Rethinking EU free-trade strategies

Disappointment with the Doha round of global trade talks has prompted the EU to focus instead on bilateral trade deals.

The European Union’s free trade agreement with South Korea, which is to enter into force on 1 July, is not only the first to be concluded in many years – it is also the first of a new generation. 

The European Commission is currently, on behalf of the EU, negotiating bilateral trade agreements with Canada, India, Malaysia, Singapore and Ukraine, as well as with Mercosur, the trade bloc comprising Argentina, Brazil, Paraguay and Uruguay.

To some extent, these negotiations all build on the EU’s Global Europe strategy of 2006, which brought to an end seven years of focus on the Doha round of global trade talks. During that period, new bilateral negotiations were seen as a distraction from, even a disincentive to, a more ambitious global trade system. But the EU’s disappointment with the Doha round – particularly when investment and government procurement were eliminated from the agenda, and when the United States began pursuing bilateral trade agreements – prompted a reassessment and led to the 2006 strategy, under which the EU began a string of new negotiations of bilateral deals.

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These negotiations also break the mould of the EU’s previous approach to trade deals, which had generally been reached with the EU’s neighbours in central and eastern Europe, and the Mediterranean, with former European colonies in Africa, the Caribbean and the Pacific (see Page 18), and with emerging economies such as Chile, Mexico and South Africa.

Good commercial sense

As a highly developed and competitive economy, South Korea falls completely outside these categories, as does Canada. While neither is among the EU’s top five trading partners, they are important economies, and concluding FTAs with them makes good commercial sense. The Korea deal has also induced Japan to consider the possibility of a trade agreement with the EU, prompted by fears that some of the EU’s existing trade with Japan could be diverted to South Korea.

Critics of the EU’s current pursuit of bilateral deals point out that China, Japan and the US are all absent from the list of countries with which the EU is negotiating and that this absence is primarily motivated by fears of competition.

“Europe needs to get back to the basics on bilaterals and devise a new strategy to go after the big economies,” says Fredrik Erixon, the director of the European Centre for International Political Economy (ECIPE), a Brussels-based think-tank. “Only the big countries can offer the big economic effects,” he says.

Undermining multilateralism

But Stephen Woolcock, the head of the international trade policy unit at the London School of Economics and Political Science, believes that bilateral agreements between the major trading countries

would “undermine multilateralism”. He points out that there are things that can be done only at a multilateral level, for example disciplining EU agricultural or fishing subsidies. The advantage of bilateral trade deals is that they can produce progress on matters that have not been resolved multilaterally, for example on investment or procurement. “Even if you get only a bit of transparency in government procurement [through an FTA], it gives the EU something to work with,” Woolcock says.

Pressure to begin negotiations with these three economies is rising because trade diplomats recognise that the existing bilateral mechanisms to address trade issues with China and the US are insufficient – and are even “broken”, in the words of one official. Japan has high non-tariff barriers, including onerous testing requirements which shield core sectors of its economy, such as automotive and electronics, from outside competition.

A public consultation conducted by the European Commission last year showed that most respondents were in favour of starting negotiations on a trade agreement with Japan – but that they also wanted Japan to demonstrate its readiness to remove non-tariff barriers as a precondition.