Trade policy-making in the EU
Andean Community
Vice Ministers of Trade
Regional Policy Dialogue
by Pierre DEFRAIGNE
Honorary Director General at the European Commission
Director of Eur-Ifri
Lima, April 23-24, 2007
Introduction
Just a short reminder of what EU is about.
2
Why the EU ?
The EU allows Europe to remain a
master of its own destiny in an era of
globalization
where size matters more,

where the world economy is shifting
towards a new international division of
labour,

where the new strategic balance of power
is tilting towards Asia ,

3
MAP OF EU 27
4
The European Union today
is a coalition

of 27 countries

home to 493 million

securing 30,30% of world GDP

and speaking 23 different languages
but determined to achieve « Unity through Diversity » on the basis of
democracy and of shared values encompassing individual freedom and
social justice
5
Population
%
8
% share of EU in world population
million inhabitants
600
7
525
6
Single European Act
(1986)
5
Amsertam
(1997)
Maastricht
(1992)
450
Nice
(2001)
375
4
300
Rome Treaty
(1957)
3
225
EC6
EC9
EC12
EU15
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
EC10
Gross Domestic Product
%
35
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
0
1964
0
1963
75
1962
1
1961
150
1960
2
EU25
% share of EU in world GDP
EU27
Billion current US$
14
30
12
25
10
Amsertam
(1997)
Nice
(2001
Maastricht
(1992)
20
8
15
6
Single European Act
(1986)
10
4
Rome
Treaty
EC6
EC9
EC10
EC12
Source: European Commission (Trade A2), Chelem DataBase
EU15
EU25
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
1964
1963
0
1962
0
1961
2
1960
5
EU27
6
Most of the European continent
is now organised within the EU
With its own institutions


partly federal
partly intergovernmental
Issuing its own legislation which takes precedence over national ones
Deciding through ‘qualified majority voting’ for most economic matters and
through unanimity in foreign affairs and in internal affairs (i.e. immigration,
police, civil law) to the extent they belong to EU sphere of competences
Sharing a Single Market without internal border controls and passport-free for
the EU 27
Sharing a common currency for the EMU-13 (eurozone)
Carrying out key flanking policies aiming at sustainable and equitable
development
Playing a growing role in regional and world affairs
7
The defining choices
•
•
the route
the institutions
8
(1) The Community way: the
economy
Two routes lead towards regional integration
The ‘high politics’ route through diplomacy, defence and currency; in
the aftermath of World War Two, that route was blocked for Europe because
its security mainly rested then on Nato – see the failure of the European
Defence Community in 1954;
The ‘functional route’ through market integration : as economic
interdependence increases among partners, further steps are taken towards
a single market with a common currency, and political integration takes place
gradually;
The European Economic Community route proved the right one: from
EEC-6 in 1957, it lead to EU-27 in 2007!
(2) The Monnet method: the
institutions
In Monnet’s vision, institutions mattered : leadership makes
breakthroughs, but institutions make them irreversible ;
irreversibility is the key to the commitment of the business to
develop EU-wide strategies
The European Commission the supranational Executive, is exclusively
focused on the ‘common good’ of the European Union as such; it initiates
proposals and carries out policies;
The Council, made up of Member state Ministers representing national
interests decides on policies, mainly through qualified majority voting in
areas of EU competence;
The Parliament, directly elected across the whole Union by its citizens
and organized along political party lines, co-decides the EU legislation,
the budget and controls the Commission ;
The Court of Justice exerts all the prerogatives of a Constitutional Court
and of any jurisdictional nature on EU matters
10
How does the EU move forward?
1.
The dynamics of economic integration acts as the driving force:
the bicycle theory
2.
External challenges and pressures from the outside have proved
sometimes divisive (Iraq war), but more often helpful: the Cold
War, the Suez crisis (1956), the collapse of the Bretton Woods
system (1971) the fall of Berlin Wall (1989), 9/11, immigration,
globalization, climate change
3.
EU integration has always proceeded through crisis solving: initial
disagreements have eventually lead to dynamic compromises
such as de Gaulle's empty chair in the 60’s, UK financial rebate in
the 80’s; the constitutional crisis maybe provides us with a new
opportunity
11
4. Three defining parallelisms
• between integration inside and liberalization outside
• between enlargement and deepening
• between economic integration and political cohesion
12
More about economic integration
The 4 steps of EU integration
13
Step one
Customs Union (1958-1968)



Getting rid of « at the border » obstacles i.e. tariffs and
quotas between member countries
Building up a common external tariff (100% harmonized)
whose revenues accrue to the EU
Imported and domestic goods move freely across borders
within the EU
14
Step two
Single Market without borders (1958-1992)


Extending free movement of goods to factors (capital and labour) and
services; right of establishment for business across the EU
Doing away with internal border controls (1992) by coping with “behind the
border” obstacles through a new Treaty (Single Act 1987) which extended
the QMV (Qualified Majority Voting) on:
 Norms and standards
 Technical Regulations
 Taxation
 Government aids
through three approaches
 either abolition or banning: all imports restrictions, distorting national
aids
 or harmonization or mutual recognition: health, environment, industrial
standards, food safety, equivalence of academic degrees…
 or competition among rules (unanimity) in the social and taxation field
(the Achille´s heel of EU social model)
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Step three
The Economic Union (gradually from 1958
onwards)

Common Policies centralized at EU level (EU exclusive competences)
 commercial policy (a single voice in trade negotiations)
 competition policy (governments and firms)
 common agricultural an fisheries policy (substituting for national ones with EU
funding)
 regional and cohesion policy aiming at real convergence (GDP/head) among
regions and countries, funded by EU budget and by the EIB
 EU budget blocked at a ceiling of 1% of EU GDP

Common actions: either EU regulations or EU interventions with EU funding
(EU and national shared competences)
 Environment, health and consumer protection
 Transport (interoperability and interconnection of neighbours, labour conditions,
safety, financing, negotiations with third countries)
 Social regulations: equality between men and women at work, minimum labour
standards
 Development aid to developing countries
 Energy Policy (still in the early making)

National policies coordination/ cooperation among Member States in an EU
framework, in view of coping with remaining market externalities and policy
spill-over's
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Step four
The Economic and Monetary Union
(1992-1999)

Eurozone (13 countries out of 27) - Trading off national monetary
policies for lower transaction costs and for a shelter from external
economic shocks, after a nominal convergence phase prior to
joining the EMU
 Centralized monetary policy (ECB) aimed at internal currency stability
 Coordinated national fiscal policies through the Growth and Stability
Pact (mandatory limits on government deficit and public debt)
 Economic governance of the Eurozone by the Eurogroup (Commission
and Finance ministers)
17
The EU as a global economic player
is still far from punching its full economic weight in global economic
governance
Trade pillar : one single voice and active leadership in multilateral
(WTO) and bilateral negotiations;
Financial pillar: so far absent from the boards of the Bretton Woods’
Financial Institutions (IMF and World Bank) and keeping a low profile
in G8, despite the fact that the EU is the largest source of savings, of
FDI and of official development aid.
Norms setting pillar: EU is a leading normative power in multilateral
negotiations with respect to the environment, health, sanitary and
phyto-sanitary, prudential ratios and accounting standards
18
EU trade policy in a nutshell

Trade policy is the most ancient common policy and it remains still
today the most advanced branch of EU external policy :
 full EU membership (unlike eurozone and schengen)
 strictly unified set of rules and procedures ( with national
customs acting as EU agents)
 EU competences are mainly exclusive, with only a few shared
competences,
 dominant role of the Commission ,
 final say with the Council (Foreign Affairs Ministers )
 mainly through qualified majority voting;
19
EU trade policy today

Today , it pursues three sets of objectives:
 Political:mainly pre-enlargement and neighbourhood policy, but also war on
terrorism ( see extension of the drug regime to Pakistan after 9/11), non
proliferation and WMD clauses in trade pacts, embargo on arms (China), dualuse technology monitoring, Russia’s market economy status,
 Development: attempt to combine aid and trade preferences ( tariffs), and
FTAs in order to encourage reforms and regional integration among DCs ( Asean,
Mercosur, Mediterranean countries, ACP, Andean Pact and Central America)
 New trade policy : focus on competitiveness and market opening in the
context of globalization
But EU trade policy, for its multiple dimension , remains first and foremost an
economic policy
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EU trade policy:
The Institutional framework
A.
The decision-making process
1) The competences battle between EU and its MS
- exclusive
- mixed
2) The voting procedures
- qualified majority voting (QMV)
- unanimity
- political consensus
3) The present state of play : Art133
(Treaty of Nice, 2000)
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B.
The negotiations in practice
1) The mandate
- DG Trade/DG Relex initiative
- DG Trade draft discussed with all DG’s
- Proposal adopted by the Commission
- Discussion by the Council
• Amlat Group
• Committee 133
◦ senior
◦ deputy
◦ sectorial (textiles, services, steel)
• COREPER
• General andForeign Affairs Council decide
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2) The negotiations
3) The ratification
- either exclusive EU competences : through adoption
of the final text by the Council
- or mixed EU competences : through a twin procedure
• adoption by the Council
• ratification by MS
- temporary implementation of EU exclusive
competences section of the agreements
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