Thursday, May 17, 2012

Proposed EU trade policy - Does it hurt the WTO?

Iana Dreyer's recent paper on EU trade policy titled "Trade Policy in the EU's neighbourhood : Way Forward for a Deep and comprehensive Free Trade Agreements" calls for an aggressive push towards Free Trade Agreements by the EU with its neighbours. This study assesses the trade policy of the European Union (EU) in its neighbourhood and formulates proposals for the negotiation of “Deep and Comprehensive Free Trade Agreements” (DCFTAs) that the EU is currently engaged in, or offering to, Ukraine, Moldova, Georgia, Armenia, Jordan, Egypt, Tunisia and Morocco, as part of the European Neighbourhood Policy (ENP). The paper is an extensive study of existing EU policy as well as the course EU should take with its new partners.

Proposing a cautious approach to new DCFTAs the paper concludes:
"In the DCFTAs that the EU proposes, it should instead suffice to ask their trade partners to comply with EU standards to be able to sell in the EU markets and ask these partners to allow the EU to export its products according to its own standards. The EU can directly help exporters from these economies comply with EU standards.Changing the entire domestic law of DCFTA partners to fit the EU’s rule book is not necessary and is politically and economically unhelpful. Some partners are not only very poor but also very small, and hence not of major commercial interest to EU business. It is thus perplexing to see the EU spending bureaucratic energy and putting its political capital at risk in its neighbourhood by imposing a costly rule book with its DCFTA efforts with Georgia, Armenia or Moldova. 

The EU should focus its efforts on economies that need trade liberalising reforms and a better environment for investors. In the context of its DCFTAs, Egypt is the greatest priority, though the EU cannot expect an economy like Egypt’s to readily and easily adopt EU-style legislation. The EU should rather attempt to offer an attractive FTA, similar to those it has been signing with other emerging markets in recent years, with significant market openings in goods and services on both sides. A DCFTA between the EU and Tunisia, Morocco and Jordan is a good means to lock in their recent domestic economic reforms, as long as they are not overburdened by regulatory approximation with the EU.
A final point is on political conditionality. While it is understandable that the EU conditions the signing of a DCFTA on the partner country signing up to democratic principles, the EU should deal with the DCFTA as a comprehensive economic and commercial package and not subject individual items of the DCFTA to a conditionality that is not related to trade and investment."
I am not an expert on trade policy nor on EU trade dynamics. I found this paper highly informative. What implications does this approach have for the WTO? The trend of regionalism as against multilateralism is a hotly debated topic and there is abundance of scholarly literature on PTAs and its impact on multilateral trade rules. Does the approach presented have a negative bearing for the WTO or are they just building blocks? Are WTO rules not being able to address the issues the DCFTA seek to address? 

A reference in this paper to a study titled "Beyond the WTO? An anatomy of EU and US preferential trade agreements" by Henrik Horn, Petros C.Mavroidis and Andre Sapir made interesting reading. They conclude by analysing the obligations under the EUs and US PTAs vis a vis WTO obligations and tend to suggest that the WTO plus obligations contained in the PTAs may be breeding concern about the unfairness in trade relations since the same obligations could not be included in the WTO multilateral negotiations due to strong opposition by the developing countries.It would be interesting to see Iana Dreyer's paper debated around the issues of its impact on the multilateral trading system and on WTO's relevance and efficacy.

No comments: