty-three countries, to
facilitate and coordinate trade between the nations. In addition to creating a
more liberal trade environment, it also had provisions and charters creating
rules for employment, commodity agreements, restrictive business practices,
international investments, and services. The process of creating a free trade
agreement followed a pattern of discussion, negotiation, and eventual

Today the EU is developing into a political union, trying to bring together the
democratic countries of Europe. It is the biggest trading bloc in the world,
has more people than the United States and exports and imports more goods
than any other country in the world.

ratification. The full process was termed, "rounds." There were eight rounds
in the GATT treaty. Despite numerous difficulties and differences between
the
involved countries, much was accomplished by GATT; although portions were
never fully ratified by all of the countries.
In 1995, during the Uruguay round of GATT negotiations, the World Trade
Organization (WTO) was created. The WTO became the official successor to
the GATT. The WTO is the only international organization dealing with the
global rules of trade between nations. Its main function is to ensure that
trade
flows as smoothly, predictably, and freely as possible. At the center of the
WTO is its multilateral trading system that functions by seeking consensus
between member nations (148 members). The notion of consensus facilitates
cooperation and, potentially, an agreement that is most beneficial to all
involved countries.

TRADE BLOC-EUROPEAN UNION

Europes single most important contact with the world beyond its borders is
through trade. Every day, Europe exports hundreds of millions of euros
worth of goods and imports hundreds of millions more. Europe is the worlds
largest exporter of manufactured goods and services, and is the biggest
export market for more than one hundred countries. Trade is the motor of
Europes prosperity. New technologies, faster communications and more
ecient means of transport have made it possible to produce, buy and sell
goods around the world, underpinning Europes place in the world.

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The EU was originally called the Economic Community (Common Market, or

The Six) after its formation following the Treaty of Rome in 1957. The original
six members were Germany, France, Italy, Belgium, Netherlands, and
Luxembourg.

The 27 Member States of the European Union share a single market, a single
external border and a single trade policy. This gives the European
Commission tremendous leverage when it talks trade with the EUs partners.
It means there is one negotiation, one negotiator the Commission - and at
the end of the process just one agreement instead of 27 dierent sets of
trade rules with each of our trading partners.

The initial aim was to create a single market for goods, services, capital, and
labour by eliminating barriers to trade and promoting free trade between
members. In terms of dealing with non-members, common tariff barriers
were erected against cheap imports, such as those from Japan, whose goods
prices were artificially low because of the undervalued yen.
By 2014, following continuous enlargement, the EU had 28 members. Croatia
is the latest country to join, in July 2013.
Austria
Belgium
Bulgaria
Cyprus
Croatia
Czech Republic
Denmark
Estonia
Finland

Germany
Greece
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands

Norway
Poland
Portugal
Romania
Spain
Slovenia
Slovakia
Sweden
UK

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The Commission also represents the EU Member States in the World Trade
Organization. By speaking with one voice, the EU has the weight both to

France

shape an open global trading system based on fair rules and to ensure that
those rules are respected.
The EU has become the most powerful trading bloc in the world with a GDP
nearly as large as that of the United States.It is also the largest importer of
agricultural products from developing countries, and maintains close links to
its former colonies in the ACP group through trade preferences and aid deals.
The EU has found it difficult to shed its protectionist past based on the idea
of self-sufficiency in agriculture which limits agricultural exports from the
other countries, although it has implemented a major reform of its Common
Agricultural Policy to shift subsides to support the environment.

Standing Up for Fair and Open Trade for Everyone

European countries were amongst the founding members of the modern
international system of trade rules. This system, which has grown over sixty
years into the network of agreements and obligations overseen by the World
Trade Organization, helps to ensure that trade is open, predictable and fair.
The WTO provides a forum in which all of its members have an equal say in
the making of trade rules and in the negotiation of new WTO trade
agreements.
The WTO system has helped to shape and maintain a system of global trade
rules that not only keeps the global economy open for trade, but reflects and
respects the special needs and concerns of developing countries. Maintaining
the WTO system, and ensuring that it continues to adapt to a fast-changing
world, is a central priority for Europes trade policy.

EU TRADE POLICY AND PROCESS

The EU has a common external trade policy, which means that trade policy is
an exclusive competence of the EU and no member state can negotiate its
own international trade agreement.

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Forty years ago, external protection was high in most countries and Europe
was comprised of many trade for-tresses. The founders of the Community
shared a coherent economic policy view, with the Treaty of Rome calling for
an internal market with no obstacles to trade and strong competition, as well
as for multilateral liberalization. This publication retraces the external

The Treaty of Rome called for internal and external liberalization

liberalization efforts, discusses the current trade regime in international

comparison, and sets out the Communitys future trade agenda.
The EUs trade policy is one of its most well-developed and integrated
policies. It evolved along with the common marketwhich provides for the
free movement of goods within the EUto prevent one member state from
importing foreign goods at cheaper prices due to lower tariffs and then reexporting the items to another member with higher tariffs.
The scope of the common trade policy has been extended partially to include
trade in services, the defense of intellectual property rights, and foreign
direct investment. The European Commission and the Council of Ministers
work together to set the common customs tariff, guide export policy, and
decide on
trade protection or retaliation measures where necessary. EU rules allow the
Council to make trade decisions with qualified majority voting, but in practice
the Council tends to employ consensus.

Decision-making on foreign trade policy is largely centralized at

the EU level
Partly by necessity, partly by design, the EUs trade policy has been walking
on two legs since its early days: multilateral liberalisation and regional
integration. The long-standing pursuit of deeper integration and
enlargement, and the involvement in regional preferential agreements
makes the EUs experience unique. Another unique feature is the
institutional set-up. While largely prepared by the Commission, major
decisions are taken by the Council (for trade in goods and part of services).
Some competencies are shared between the Union and the Member States.

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In addition to the size of the club, its The European Commission negotiates
trade agreements with outside countries and trading blocs on behalf of the
Union as a whole.

However, the negotiation and decision making process is not different

between the areas of mixed or exclusive competence. Centralization of most
decisions on foreign trade policy at the EU level is necessary to ensure the
functioning of the internal market. Centralization should, in principle,
strengthen the EUs position in international trade matters. Whether a strong
negotiating position is a good thing for its trading partners depends on the
position the negotiating club is taking, for instance, whether it pursues an
inward or outward looking agenda.

As a result of the Lisbon Treaty, both the Council of Ministers and the
European Parliament must approve all such trade agreements before they
can enter into force.

The process for negotiating and concluding a new international trade

agreement begins with discussions among all three EU institutions and a
Commission impact assessment, including a public consultation on the
content and options for any future trade accord.
Provided there is a general agreement to proceed, the Commission initiates
an informal scoping exercise with the potential partner country or trade bloc
on the range and extent of topics to be considered in the negotiations.
Quality matters: if club members push different views, slow decision
making or paralysis could be the consequence.
Within the Commission, the department that handles EU trade policythe
Directorate General for Trade (DG Trade)leads the negotiations but draws
on expertise from across the Commission. Typically, there are a series of
negotiation rounds; the duration of the negotiations varies but can range
from two to three years or longer. During the course of negotiations, the
Commission is expected to keep both the Council and the Parliament
apprised of its progress, and the Council and the Parliament may take the
opportunity to voice their respective views and concerns.
The Parliament may conduct its own oversight hearings through its
International Trade Committee (INTA). When negotiations reach the final
stage, both parties to the agreement initial the proposed accord. It is then
submitted to the Council and the Parliament for review. If the Council
approves the accord, it authorizes the Commission to formally sign the
agreement.

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After Parliament gives its consent and following ratification in the member
states (if required), the Council adopts the final decision to conclude the

Once the new trade accord is officially signed by both parties, the Council
submits a draft decision to conclude negotiations to the Parliament for its
consent. The Parliament reviews the signed agreement both in the INTA
Committee and in plenary session. Although the Parliament is limited to
voting yes or no to the new accord, it can indicate that it would not
support the agreement should it find fault with any of its provisions, and can
ask the Commission to review or address its concerns. If parts of the trade
agreement fall under member state competence, all EU countries must also
ratify the agreement according to their national ratification procedures.

agreement. It may then be officially published and enter into force.

The Union is a frequent user of non-tariff barriers and of the WTO

dispute settlement mechanism
Non-tariff border measures have traditionally been more prevalent in the
Union and the United States than in Japan or Canada. The textile sector
remains the most protected by non-tariff barriers, while tariffication implied
a
sharp fall in the pervasiveness of such barriers for agricultural products and
in the processed food sector. Concerning anti-dumping and other price
control measures, the Union is a major user, second only to the United
States. In contrast, Japan has hardly used such measures at all. The European
Union changed anti-dumping legislation in 1994, while revising other
provisions such as those on circumvention. The new regulation provides for
fairer price comparisons, stricter injury requirements and for a broader role
of the Community interest test but, even after these changes, proving the
existence of unfair trade practices has remained highly contentious. The
European Union, with the United States, is a frequent user of the World
Trade Organization (WTO) dispute settlement mechanism. While many
disputes could be settled without creating frictions, some have led to serious
tensions, most prominent being the banana case, EU imports of hormonetreated beef and of genetically-modified food.

ADVANTAGES AND DISADVANTAGES OF TRADE BLOCS

There are five major advantages of trade bloc agreements: foreign direct
investment, economies of scale, competition, trade effects, and market
efficiency.
Foreign Direct Investment: An increase in foreign direct investment results
from trade blocs and benefits the economies of participating nations. Larger
markets are created, resulting in lower costs to manufacture products locally.

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Competition: Trade blocs bring manufacturers in numerous countries closer

together, resulting in greater competition. Accordingly, the increased

Economies of Scale: The larger markets created via trading blocs permit
economies of scale. The average cost of production is decreased because
mass production is allowed.

competition promotes greater efficiency within firms.Trade Effects Trade

blocs eliminate tariffs, thus driving the cost of imports down. As a result,
demand changes and consumers make purchases based on the lowest prices,
allowing firms with a competitive advantage in production to thrive.

Market Efficiency: The increased consumption experienced with changes in

demand combines with a greater amount of products being manufactured to
result in an efficient market.
The disadvantages, on the other hand, include: regionalism vs.
multinationalism, loss of sovereignty, concessions, and interdependence.
Regionalism vs. Multinationalism: Trading blocs bear an inherent bias in
favor of their participating countries. For example, NAFTA, a free trade
agreement between the United States, Canada and Mexico, has contributed
to an increased flow of trade among these three countries. Trade among
NAFTA partners has risen to more than 80 percent of Mexican and Canadian
trade and more than a third of U.S. trade, according to a 2009 report by the
Council on Foreign Relations.
However, regional economies by establishing tariffs and quotas that protect
intra-regional trade from outside forces, according to the University of
California Atlas of Global Inequality. Rather than pursuing a global trading
regime within the World Trade Organization, which includes the majority of
the world's countries, regional trade bloc countries contribute to regionalism
rather than global integration.

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Concessions: No country wants to let foreign firms gain domestic market

share at the expense of local companies without getting something in return.
Any country that wants to join a trading bloc must be prepared to make
concessions. For example, in trading blocs that involve developed and

Loss of Sovereignty: A trading bloc, particularly when it is coupled with a

political union, is likely to lead to at least partial loss of sovereignty for its
participants. For example, the European Union, started as a trading bloc in
1957 by the Treaty of Rome, has transformed itself into a far-reaching
political organization that deals not only with trade matters, but also with
human rights, consumer protection, greenhouse gas emissions and other
issues only marginally related to trade.

developing countries, such as bilateral agreements between the U.S. or the

EU and relatively poor Asian, Latin American or African countries, the latter
may have to allow multinational corporations to enter their home markets,
making some local firms uncompetitive.

Interdependence: Because trading blocs increase trade among participating

countries, the countries become increasingly dependent on each other. A
disruption of trade within a trading bloc as a result of a natural disaster,
conflict or revolution may have severe consequences for the economies of all
participating countries.
Understanding how trade is conducted between countries is an important
aspect of international economics. Globalization is a process of deeper
international economic integration that involves a rapid expansion of
international trade in goods and services between countries, and a huge
increase in the value of transfers of financial capital across national
boundaries, including the expansion of foreign direct investment (FDI) by
transnational companies.
The globalization process in the last decades has accelerated, due in a large
part to rapid developments in information and communications technology,
resulting in falling transport cost and faster information flows.

EU POSITION IN WORLD TRADE

The EU is in prime position when it comes to global trade. The openness of
our trade regime has meant that the EU is the biggest player on the global
trading
scene and remains a good region to do business with. The EU has achieved a
strong position by acting together with one voice on the global stage, rather
than with 28 separate trade strategies.

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Workers often deliver their services across different countries within a

multinational or by specific service contracts. As investors thrive in a stable,

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Europe has become deeply integrated into global markets. Thanks to the
ease of modern transport and communications, it is now easier to produce,
buy and sell goods around the world which gives European companies of
every size the potential to trade outside Europe.

sound and predictable environment, they are looking for investment barriers
to be dismantled and investments to be protected.

Every day, Europe exports hundreds of millions of euros worth of goods and
imports hundreds of millions more. Europe is the world's largest exporter of
manufactured goods and services, and is itself the biggest export market for
around 80 countries. Together, the European Union's 28 members account
for 16% of world imports and exports.

Trade in goods and commercial services 2013

Why need a trade policy?

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The EU is the largest economy in

the world, the biggest exporter

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The European Unions trade

policy must be seen in the
context of two of todays
realities. The first is the
importance of the Union itself as
a major world player. The second
is the way globalization is
changing
the
international
environment.

and importer, leading investor and recipient of foreign investment and

biggest aid donor. With just 7 % of the worlds population, it accounts for
over one quarter of the worlds wealth as measured by gross domestic
product (GDP) the total value of goods and services produced.

The single market with the free movement of goods, services, people and
capital within the EUs borders is the cornerstone of the Unions ability to
create jobs by trading with other countries and regions. The EU, not national
governments, is responsible for this market. It also manages trade relations
with the wider world.
Speaking with a single voice, the EU carries considerably more weight in
international trade negotiations than any of its individual members would. It
is an active economic and political player with growing regional and global
interests and responsibilities.

Why does it matter?

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The development of trade - if properly managed - is an opportunity for

economic growth. So EU trade policy seeks to create growth and jobs by
increasing the opportunities for trade and investment with the rest of the
world.
By working together, Europe has the weight to shape an open global
trading system based on fair rules and to ensure that those rules are
respected.
The EUs success is inextricably bound up with the success of our trading
partners, both in the developed and developing world. For this reason,
sustainable development is central to trade policy.

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Facts and figures on the EUs position in global markets

The EU is the largest economy in the world. Although growth is

projected to be slow, the EU remains the largest economy in the world
with a GDP per head of 25 000 for its 500 million consumers.
The EU is the world's largest trading block. The EU is the worlds largest
trader of manufactured goods and services.
The EU ranks first in both inbound and outbound international
investments
The EU is the top trading partner for 80 countries. By comparison the US
is the top trading partner for a little over 20 countries.
The EU is the most open to developing countries. Fuels excluded, the EU
imports more from developing countries than the USA, Canada, Japan
and China put together.

The average applied tariff for goods imported into the EU is very low.
More than 70% of imports enter the EU at zero or reduced tariffs.
The EUs services markets are highly open and we have arguably the
most open investment regime in the world.
The EU has not reacted to the crisis by closing markets. However some
the EUs trading partners have not been as restrained as the EU has

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The EU benefits from being one of the most open economies in

the world and remains committed to free trade.

highlighted in the Trade and Investment Barriers Report and the report
on protectionism.
In fact the EU has retained its capacity to conclude and implement trade
agreements. The recent Free Trade Agreements with South Korea and
with Singapore are examples of this and the EU has an ambitious agenda
of trade agreements in the pipeline.

Globalization
Today, products are no longer made in one place from start to finish. Instead,
they are assembled over a long series of individual steps often located in
different parts of the world. The description Made in one single country is
now the exception rather than the rule. This means that their needs to be a
more sophisticated approach to exports and imports than seeing finished
goods as simply entering or leaving a country.

Today, products like cars are no longer made in one place from start to
finish.
The growth of other economic powerhouses, such as China, India and Brazil,
intensifies competition in terms of the price and quality of goods they
produce, and, perhaps more importantly, for access to energy and raw
materials.

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Chinese import tariffs fell from 19.6 % in 1996 to 4.2 % in 2013. Over the
same period, the decrease in India was 20.1 % to 8.2 % and in Brazil 13.8 % to
7.6 %, although other, less visible, barriers to EU exports remain.

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At the same time, these countries are creating a new group of affluent
consumers and their economies are more open than they were 10 to 15
years ago.

The Major World Trading Powers

What are the characteristics of the EU as a trading bloc?

The EU is the worlds largest trading bloc. It is a union of 27 member states
creating a single market of over 500 million consumers.
At least three of the EUs member states are major world economies
Germany and France are the worlds fourth and fifth largest economies
respectively, while the United Kingdom is ranked either sixth or seventh on
most tables compiled by organizations such as the International Monetary
Fund (IMF) and the World Bank.

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The EUs member states share a single market, a single external border, and
a single trade policy. This means they can trade freely with one another
without paying customs duties or taxes. It also means that in the global
market place, they act as one actor with one voice.

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Note that some European countries such as Switzerland and Norway are not
members of the EU, while others such as Iceland and Turkey are candidate
countries currently in the process of negotiations for membership.

The EU is the worlds largest exporter of manufactured goods and services,

and the biggest export market for more than 100 countries. It represents
almost one-fifth of global trade.
The EU has harnessed its international economic position to shape trading
rules and regulations, by setting standards for goods and services that are
often followed by the rest of the world.
The Euro 5 and Euro 6 standards limiting pollutant emissions for light road
vehicles is one such example, as is the controversial carbon emissions tax for
airlines flying into or out of the EU.

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Shares in the world market for exports, 2013 (% share of world

exports):

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Shares in the world market for imports, 2009 (% share of world

imports):

Why did the EU become a trading bloc?

Given the clout they have in the global market place, large countries have a
natural advantage by default when it comes to trade, especially during trade
negotiations. To project a more powerful presence on the world stage,
European countries have banded together as a bloc.
As a single, influential actor, the EU is better placed to shape the rules and
norms in the global trading system and influence the standards and
regulations.

What is the EUs trade policy?

The EUs trade policy has four main themes:
1. Creating a global system for fair and open trade, to prevent international
trade distortions through subsidies or dumping;
2. Creating opportunities for European companies and their workers by
increasing opportunities to trade with the rest of the world;
3. Making sure others play by international trade rules;
4. Ensuring trade is a force for sustainable development, in actively helping
countries and people around the world to use trade as a tool for
development.
5. The EU also uses its trade policy to promote other goals relating to the

environment in the fight against climate change, working conditions, and

health and safety standards for all products.

How does the EU conduct external trade negotiations?

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The EU speaks with one voice in international trade negotiations. Instead of

27 different sets of trade rules, there is one negotiation, one negotiator, and
one agreement.

The European Commission, the EUs executive body, represents the interests
of all member states in trade negotiations with other countries, with other
regional blocs, and in the World Trade Organization (WTO). The Commission
requests authorization to negotiate a trade agreement from the Council of
Ministers.
This authorization provides the guidelines and objectives to be achieved in
the negotiation. Once negotiated, the Council and the European Parliament
formally agree the outcome. The agreement enters into force once it is fully
ratified across the member states.

What about the EUs protectionist practices?

The EU has traditionally been protective of its agriculture sector, limiting
agricultural imports from other countries because it wanted to be selfsufficient in agriculture. This protectionism was part of the Common
Agricultural Policy (CAP), which has now been reformed. The CAP was
criticized for giving European farmers unfair advantages over their
counterparts in developing countries. The EU is now opening its markets to
agricultural products from least developed countries and giving them
expanded trade preferences, such as in extending duty and quota free access
to all products originating from these countries, except for arms and
ammunition.

2. The EU and Free Trade Agreements

Why do countries pursue free trade agreements (FTAs)?
FTAs are a popular phenomenonglobally, there are more than 200 FTAs
covering a large part of global trade. Countries pursue them primarily
because they reduce barriers to trade and enhance the cost-competitiveness
of exports.

opening new markets for goods and services

increasing investment opportunities;

making trade cheaper (by eliminating customs duties);

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FTAs are designed to create opportunities by:

making trade faster (by facilitating goods transit through customs and
setting common rules on technical and sanitary standards);

making the policy environment more predictable (by taking joint

commitments on areas that affect trade).

Are bilateral and sub-regional free trade agreements stumbling

blocks in the quest for multilateral free trade in the WTO?
1

Bilateral and sub-regional FTAs build on what can be achieved in the WTO.
They can go further and faster in promoting openness and integration, by
tackling issues that are not ready to be discussed in a multilateral forum.
These issues might include investment, public procurement, competition,
intellectual property rights, and other regulatory issues.
At the same time, these FTAs can challenge the multilateral trading system.
They disadvantage countries with weaker economies, which have less
negotiating power than they might have in the WTO. They also complicate
trade, meaning that flows of goods dont necessarily reflect who can produce
things most cheaply.
The EU has argued that to have a positive impact, FTAs must be
comprehensive in scope, provide for the liberalization of substantially all
trade, and go beyond the WTOs capabilities. Future FTAs should serve as a
stepping stone, not a stumbling block, for multilateral trade liberalization.

What is the EUs policy on free trade agreements?

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In 2006, the EU announced its Global Europe Policya new trade agenda
aimed at creating jobs and growth in Europe, as well as increasing its external
competitiveness. The action plan for increasing competitiveness has two
pillars: an internal focus on adopting sound policies to ensure the EU is open
to international trade and investments, and an external focus on opening
growing foreign markets for the benefit of European businesses.

As part of this external focus, the EU decided to pursue a new generation of

comprehensive and ambitious FTAs. These FTAs aim for a far-reaching
liberalization of services and investment.
They must also go beyond the scope of multilateral trade agreements to
address issues that hamper trade and access to markets, such as non-tariff
barriers in areas like intellectual property rights, public procurements,
regulatory barriers, and unfair competition.
1

Bilateral FTA = an FTA signed between two countries.

Sub-regional FTA = an FTA signed between members of a smaller region such as Southeast Asia. One
key example is the Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA), a trade bloc
agreement signed in 1992 by the ASEAN member countries, supporting local manufacturing.

These new-generation FTAs are carefully selected and prioritized based on

their economic value to the EU. There are two main criteria for choosing new
FTA partners:
1. market potential (economic size and growth)
2. Current level of protection against EU export interests.
Based on these criteria, FTAs with ASEAN, South Korea, and Mercosur are
priorities because they combine high levels of protection with large market
potential. The EU is also particularly interested in FTAs with Russia, India, the
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Gulf Cooperation Council and China.

Why has the EU altered its trade policy?

The EU was previously focused on multilateral trade negotiations, but shifted
the focus of its trade policy towards bilateral FTAs for a number of reasons.

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Other countries, such as the USA, began to pursue bilateral and regional
FTAs. If the EU did not respond in like, it would be left in a relatively less
competitive position by missing out on the advantages conferred by a free
trade agreement.

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Negotiations had stalled in the WTOs Doha agenda and the EU had already
been forced to drop some important issues that it wanted the agenda to
cover: investment, competition, and transparency in government
procurement.

Asias strong economic growth and the growing number of FTAs in the region
meant that the EU needed to strengthen its presence in Asian markets. Until
its FTA with South Korea, the EU was the only leading power not to have
FTAs in Asia.

SUMMARY OF EU POLICY REVIEW DURING 2013

Trade Policy Reviews are an exercise, mandated in the WTO agreements, in
which member countries' trade and related policies are examined and
evaluated at regular intervals. Significant developments that may have an
impact on the global trading system are also monitored. All WTO members
are subject to review, with the frequency of review depending on the
country's size.
1. The EU, as a single entity, remains the largest trading bloc in the world and
imports and exports continued to increase in 2011-12, although its share of
world trade is declining due to faster growth in other countries. The EU is
also an open economy with extra-EU trade in goods and services
representing over 33% of GDP in 2011. Its rules and procedures are also
transparent and, despite the wide diversity among its member States in
terms of their economies, legal systems, and public institutions, it is a highly
integrated economic unit with a single trade policy and common legislation
in most trade-related areas.

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Among the causes of the crises were lack of appropriate fiscal reforms in a
context of easy access to credit and low borrowing costs relative to
economic growth for governments and the private sector which resulted in
unsustainable levels of private and/or public sector debt and some banks'
exposure to such debts. A related factor that exacerbated the crises was a
decline in competitiveness in some member States as their unit labour cost
and real effective exchange rates rose relatively quickly.

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2. The focus of EU policy over the past two years has been on the financial
crises and there have been relatively few changes to trade policies, laws, or
institutions in other areas. However, the fact that there has been no retreat
into protectionism is, in itself, a positive sign.

3. At both the EU and member State levels, steps are being taken to reduce
public deficits and improve economic governance. The full implementation
of those measures is expected to support economic recovery in 2013 and
2014.
4. In terms of customs procedures, the EU has been steadily moving towards
an EU-wide system of electronic procedures with centralized clearance, with
an ultimate deadline of 2020. Single authorizations for simplified procedures
became more widely used during the review period. For goods coming from
outside the EU, it is now possible to complete customs formalities at the port
of arrival when the destination is in another member State while an "Entry
Summary Declaration" may now be lodged at the destination instead of at
the point of first entry. The first project of the Single Window is expected to
be in place in 2014.
5. There have not been any major changes to tariffs or market access
generally in the EU. Although there are a large number of duty-free tariff
lines and the average MFN tariff is 6.5%, some sectors, particularly
agriculture, remain relatively well protected, sometimes by complex or
seasonal tariffs. However, relatively few countries trade with the EU on an
MFN basis as the EU has a considerable number of trade agreements with
other countries as well as a GSP and GSP+, and EBA schemes.

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7. There is little official information available at the EU level on state-owned

or controlled enterprises although some sources indicate that there are

23

6. Different member States charge different rates of value added tax and
excise duties while corporate and personal taxation systems and rates of tax
vary widely from one member State to another. The complexity of the
taxation system, including collection and payment, for example for VAT, can
result in additional compliance costs for economic operators while the
application of reduced VAT rates for some products results in significant
revenue transfers to some sectors that are typically not traded. If all reduced
rates were removed, the standard rate of VAT could in certain member
States theoretically be dropped by up to 7.5% without any impact on overall
revenue.

several hundred among the member States. The total number may have
increased over the past few years as a number of banks have been taken
over by some member States in response to the financial crises. Of course,
the definition of a "state-owned or controlled" enterprise is not the same as
a "state-trading enterprise" in the sense of Article XVII of GATT and the
Understanding on the Interpretation of Article XVII. However, many of these
state-owned enterprises in the EU member States are commercial entities
which have effects on trade and investment.
8. Although there are extensive data for the EU on procurement above the
thresholds set out in EU law and the Government Procurement Agreement, a
considerable proportion of public procurement takes place below these
thresholds. It is not clear how procurement takes place below the threshold
because of differences in reporting among member States, including
procurement by sub-national authorities and state-owned enterprises. This
problem is not peculiar of the EU, but public procurement is a large portion
of GDP in the EU and some member States have federal structures with a
significant proportion of procurement taking place at sub-federal level.
9. To a large extent, SPS measures are harmonized at EU level as is EU
legislation on technical requirements. However, there remain significant
differences in some areas among Member states. As noted by the
Commission: "Technical obstacles to the free movement of goods within the
EU are still widespread." During the review period, the EU had an agreement
on conformity assessment and acceptance enter into force, which not only
aligns legislation on technical requirement but also foresees the possibility of
mutual market access of specific products that are lawfully placed on
partners' markets.

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Among the most significant developments during the period under review is
the creation of a European patent with unitary effect. It will allow future

24

10. In the area of intellectual property rights (IPR), the EU is continuing a

comprehensive process of reviewing and developing the existing body of
legislation in order to move towards a coherent and balanced overall
framework. For that purpose, the European Commission's "blueprint" of May
2011 to boost creativity and innovation in the EU proposed a comprehensive
strategy for the modernization of the IPR regime.

right holders to request the grant of a patent title that provides uniform
protection and is automatically valid in the 25 participating member States.
In parallel, a unified patent litigation system will be put in place.
The EU's trademark system and copyright regime are also undergoing a
major review. As part of this process, the Commission has submitted a
number of legislative proposals in the field of copyright, including with
respect to the collective management and multi-territorial licensing of
copyright, and is reviewing the legislative framework in general. Another
important step towards a more coherent regime has been made in the field
of geographical indications: a unified framework has been set up to promote
quality agricultural products and foodstuffs, including through
denominations of origin and geographical indications. That said, the
establishment of an equivalent legal framework for the protection of
geographical indications for non-agricultural products continues to be under
examination.
Finally, the imminent adoption of the revised customs regulation aims at
strengthening the enforcement of IPRs at the EU's external borders. For this
purpose, its scope will be extended, customs procedures be simplified, and
further clarity will be provided as regards Customs action in relation to goods
transiting the EU. Whether and what type of update of the existing legal
framework for the civil enforcement of IPRs within the EU's internal market
is needed continues to be subject of an extensive consultation process.

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12. Overfishing remains a serious problem for the EU as total allowable

catches have regularly exceeded sustainable limits. However, for some time
now the EU has been increasing the emphasis on long-term planning and
more reform of the Common Fisheries Policy should take place this year.

25

11. During the review period there was no major change in agricultural policy
as implementation of the last set of reforms continued. More reform is
expected to be decided in 2013 for implementation in 2014. As a result of
past reforms and higher international prices for agricultural commodities,
the total level of support to the agriculture sector has declined over the past
few years and for most products there is now little difference between EU
and international prices. However, the EU's reforms have not affected
market access conditions and tariffs remain higher than on non-agricultural
products and in some cases these tariffs are complex and/or seasonal.

13. On financial services, the policy objectives for reform have been fourfold:
the first is the creation of a banking union through a single supervisory
mechanism, a European deposit guarantee system, and a European
resolution
framework for banks in cases of bankruptcy; the second objective is the
reform of financial institutions and markets to improve stability through the
establishment of European supervisory authorities, higher capital
requirements for banks and insurance companies along with specific
regulations on credit rating agencies, auditors, securities markets and
derivatives, and speculative trading practices that may lead to excessive
market volatility; the third objective is the reinforcement of accountability in
the financial system towards consumers; and the fourth is the institution of a
financial services tax for some member States.
These reforms have maintained third party access and developed new
regulatory instruments in that regard such as the notion of equivalence.
14. For environmental services the most notable trade development is the
ongoing reform of the legislative framework for concessions in order to
ensure more transparency and more competition.

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16. The EU is a highly integrated economic unit with common policies and
laws for many trade-related areas. As noted, in many areas integration is

26

15. On air transport, the rules for the single aviation market are going
through a "fitness check" process while other reforms on ground handling,
slots, and noise are being considered and the common external aviation
policy continues to be extended, particularly through the generalization of
the "Community clause". On maritime transport the main developments
over the review period relate to competition issues with ongoing revision of
state aids and anti-trust guidelines. The third energy package, which has
implications for pipeline transport, contains reinforced unbundling and third
party access provisions; it entered into force in all its components starting in
2011 and finishing in 2013.

increasing including foreign investment policy which, as provided for in the

Treaty on the Functioning of the European Union (TFEU), is now the exclusive
competence of the EU. While the EU is in the processing of developing and
implementing its investment policy, member States may maintain in force
their investment agreements with third countries that were signed before
the entry into force of the TFEU.
17. However, in many areas of EU competence, the member States are
responsible for implementing the law and in other areas the member
States have competence or share it with the EU. These areas include:
monetary policy for countries outside the Euro-zone; corporate and personal
taxation; and (at least to some extent) technical regulations, fiscal policy,
government procurement, value added tax and excise duties. In addition, the
number and importance of state-owned enterprises varies considerably from
one member State to another. Overall, therefore, there are several reasons
why future trade policy reviews of the EU should pay closer attention to
trade-related practices in the member States, not least because they are
WTO Members in their own right.

3. The World Trade Organization (WTO) and the EU

What does the WTO do?
The WTO is an international organization based in Geneva with more than
150 members. Its purpose is to promote free trade by encouraging countries
to eliminate tariffs and other barriers to trade; as such, it is closely
associated with economic globalization.
The WTO has four main roles:
1. Oversee the rules of international trade.
2. Ensure the rules of international trade are applied.
3. Settle trade disputes between countries.

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It primarily covers trade in manufactured goods and services (like

telecommunications and banking), and other issues like intellectual property

27

4. Organize trade negotiations.

rights. However, most developing countries in the WTO oppose the inclusion
of these issues.

Why does the EU participate in the WTO?

The WTO creates conditions such as predictability and stability that are
essential for global economic growth. Through the WTO, the EU seeks to:

ensure new markets for European countries;

observe the rules of international trade and make sure others also play
by them;
Promote sustainable development in trade.

How is the EU represented in the WTO?

As the worlds largest trading bloc, the EU is a key player in the WTO along
with other large economies like the USA and Japan. It is represented at the
WTO by the EUs Commissioner for Trade, and by the European Commission
(the executive body of the EU).
The Commissioner for Trade sits in the WTOs Ministerial Conference, which
is the WTOs highest decision-making body. Underneath the Conference are
the General Council and a number of other bodies. The European
Commission represents the EU in these forums.

Becoming a member of the WTO requires compliance with its rules and

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How does a country join the WTO?

28

The European Commission coordinates with EU member states through the

Trade Policy Committee and is given guidelines for negotiations by member
states through the EUs Council of Ministers. The EUs Commissioner for
Trade then negotiates on behalf of its 27 member states in the WTO. Once
an agreement has been negotiated at the WTO, the European Commission
can only sign this agreement on the EUs behalf once it has received
authorization from the Council of Ministers and the European Parliament.

negotiations with the existing member states.

When an applicant country submits its request, the WTO will form a working
party to determine which of the applicants economic rules and regulations
need to be brought into line with the WTOs requirements. The applicant
country then needs to negotiate bilaterally with each member state to agree
on the specific terms of membership. These negotiations are not always
quickChina joined the WTO in 2001 after 15 years of negotiations.
In Chinas case, membership of the WTO promised to reduce discriminatory
measures against low-cost Chinese products, attract foreign direct
investment, and enhance Chinas international status. Bilateral negotiations
with the EU and the US were the key to Chinas success in joining the WTO.
Negotiations with the EU took a particularly long time. The EU wanted to
strengthen its economic presence in Asia, to maintain its leading role in the
world economy. It was also concerned about the gains it was securing,
relative to other major players like the USA and Japan.

The next decade of EU trade policy: confronting global

challenges?
The EU Council issued its Conclusions on 16 March, stating that the Council is
committed to:
Promoting a multilateral agenda for trade and development (e.g. pursuing
the Doha Round and the LDC package);

Promoting market access for developing countries (e.g. the Generalised

System of Preferences (GSP), Economic Partnership Agreements (EPAs));

Working towards sustainable development through a green economy
(e.g. liberalization of green goods and services, financing and publicprivate
partnerships); and Developing more focused, targeted and coordinated Aid

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General views on the EC Communication on Trade, Growth and

Development; Trade-related instruments to support trade, investment and
growth; Other instruments to support trade, investment and growth; and
Regional views on the EC Communication.

29

for Trade (AfT).

A series of major concerns for EU

There is a major concern that the EU is moving towards protectionism
There is no clear strategy behind the EUs approach towards
differentiation, which is currently applied largely on an ad hoc basis

The Communication neglects the importance of non-trade policies for

developing country growth and fails in its duty to promote Policy Coherence
for Development (PCD)
The EU is taking the wrong approach to the role of trade in tackling global
problems
Trade policy has little meaning without being embedded in and linked to
policies for growth.

CONCLUSION

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30

Overall, the Unions track record in the international trade and investment
area is encouraging, but the Union itself could, for instance, still gain
considerably from freeing up trade in agriculture and textiles. Globalization
also implies that cross-jurisdictional spillovers will become more serious. The
World Trade Organization is tackling many trade-related issues for which the
Union has found practical solutions and the EUs experience shows that deep
integration is possible. However, building a global club, whose governance
structure is accepted by all participants, will probably be a long process as
economic structures, laws and institutions are diverse and free-riding a
temptation.
Walking on more than one leg might also be fruitful in these areas for
finding mutually acceptable solutions and for providing domino effects to
free up trade elsewhere

REFERENCES

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http://ec.europa.eu/trade/policy/eu-position-in-world-trade/
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blocs.
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20,2014
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7. BBC News. "Profile: World Trade Organization." BBC News,
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