BACHELOR THESIS Ane Solesvik Oppedal

Ane Solesvik Oppedal
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The EU Commission’s Communication on Trade, Growth and
Tailoring Trade and Investment Policy for Those Countries Most in
By: Ane Solesvik Oppedal 401970
Aarhus School of Business and Social Sciences 2013
EU-Kommissionens meddelelse om Handel, vækst og udvikling:
Skræddersyet handels-og investeringspolitik for de lande der har størst behov?
Ane Solesvik Oppedal
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This paper provides an analysis of the EU Commission’s 2012 Communication on trade,
growth and development to evaluate the extent to which the discourse in the
Communication is supported by actual policy implementation. A liberalist and social
constructivist approach is used to shed light on the shortcomings of the Communication,
which is evaluated in light of two cases. The case of biofuel production and consumption in
the EU provides the reader with insight into the detrimental effects of EU support of local
European farmers at the expense of foreign producers. This case demonstrates that policies,
such as those related to the CAP, require revision before the EC can rightfully claim Policy
Coherence for Development, which is a key aspect of the intention of tailoring trade and
investment policy to those countries most in need. The case of the EU’s Economic
Partnership Agreements with the African, Caribbean and Pacific countries demonstrates
intrinsic flaws in the agreements which are magnified under a comatose Doha Round. These
agreements, rather than facilitating pro-growth development, will result in a biased
liberalization and a fiscal crunch for poor developing countries instead. The cases were
selected on the grounds that they provide valuable insight into relevant global challenges, as
well as bridging the conceptual gap between a variety of the themes of the communication
and actual EU policy implementation. The methodological approach used is a quantitative
approach and a hypothetical-deductive method, in which I made certain assumptions based
on previous knowledge of the research topic. The empirical evidence was derived from a
variety of sources, relying heavily on international research institutions as well as official EU
documentation and reports. The findings in this paper suggest that the EU Commission’s
‘Communication on trade, growth and development: tailoring trade and investment policy to
those countries most in need’ falls short of doing just this. If the EU hope to maintain
legitimacy in their role as global economic leaders there needs to be greater coherence
between development discourse and actual policymaking.
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Table of Contents
 Abstract ------------------------------------------------------- 2
 1.0 Introduction ------------------------------------------------------- 4
 1.1 Problem Statement------------------------------------------------- 7
 2.0 Theoretical Approaches to EU Foreign Policy-------------- 7
 2.1 Liberalism---------------------------------------------------------- 7
 2.2 Social Constructivism------------------------------------------- 8
 3.0 Methodology--------------------------------------------------- 9
 4.0 Overview of the Commission’s Communication on Trade, Growth and
Development -------------------------------------------------------------- 12
 5.0 Analysis------------------------------------------------------------- 13
 5.1 The production and consumption of biofuels in the EU---- 13
 5.2 Where is the CAP?-------------------------------------------------- 13
 5.3 Climate Change and Energy Dependence-------------------- 14
 5.4 Biofuels and the Global World--------------------------------- 16
 5.5 The EU’s Economic Partnership Agreements with the ACP Countries
under a Comatose Doha Round------------------------------------------- 18
 5.6 The International Trading System----------------------------------- 18
 5.7 Biased Liberalization and Fiscal Crunch---------------------------20
 6.0 Perspectives ---------------------------------------------------------- 23
 7.0 Conclusion------------------------------------------------------------ 26
 Works Cited------------------------------------------------------------- 28
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1.0 Introduction
On 27 January 2012, the European Commission (EC) released the Communication Trade,
growth and development: Tailoring trade and investment policy for those countries most in
need (Overseas Development Institute, 2012). The communication is intended to set a
trajectory of the European Union’s trade policy for the next decade, and is an update to the
Communication on Trade and Development published in 2002. The communication is a
response to the changing economic realities over the last decade and its profound
implications for trade, development and investment policies (European Commission, 2012).
Although globalization in itself is not new, the pace and scale of globalization today is
unprecedented. The increasing globalization of the world economy over the last two
decades presents the European Union with opportunities as well as challenges. The
reshuffling of global Gross Domestic Product (GDP) shares over the last decade is giving rise
to increasing concern that the EU is losing its role as a global economic leader to emerging
economies like China, India and Russia. In the wake of the 2008 financial crisis the European
Union acknowledges that they are facing domestic pressures in addition to the global
challenges, and are aiming to adapt their economic strategies to accommodate the global
economic transformation.
Over the last half century the EU has been the largest importer and exporter of goods
and services, and still enjoys a dominant role in the world economy as one of the largest
global markets (Renda, 2013). However, disappointing economic performance by the 27 EU
Member States combined with a gradual decline in productivity as well as in share of the
markets has exposed some fundamental weaknesses in the EU economy. The developing
energy dependence on the rest of the world is expected to intensify especially due to the
rising energy demand as a result of technological development, and the increasingly ageing
population of Europe is generating a gradual loss of competitiveness and adding
considerable pressure on national public budget and welfare systems (Renda, 2013). The
globalization trends are therefore posing significant threats to the European Union’s position
in the global landscape. According to statistics from the Organization for Economic
Cooperation and Development (OECD) the share of Brazil, Russia, India and China’s (BRICS)
GDP combined rose from 17 % in 1990 to 28 percent in 2010. China’s share of the world’s
GDP alone has already reached 17 percent, equal to the Euro zone, and only 6 percent
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behind the US global GDP share of 23 percent (Renda, 2013). Based on these trends the
OECD predicts that by 2030 the Euro area’s share of global GDP will decrease to only 12
percent, whereas China is presumed to hold 28 % of the world’s GDP shares, shifting the
currently strong position of both the EU and US away from the west, and replacing both the
EU and the US as the dominant economic player (Renda, 2013).
In March 2000, in what later became known as the Lisbon strategy, European leaders
committed the EU to become “the most dynamic and competitive knowledge-based
economy in the world capable of sustainable economic growth with more and better jobs
and greater social cohesion, and respect for the environment” (European Parliament, 2000).
However, it soon became increasingly apparent that these ambitious objectives were not
realistically obtainable in the current economic environment. In 2004, the European
Commission established a High Level Group, headed by the former Prime Minister of the
Netherlands, Wim Kok, in order to carry out an independent review of the progress made
towards the Lisbon objectives, which accumulated in the report “Facing the challenges, The
Lisbon strategy for growth and employment (Kok, 2004). According to Kok, the failure of the
Member States to act with sufficient urgency on the Lisbon strategy coupled with external
events since 2000 has slowed the progress towards reaching the goals set out by the
European Commission in 2000. He argues that the key issue in the disappointing delivery of
the overall strategy is the lack of determined political action (Kok, 2004).
Europe today finds itself in a similar situation, facing many of the same challenges as
described in the 2004 report. As stated in Kok’s report “Europe faces two enormous
challenges – increasing global competition and a rapidly ageing population […] to safeguard
and strengthen [Europe’s] distinctive economic and social model, it must adapt” (Kok, 2004).
Currently, most of the targets set by the European Commission’s 2010 growth agenda
“Europe 2020” will be impossible to achieve, as the economies of some of the largest
European member states approaches or have already reached recession. And given the
negative demographic of the European Union, without a boost in productivity—presently
quite unlikely, very little growth seems attainable in the future (Renda, 2013). Globalization
is rapidly putting pressure on the European Union in terms of maintaining its role as a global
competitor, for example through the emergence of “global value chains”. The increasingly
“sliced” process of producing goods, from raw materials to finished product, means that
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each process can be executed wherever the necessary materials and skills are available at
competitive cost (OECD, 2007). These trends force the EU to offshore and outsource
industrial activities in countries with lower labor costs. As the EU is home to many of the
world’s largest multinational companies, there are a lot of potential gains in offshoring and
de-localization parts of the production process; however, it seems that the
internationalization of industrial production has led to a declining contribution of the EU
economy on total world output (Renda, 2013). The European Commission recently released
the “European Competitiveness Report” in 2011, which claims that one of the main threats
to EU competitiveness is the so called ‘industrial upgrading’ of China (as well India and
Russia, albeit to a lesser extent) and their successful price competition in high-skill
industries. In 2007 the share of EU imports in technology-driven industries from China was
already higher than in intra-EU imports, while high-skills industries were also recording
rapidly rising shares between 2000 and 2007, evidence of China’s rapid technological
upgrade (EC, 2011). The EU needs to ensure that the high value-added phases of the
production chains are not moved outside the EU, as this will result in the loss of the EU’s
leadership in many industrial sectors. While US companies focus on the development of an
American manufacturing strategy, European corporations, to the advantage of other regions,
are seemingly losing control over key-industrial know-how. The result is that within certain
sectors in the economy, such as the automotive industry, the EU is becoming more of an
assembly regional block rather than a producing one (Renda, 2013).
The EU is also struggling to maintain its competitive edge in the global market in
terms of Research and Development and Innovation. Declining university systems combined
with a reluctance to import new talents and attract highly skilled workers from abroad are
affecting the business environment of Europe. The fact that most EU firms specialize in lowtech sectors is, according to the European Commission, one of the reasons for the EU’s
innovation gap. The EU suffers from a weak position in terms of Information and
Communication Technologies (ICT), and although the EU is still performing relatively well in
nanotechnologies and biotechnologies, the US still continue to lead in these fields (Renda,
2013). The negative demographic of Europe, as also mentioned in Wim Kok’s report in 2004,
is also a source of concern. According to the Commission’s Competitiveness Report extensive
investment into education and research is needed to maintain sufficient competitiveness as
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the number of elderly rapidly increases and the number of young people decreases over the
next decades. In 2011 the EU’s population of working age peaked, whereas onwards the
potential labor force is expected to decrease, putting immense pressure on the EU to find
ways of financing living expenditures of elderly Europeans while maintaining its competitive
edge in an increasingly competitive world (EC, 2011).
1.1 Problem Statement
In the face of the above domestic and global challenges, the European Union still
recognizes their international responsibility to the developing world. The EU maintains that
trade policy is one of the most effective ways to bolster development, and their aim is to
improve conditions for trade and investment in developing countries in the fight to eradicate
poverty. This paper evaluates the extent to which the European Commission’s
communication Trade, growth and development: Tailoring trade and investment policy for
those countries most in need successfully confronts the global challenges of today, and
whether its intention to promote economic growth in the EU and to accommodate trade and
investment policy to least developed countries is successfully implemented in terms of actual
political action. The paper explores two different cases of EU policy areas linked to trade, and
analyze the implications of these polices on global trade and development patterns in light of
the Communication. According to the communication international trade will both improve
the economic situation within the EU as well as encourage sustainable development abroad,
therefore two international theories of integration will be used to better evaluate both the
intentions and the shortcomings of the EU’s trade and development trajectory as set by the
European Commission. The liberalistic perspective focus on economic integration as a driving
force in international relations, whereas the social constructivist perspective argues that
other factors, such as ideological motivations impact the global environment.
2.0 Theoretical Approaches to EU Foreign Policy
2.1 Liberalism
There are three theoretical frameworks dominating the contemporary field of international
relations, realism, liberalism and constructivism. This paper focuses only on the last two, as
they more accurately relate to the topic of EU’s international trade policy. The liberal
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paradigm argues that states’ preferences are not stable, and that these preferences are
based on two factors. First, preferences are adjusted if different societal actors win in
domestic competition, and secondly, preferences change when individuals’ economic
opportunities and interests are reconstructed in the face of changes in the global system. As
states’ interests are defined economically, liberalists predict more interstate cooperation
and international institution formation incentivized by increased economic interdependence
as a result of globalization (Hix, 2005).
In the liberal perspective societal actors and elites compete, their individual
preferences driven by economic interest rather than geopolitical concerns, and in the
international system state officials act rationally to pursue their economic preferences,
which are shaped by the behavior of international and supranational institutions and
developments in other systems (Hix, 2005). Liberalists maintain the primacy of economics
and societal economic interests over politics and power relations. Generally speaking,
liberals recognize the neoclassical economic assumption that the free market is the most
efficient way of allocating resources, and therefore argue that in a world where individual
economic interests are the driving force of politics, states should pursue free trade rather
than protectionist policies. However, liberals also accept that government is important for
the procurement of goods and services that would not be supplied in sufficient quantity by
the market (Hix, 2005).
2.2 Social Constructivism
In contrast to the rationalist foundations of liberalism, constructivism perceives
international relations as dominated by cultural, ideological and ideational forces.
Constructivists share three main assumptions about the social construction of international
politics. Firstly, they argue that actor’s preferences cannot be explained without resorting to
the ideological and/or cultural norms behind their positions. Secondly, the paradigm holds
that actors are not strictly ‘rational’ in the constricted sense of the term used by liberals, due
to the fact that they are bound by psychological or normative constraints, and are
sometimes forced to take historical or symbolically determined actions. Thirdly,
constructivists argue that as a result of social interaction and socialization, the behavior and
preferences of actors will evolve. Constructivists believe that actors in international relations
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are forced to adapt their preferences to the ‘constitutive’ norms of international institutional
organizations and society, and that in this process, the preferences of foreign policy elites
and the normative justifications for their actions are expected to merge (Hix, 2005).
Based on these two theoretical approaches to foreign policy, liberalist will argue that
EU foreign policy will be determined by EU external economic policies, and that this process
is driven by the individual and sometimes rival economic interests of each member state. In
the social constructivist perspective the interaction in and adaptation to the institutional and
normative environment of the EU foreign policy making will change the preferences of the
actors involved. This paper will explore the motivations behind, and implication of, the EU
trade communication through both a liberalist and a social constructivist perspective, and
evaluate the extent to which the objectives are reached in light of each paradigm.
3.0 Methodology
The effects of increasing globalization and changes in the economic environment
over the past couple of years are threatening the European Union’s position as a dominant
economic force in the international system. The reshuffle of the world economic power,
coupled with internal pressures, such as slow growth and an ageing population, has forced
the EU to take a hard look at the challenges it is facing in the coming decades. The
importance of the Commission’s report is significant because it lays down the trajectory for
the EU’s trade over the course of the next decade, and it is designed in response to the
current global as well as domestic situation. In a time when many are questioning the
sustainability of a European union, the hope is that the EU will be able to reestablish
themselves among the most competitive economies in the world. The report claims that
effective trade policy will to boost jobs and growth in Europe as well as abroad. The impact
of the EU’s trade policies will be extensive, abroad and in Europe itself, therefore, analyzing
the Commission’s report provides valuable insight into the future of not only the European
Union, but also the rest of the world.
Due to the brevity of this paper, it is impossible to provide a comprehensive analysis
on the entirety of the Commission’s report on trade and development. Rather the focus will
be on two cases through which various aspects of the report will be discussed. This allows
for a more thorough understanding of the issues behind, and the potential implications of
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the statements in the report. The first case to be discussed is the production and
consumption of biofuels in the EU and how it affects developing countries. This case was
chosen because it touches upon a variety of important issues in the Commission’s
Communication. Biofuel production is a response to the challenge of climate change, which
requires collective action if the world hopes to manage its evolvement. The case of biofuels
is interesting because it has been the center of discussions of everything from food price
volatility, EU discrimination of foreign producers in the agricultural sector, to the
environmental effects of indirect land use change. All of these factors can be tied directly up
to statements in the Communication, providing the reader with a deeper understanding of
the policies behind these statements.
The second case discusses the EU’s Economic Partnership Agreements with the
African, Caribbean and Pacific countries. This case also has the quality of tying in various
statements in the Commission’s Communication, and provides the reader with insight into
some of the major themes of the Communication, such as sustainable development, the
multilateral agenda and the Doha Round as well as EU’s regional agreements. These two
cases are not meant to be compared or contrasted, rather they allow for us to evaluate the
discourse of the Communication in light of actual policy making. At a first glance the
Communication seems an uncontroversial document which brings together a variety of
content from across its different directorates in relation trade and development, and policy
coherence for development. However, in light of the two cases, a visible gap between the
statements in the Communication and the actual EU policies appears.
As the EU Commission’s Communication on trade, growth and development is fairly
recent, from 2012, it is still early to begin to discuss the far-reaching effects the
Communication will have globally in any kind of certainty. However, this paper evaluates the
cases based on emerging international tendencies, predictions based on statistics, historical
perspectives and lessons from the past. In this way, the reader will gain a more thoroughly
understanding of the global issues discussed in the Communication as well as the global
implication of EU policies. Both cases are presented against the backdrop of relevant global
challenges, and both cases demonstrate the good intentions of the EU’s trade and
development agenda as well as the shortcomings of it. The analysis also includes a
theoretical perspective on the aspects of the Commission’s Communication which relates to
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the two cases. I have chosen a quantitative approach and a hypothetical-deductive method
as I was already superficially familiar with the topic of research. The theoretical assumptions
I made was that although the discourse in the Commission’s Communication on trade,
growth and development fit both a liberalist paradigm as well as a social constructivist one,
empirical evidence would most likely exhibit stronger liberalist tendencies than
constructivist ones.
The empirical data in this paper is derived from a variety of sources. The European
Commission’s website has offered a wealth of information, in relation to relevant statistics
and research papers, but also in terms of background information on EU policy. The EC itself
has commissioned a vast amount of research reports to evaluate their own progress in
various fields, and many of these have been essential in collecting data for the case studies
in this paper. However, in order to avoid a biased presentation of the cases but rather
objectively analyze them, I have also consulted research, reports and scientific articles
produced by International Research facilities. News articles from major international news
agencies are also part of the resources used in this paper. It is important to be critical to the
information one collects in the process of writing an analytical paper, and I have tried to
cross reference as much of the information as possible, and discard information from
sources which do not appear legitimate. I have been critical to the objectivity of the authors
of the various sources I have used, and I used a quantitative research approached, in the
process of writing this paper. In cases where it is difficult to either prove or disprove certain
aspects of the discussions, I have focused on providing relevant information about the
development of the case, and provided the information I feel is essential to understand the
issue at hand.
The theoretical paradigms are not sufficient to accurately account for all the foreign
policy decisions made by the European Union. However, the hope is that the theoretical
approach to the Commission’s Communication on trade, growth and development will
provide further insight into the implications of EU policy globally, and that this perspective
adds to the understanding of the framework of the EU trade policy agenda.
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4.0 Overview of the EC Commission’s Communication on Trade, Growth and
The Commission’s Communication on trade, growth and development is divided into
five parts. First off is a statement of purpose for the report. According to the Commission,
“the present Communication updates the 2002 Communication on Trade and Development
to reflect changes in economic realities, to take stock of the way the EU has delivered on its
commitment and to outline the direction the EU’s trade and investment policies for the next
decade” (EC, 2012, p. 2). Part two is a brief overview of recent changes in the global
situation as well as lessons for trade and investment policies for development, for example
acknowledging that trade alone is not a sufficient tool to foster development, and the
importance of differentiating in the design and implementation of EU policies. Part three
describes the efforts made by the European Union since 2002 in the areas of trade and
investment, such as the Everything But Arms (EBA) initiative, Aid for Trade (AfT) and the
Generalized System of Preferences+ (GSP+) which is a tool of EU trade policy in support of
sustainable development, specifically targeting vulnerable developing countries. Part four,
which is the main body of the report, consists of an outline of tasks for the next decade and
‘what Europe can offer’ (European Commission, 2012). This section can be summarized
under six pillars: (1) more focused preferences; (2) better targeted AfT; (3) complementary
instruments boosting Foreign Direct Investment (FDI); (4) comprehensive and modulated
bilateral/regional agreements; (5) a values-based trade agenda to promote sustainable
development; and (6) assisting developing countries in improving resilience to crisis.
Additionally, this part includes a section focusing on domestic reforms and good governance
as the key to trade-led growth, how external assistance and trade agreements can support
this process and an outline of the multilateral agenda until 2020, such as delivering on the
dimensions of the Doha Development Agenda (DDA), setting a firm basis for the future and
tackling emerging challenges. Part five is a concise conclusion of the report (EC, 2012).
Although the future may look bleak to the European Union itself, the Commission’s report
attempts to confront the global challenges, committing to continue their work to promote
growth in Europe as well as sustainable development abroad through effective trade
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5.0 Analysis
5.1 The production and consumption of biofuels in the European Union
The Commission’s report contains many elements which have the potential to foster
economic development in developing countries. However, even though the Commission’s
communication on trade, growth and development proposes some interesting ideas for a
new strategy for trade policy focusing on Least Developed Countries (LDCs) it also raises
some major concerns. Considering the four years of crises in the EU, followed by what will
most likely be anemic growth over the next decade, it is not surprising that these events
have spurred those in the EU in favor of more mercantilist trade policy. An increasing
number of EU members are paying higher attention to bilateral trade deals with big
economies, which could potentially increase EU growth significantly. Despite establishing a
good platform for effective use of trade policy, many of the tools in EU trade policy are still
focused on promoting liberalization of strategic sectors in developing countries, rather than
instituting meaningful market access options for developing countries.
5.2 Where is the CAP?
One of the major critiques the Communication has received is due to its neglect in
mentioning other EU policies, such as the Common Agricultural policy (CAP) which directly
affects developing countries’ growth and trade patterns. The EU uses restrictions to its own
market as a tool to protect local agricultural production in Europe at the expense of foreign
producers. Although the CAP falls under the Directorate-General for Agriculture and Rural
Development, it is an important aspect of the Policy Coherence for Development Act, aiming
to accelerate the process towards obtaining the Millennium Development Goals. A
Communication from the European Commission to the Council, the European Parliament
and the European Economic and Social Committee in 2005, the Commission identifies twelve
priority areas where the objective of obtaining synergies with development policy objectives
is considered particularly relevant. In 2009, this list was reduced to five priority areas,
security, climate change, food security, migration and trade and finance, in order to make
the PCD more operational (EC, 2009). It is evident that the EU is well aware of the
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importance of tailoring not only trade policies to encourage development, but also other
policy areas, which may have far-reaching effects on the developing world. However,
omitting to include a section regarding the Common Agricultural Policy reflects the
Commission’s failure to comply with their own commitments to promote growth and
development abroad. The following section is an analysis of the case of biofuel production
and consumption in the EU, which is an example of how EU policy acts directly against its
trade and development goals, by supporting local production at the expense of foreign
5.3 Climate Change and Energy Dependence
One of the global challenges of today is climate change. Handling climate change
requires a joint international initiative, because it poses serious threats to international
security and the well-being of human kind. Since the 1990s the European Union has
established themselves as leaders in global environmental governance by encouraging
rigorous international commitments (Oberthür, 2008). In 2011 the European Union was the
world largest importer of energy, depending on foreign imports to meet over 54 % of its
energy needs. The EU imports 60 percent of the gas and more than 80 percent of the oil it
consumes, relying heavily on countries like Norway, Russia and Algeria which combined
accounts for 50 percent of crude oil imports and 85 percent of natural gas imports (Institute
for International and European Affairs, 2013). In 2007 the EU heads of state and government
established an “independent commitment” to reduce EU greenhouse gas (GHG) emission by
20 percent from the 1999 levels by 2020, as well as agreeing to increase the share of
renewable energy sources in the EU energy supply to 20 percent and the contribution of
biofuels in transport to 10 percent in 2020 (Oberthür, 2008).
The term ‘biofuels’ refers to a wide range of fuels derived from biomass, comprised
of solid biomass, liquid biofuels and various biogases (Trinity, 2010a). Liquid biofuels for
transportation can be made from a variety of feedstocks, many of which are generally used
in the agricultural food chain. Bioethanol and biodiesel form the core of renewable transport
fuels around the world, and whereas Brazil has been the world’s largest producer of
bioethanol for the past 25 years, the EU leads in biodiesel production, which represents
close to 80 percent of total biofuel production in the EU (Trinity, 2010a). Although initially
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the concept of using biofules as a way of lowering GHG emission gained wide support, it is
now raising concerns regarding the real reduction in CO2 emissions that biofules provide,
and its impact on agricultural land and natural habitats, as well as its impact on the poor and
global food prices. For example, the unintended carbon emissions linked to indirect land use
change (ILUC) are proving rather significant. Farmers responding to the increased crop prices
to maintain the food supply-and-demand balance are clearing natural lands to replace the
food crops that have been diverted to biofuel production. Because natural lands store
carbon in the biomass of plants and in the soil, the clearance of wilderness translates into a
net increase in greenhouse gas emissions. The biofuel industry in the EU is awarded with
subsidies, based on three official objectives justifying this support. First off, because it will
reduce carbon emission from transport, secondly, because it will support rural development
in the EU, and thirdly, because it will improve energy security (Asmelash, et al., 2013).
According to research conducted by the International Institute for Sustainable
Development, government subsidies have been an excessively costly way of moderating
climate change. Even though the production of Ethanol does increase emissions savings it
comes at a high cost, and in the case of biodiesel, if the ILUC factor is considered, then it no
longer provides any emission reduction, emitting two million tonnes of CO2 equivalent
emissions more than its fossil-fuel-based equivalent (Asmelash, et al., 2013). In terms of
rural development, there is no tracking in official EU data on jobs generated by the biofuel
industry, hence the accuracy and value of job multipliers is slightly imprecise and requires
closer and more official monitoring. However, based on a simple survey of attendant jobs
and country-level production figures, the majority of biofuel-related jobs were located in EU
countries containing the more prosperous Competitiveness and Employment Regions, while
on 31 percent of jobs from Ethanol and 35 percent of jobs from biodiesel were located in EU
classified undeveloped Convergence Regions (Asmelash, et al., 2013). In regards to energy
security, the role of biofuels have, so far, been limited, the production of biofuels in the EU
effectively replaces only the output of two or three large fossil-fuel refineries (Asmelash, et
al., 2013). The data shows that the actual benefits of biofuels in the EU require closer
monitoring, and are so far either unclear or marginal at best.
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5.4 Biofuels and the Global World
In addition to the insufficient domestic benefits of EU biofuel production, the impact
of biofuel policy in the EU on developing countries, both in terms of production as well as
consumption. The consumption of biofuels in the EU creates considerable opportunities for
farmers around the world, and roughly 80 developing countries grow and process sugarcane
which can be used for bioethanol while an increasing number of countries are establishing
biofuel industries (Trinity, 2010a). However, Africa has very little biofuels development, and
considering that most of the countries on the UN’s list of Least Developed Countries are on
the African continent, very few opportunities are available to them in terms of exports to the
EU. Of course, biofuels has the potential to revitalize land use and livelihoods in rural areas
globally which would lead to increased yields and incomes, but still, in areas where
competing resource claims exists, the rapid expansion of biofuel production has resulted in
poorer groups losing access to land on which they depend for their livelihood. There are also
major concerns that production of biofuels in developing countries is triggering numerous
environmental problems, such as water pollution, water use, land degradation and
deforestation (Trinity, 2010a).
The EU subsidizes biofuel production domestically, and combined with tariff barriers
these measures are distorting the global biofuel trade at the expense of developing
countries. For example, the EU’s tariff on ethanol average 60 percent, which far exceeds the
more common 17 percent average for EU agriculture tariff protection (Trinity, 2010a). These
policies have a negative impact on developing countries efforts towards sustainable
development, because they not only undermine developing-country competitiveness, but
may also damage their potential for environmental management and poverty reduction
(Dufey, 2007). Other concerns regarding the potentially negative impact of biofuel
production and policies in the EU include the proliferation of various environmental,
technical and social standards and regulations for biofuels. Because these standards are
developed by industrialized nations, with little participation by producer country
stakeholders, the social and environmental priorities of these developing countries will not
be reflected in these policies, which directly affect them (Dufey, 2007).
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Tariffs and non-tariff barriers to the European Union’s market are heavily criticized,
especially by developing countries, who correctly point out that these protectionist policies
are creating market distortions, with far-reaching negative impacts, socially, economically
and environmentally. The International Institution for Environment and Development has
called for a restructuring of the biofuel trade policies in order to create a win-win framework
which will merge the social, economic and environmental agendas of developing countries
on a global scale. Trade facilitation in biofuels will then allow developing countries to benefit
substantially from the opportunities available from the predicted increase in biofuel demand
in the European Union and support the positive contribution of biofuels to sustainable
development abroad (Dufey, 2007).
The Commission’s Communication on Trade and Development states that from the
outset of the global economic and financial crisis, the EU was committed to refrain from
protectionism (EC, 2012). Furthermore, the Communication declares the Commission’s
intention to ensure a ‘values-based trade agenda to promote sustainable development’
(European Commission, 2012, p. 13), for example through initiatives like promoting ‘the
elimination of tariff and non-tariff barriers on goods and services that can deliver
environmental benefits’ (EC, 2012, p. 14). Avoiding protectionism, from a liberal theoretical
perspective, will ensure economic growth as a direct result of gains from trade, in which all
parts benefit. This neoclassical economic assumption is evident throughout the
Commission’s report and in the European Union’s trade policy, for example through the
creation of the various existing Free Trade Agreements. However, the above analysis of
biofuel production and consumption within the EU, as well as an evaluation of the
implications of both tariff and non-tariff barriers on imports of biofuel to the EU,
demonstrates the shortcomings of the EU to comply with the Commission’s statement of
promoting free trade and sustainable development. The market distortion as a result of
trade barriers to the EU market has far-reaching negative effects, economically and
environmentally on developing countries.
In the introduction of the Communication on trade, growth and development, the
Commission states that trade policy “can be a powerful engine for development, in line with
the EU principle of Policy Coherence for Development” (EC, 2012, p. 3). However, the
neglect in mentioning the CAP in this communication effectively undermines the credibility
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of the entire report, as the example of biofuel trade demonstrates EU policies which directly
affect global trade and restricts the access of developing countries from potentially
beneficial trade opportunities. Although the European Union deserves acknowledgment for
addressing the global challenge of climate change, and applause for pursuing alternatives to
fossil fuel energy sources, their position as international leaders in the environmental cause
and their claim of promoting sustainable development through trade should be reflected in
all EU policies, not selectively in only some policy areas.
5.5 The EU’s Economic Partnership Agreements with the ACP Countries under a
Comatose Doha Round
The EU Commission’s communication on trade, growth and development touches
upon an important global issue in terms of the comatose Doha Development Agenda (DDA).
The Doha Round is the latest round of trade negotiations among the World Trade
Organization membership. The overall objective is to achieve major reforms of the
international trading system by introducing revised trade rules and through lowering trade
barriers. Because it aims to improve the trading prospects of developing countries, it is
unofficially know as the Doha Development Agenda. The Doha round is a ‘single undertaking’
as virtually every item of the negotiation is part of an indivisible package where nothing can
be agreed separately. The Doha round was initiated in 2001 and negotiations continued for
almost a decade before it collapsed in 2008. The talks stalled over a divide on the issue of
agriculture, which officials blamed on India, China and the US failing to agree on import
rules. The current EU Trade Commissioner in 2008, Peter Mandelson, called the collapse a
“collective failure” and warned that the consequences would “fall disproportionately on
those who are most vulnerable in the global economy, those who needed the chances, the
opportunities most from a successful trade round” (BBC, 2008).
5.6 The international Trading System
According to the Communication “The multilateral agenda remains a priority for the
EU. The DDA is in serious deadlock but holds too much potential for developing countries in
general and LDCs in particular to be abandoned” (EC, 2012, p. 16). In addition, the
Communication recognizes that the global shift in economic power among major trading
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partners has resulted in a growing imbalance between the contributions that large emerging
countries make to the multilateral trading system and the benefits they derive from it. This
tendency was already tangible at the launch of the DDA, and the current deadlock of the
DDA continues to reveal a fundamental weakness in the World Trade Organization (WTO)
setting, which is not evolving in line with economic realities (EC, 2012). In light of these
global economic changes, the Commission reiterates their commitment to conclude
Economic Partnership Agreements (EPAs) with all interested African, Caribbean and Pacific
(ACP) countries and regions interested. This will be done in line with the Cotonou
Agreement’s objective to facilitate and support deeper regional integration, modernizing the
economic relationship between the EU and ACP countries and using trade to promote
economic growth (EC, 2012). Furthermore, the Communication declares that “We confirm
our offer of free access to the EU market and improved rules of origin for those ACP
countries that have in the past received Cotonou trade preferences, while the ACP countries
liberalise partially and gradually” (EC, 2012, p. 13). However, despite the good intentions of
the EPAs, the current situation with a comatose Doha Development Agenda, are exposing
some intrinsic flaws in the agreements which are damaging to ACP development.
The cooperation between the EU and the ACP countries can be traced back to 1975
to the signing of the Georgetown Agreement, which was the foundation of the Lomé
Convention the same year. The Convention was signed by the then nine EU member states
and 46 ACP countries, and was renegotiated at five year intervals. The successive Lomé
agreements were the structure in which non-reciprocal duty-free access to the European
market was granted to products originating in ACP countries. In 2000 the Lomé Convention
Agreement was replaced by the Cotonou Agreement. Because the non-reciprocal
preferences granted by the EU was incompatible with WTO regulations, the Cotonou
Agreement established negotiations for Economic Partnership Agreements (EPAs), which
were concluded in 2007 (Khorana, 2012).
The EPAs between the each of the six regional ACPs and the EU are designed to
promote ACP regional integration to create larger regional markets and facilitate their
integration into world markets, while also promoting trade and achieving general
development goals. These EPAs are reciprocal agreements between the EU and the ACP
countries that have to open their markets to a limited extent, averaging 80 percent within 15
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years, in return for access to EU markets. The ambition is, over time, to establish quasi dutyfree and quota-free market access and more simple rules of origin in the European Union
(Khorana, 2012).
5.7 Biased Liberalization and Fiscal Crunch
The deadlock in the Doha Development Agenda has currently left Preferential Trade
Agreements (PTAs) as the only negotiating instrument left to open a domestic economy to
foreign competitors (Messerlin, 2012). However, history shows that PTAs are not an
effective instrument for this purpose. In the period between the mid-1980s and mid-2000
PTAs have delivered roughly 10 percent of total tariff cuts, whereas unilateral liberalization
stands for 65 percent of tariff cuts in the same time period (Messerlin, 2012). Small
developing economies are especially fragile under a comatose Doha Development Agenda.
Many of these countries will deliberately negotiate ‘shallow’ PTAs, in the sense that they do
not open the signatories’ key economic sectors. These sectors are the ones which could
potentially benefit the most from exposure to foreign competition. A 2011 WTO Trade
Report showed that two-thirds of peak tariffs, that is, tariffs higher than 15 percent, which
have been left intact after unilateral or multilateral liberalizations, have also escaped PTArelated cuts (Messerlin, 2012). As these sectors, which are generally highly protected key
sectors, do not derive the benefits from external competitive forces to increase their
efficiency, they continue to exact high costs on consumers.
Other countries will turn to ‘deep’ PTAs, but as negotiating dynamics tend to favor
the large negotiating partner, small developing countries suffer from bilateral trade
agreements where the agenda set by the larger partner often includes topics of little or no
relevance to the developing country. The limited range of potential trade-offs when there
are only two negotiating partners, as supposed to the 156 countries in the WTO forum,
makes a potential agreement harder to reach, and in bilateral agreements there is no
possibility of building coalitions with other small countries to raise the negotiating leverage
with respect to the larger partner (Messerlin, 2012).
The EU’s EPAs with the African, Caribbean and Pacific countries, despite their good
intentions, have intrinsic flaws detrimental to ACP development because they will generate a
‘biased liberalization, fiscal crunch’ outcome (Messerlin, 2012). In his paper ‘An EU
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development-friendly trade policy under a “Comatose Doha”’ Patrick A. Messerlin argues
that instead of liberalizing the ACPs in a pro-development way, which is one of the EU’s main
objectives, as stated in their Communication on trade, growth and development, the EPS will
systematically exaggerate preexisting distortions in the ACP economies for two mutually
reinforcing reasons (Messerlin, 2012). First off, because the EPAs allow the ACPs to maintain
their current tariffs on imports from the EU for about 20 percent of their tariff lines, ACP
sectors which are highly protected will continue to be fully protected in relation to trade
with both EU and non-EU producers. These sectors will remain protected from competition
from the EU and the rest of the world, and ACP producers will have no incentive to cut costs,
decrease their prices or improve their production. In addition, the domestic capital and labor
will either be induced to remain in these protected sectors or attracted to them. The
protection of key sectors of the economy will therefore result in a lack of incentive to
support the EPA process.
Simultaneously, other ACP sectors will be subject to full competition from the EU, as
the EPAs require the elimination of current tariffs on EU imports for the roughly 80 percent
of remaining tariff lines. Formidable EU competition in these markets will most likely result
in ACP producers avoiding these markets, as they are less likely to provide the same wages
or capital returns as the highly protected ACP markets. These tendencies will produce long
term economic costs for the ACP. The structure of the EU’s EPAs with the ACP countries is
unable to support the pro-growth development agenda of the ACP countries, because they
make it extremely difficult to achieve economic diversification in terms of productions
(Messerlin, 2012).
The so called ‘fiscal crunch’ which Messerlin refers to in his report is to be expected
from the elimination of ACP tariffs on imports from the EU. The loss of income as a result of
the cut of tariffs on imports of the roughly 80 percent of tariff lines will have massive
negative implications for various ACP government budgets. Although the EU has stated their
intentions to provide compensations, there is no legal obligation to do so, and in the light of
the current domestic economic situation in the EU, the promise of compensation seems
unlikely. The combination of this ‘fiscal crunch’ and the biased liberalization as described
above are likely outcomes of the EU ACP Economic Partnership Agreements, and are
potentially extremely detrimental to the ACP countries. The intrinsic flaws of these EPAs will
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magnify preexisting conditions in the ACP countries, rather than provide pro-growth
development as intended.
The EU Commission’s communication on trade, growth and development claims that
despite their current economic situation they will refrain from protectionism (EC, 2012). This
is line with the liberalist paradigm which argues that opening up markets to global trade is
the best way of allocating resources. However, as developing countries continue to point
out, the EU is still protecting their own markets, especially in the agricultural sector. The
deadlock in the talks of the Doha Round demonstrates the importance of protecting national
economic interest. The World Trade Organization was established as a forum for negotiating
countries’ economic interests, which is one of the most important aspects of the foreign
policy of nations. The complex nature of attempting to unite the economic agendas of
widely different countries is proving increasingly difficult, especially in the current global
economic environment. The EU recognizes the importance of these multilateral trade
negotiations, and their potential benefits for developing countries as well as developed
countries, but their efforts to create trade agreements outside the WTO forum, despite their
good intentions, sometimes fall short of achieving one of the main EU trade objectives which
is to promote growth and development abroad, as seen in the case of trade agreements with
ACP countries.
The social constructivist school of thought argues that the preferences of actors in
the international system cannot be explained without “recourse to the ideological and/or
cultural norms behind their position” (Hix, 2005, p. 377). This is evident in the Commission’s
communication on trade, growth and development, and it is clear that EU employs its
external economic policies as tools to promote political and economic progress in the
developing world. One of their main priorities, as stated in the Communication, is to tailor
trade and investment policy for those countries most in need. The EU is, according to the
Communication, “guided in all its external action by the core values underlying its own
existence, including the respect and promotion of human rights” (EC, 2012, p. 3). The
problem is not in the intentions of the Communication, but rather in the implementation of
policies to obtain the objectives put forth in the report. In the case of the EPAs with the
African, Caribbean and Pacific countries, the trade agreements may have long term
damaging effects to these developing economies, instead of supporting their growth and
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development. If the EU wants to live up to their word to promote inclusive growth and
sustainable development in these regions, a review of the current trade agreements and
their actual impact is necessary in order to better tailor these agreements to the economic
realities of these countries.
6.0 Perspectives
The EU Commission’s Communication states as one of the basic objectives of the EU
agenda is to ‘ensure that economic growth and development go hand in hand with social
justice, including core labour standards, and sustainable environmental practices’ (EC, 2012,
p. 13). Yet, for all its benevolent discourse on trade and development, there is a gap
between the statements in the Communication and the actual policies which are being
implemented. The current global economic situation and the reshuffling of economic power
is requires swift and decisive action from the EU if it wants to preserve its place as one of the
dominant economic forces in today’s world. The ideology behind EU trade policies is that
liberalization of the world markets will help promote growth and sustainable development
throughout the world, and these intentions are clearly reflected in the language of the
Communication on trade, growth and development. However, it becomes clear that when
trade is driven by a mercantilist rationale, the logics of trade and development are
intrinsically at odds. Although the EU should be applauded for their continued commitment
to the developing world, the overall feeling is that the Communication stops a step too short
of tackling the challenges of today.
The protection of the EU’s agricultural sector continues to attract attention and
critique, especially from the world’s developing nations, who stand to benefit the most from
access to this market. The fact that the CAP was not mentioned in the Commission’s
communication demonstrates that the EU still needs to work to reach real Policy Coherence
for Development. Current CAP instruments such as direct payment and export subsidies to
boost the production and income of EU farmers tends to reduce the attractiveness of the
European market for developing countries, as well as reducing overall world prices. EU
import tariffs distort the market and puts developing countries at a disadvantage as import
prices in the EU are kept artificially high by their trade policies. Attempting to isolate
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domestic markets from fluctuations in world market prices may only further contribute to
increasing world price volatility.
The case of biofuel production and consumption in the EU clearly demonstrates the
detrimental effect of certain EU policies on developing countries. Although biofuel was
originally intended as an environmental alternative to fossil fuels, with the added benefit of
decreasing the EU’s dependence on energy imports, research shows that the greenhouse gas
emissions of biofuel related production are not necessarily less than those of burning fossil
fuels. And restricting the access of foreign importers through various tariff and non-tariff
barriers prevents developing countries from taking full advantage of the potential benefits of
the increasing demand for biofuels. In light of these findings, it becomes clear that the EU
need to revise their Common Agricultural Policy and create a policy framework allow more
access to the European agriculture market. In a commentary to the Commission’s
Communication on trade, growth and development Nicola Cantore of the Overseas
Development Institute (ODI) proposes four suggestions to the directions that the EC should
consider in terms of the Communication. First of all, the aim should be a liberalized
agriculture market in Europe through the abolition of subsidies for EU farmers because they
create market distortions. The EU must find other ways of effectively meeting food security
than supporting EU farmers. Funds could be diverted from EU farmers and used to
implement agricultural development programs both within the EU as well as in developing
countries, which would be more consistent with the EU’s PCD. Secondly, a policy shift away
from subsidies to EU farmers and towards sustainable global agriculture would be an
unambiguous declaration of prioritizing food security, which is lacking in the current
Communication. Thirdly, in the cases where EU policies harm developing country exports
and growth, full compensation is a necessary measure. And lastly, European governments
need to endorse the greening proposals contained in the EC reform proposal, because
greening has the potential to help in dealing with challenging global changes and reducing
the risk of natural disasters in developing countries, which is one of the priorities stated in
the Communication itself. Although the EC Communication declares its intention to better
assess the impact of trade initiatives on the EU and its trading partners, including developing
countries, there is no mention of compensation mechanisms for developing countries in
cases where EU policies are damaging to them (ODI, 2012).
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Analysts say that the collapse of the Doha Round could symbolize the end to
multilateral agreements (BBC, 2008). The EU however, recognizes the importance of a strong
multilateral trading system, and its vitality to developing countries’ long-term interests, and
continues their work to preserve and strengthen this system and reach a resolution to the
Doha Round (EC, 2012). A comatose Doha leaves developing countries, especially the
smaller economies, in a vulnerable position. Losing the advantage of negotiating in a
multilateral forum, developing countries are at a disadvantage when the only tool left to
open a domestic economy to foreign competition is through Preferential Trade Agreements.
Although the EU’s ambition is to promote sustainable development through trade, it is
evident that there are severe shortcomings in their trade policy and trade agreements which
are detrimental to developing countries’ growth and development, as seen in the case of
EU’s EPAs with the African, Caribbean and Pacific countries. The EPA negotiations also
demonstrated the asymmetrical power relationship between the EU and these countries,
and because most imports from the ACP already enters the EU market duty free, the only
offer the EU has in return for the major changes it seeks in ACP trade is a negative, which is
not imposing new tariffs on ACP exports which would hamper existing trade. Because the EU
has failed to correctly evaluate the implications of their EPAs with ACP countries, these
countries are likely to suffer fiscal crunches and bias liberalization as described in the
analysis of these agreements above.
If the EU successfully manages to reopen negotiations on the Doha Development
Agenda there are still discussions about how multilateral liberalization may affect developing
countries. For example, one major concern is the extent to which the reduction of
multilateral barriers by developing countries erodes the preference margins to those
developing countries which already have preferential access to the EU markets (Krishna,
2012). Because ACP countries benefit generously from preferential access to EU markets,
they face significant losses in the case of tariff reduction being agreed upon in the Doha
Round, because it would also mean a reduction in preferences for them. Whether through
multilateral tariff reductions or through unilateral reform of the CAP, the erosion of
preferences will result in losses for the ACP as well as for the Least Developed Countries.
Some studies predict that ACP countries stand to lose over $2bn from preference erosion
and that the benefits of the EBA initiative for LDCs will be greatly decreased. Although other
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studies are more optimistic, suggesting that aggregate losses will be small, they still predict
that a small number of countries will face significant losses (Trinity, 2010b). The issue of
trade preference in the international trading system demonstrates the challenge the EU
faces in the time to come, and the urgency with which it must act to ensure that its own
policies related to trade and development will not be detrimental to developing countries
sustainable growth.
It is clear that the EU faces many challenges in its pursuit of liberalization of world
markets, both with and without a resolution to the Doha Round. The EU Commission’s
Communication on trade, growth and development is an optimistic trade strategy for the
next decade, but unfortunately it fails to be explicit in declaring how it intends to reconcile
its values and trade agenda with its own trade interest. If the European Union wants to
maintain is role as an essential international actor in a rapidly changing global context and
abide by its promise of an integrated approach to trade and development in its external
action, the EU will have to be more ambitious in confronting the various political and
economic challenges ahead.
7.0 Conclusion
This paper is a thorough analysis of two cases of policy development and
implementation in the European Union and their effect on the global trade patterns. The
rapid pace of globalization and the increasing economic interconnectedness of nations
provide challenges and opportunities. The EU is currently struggling with domestic issues
such as slow growth and in the face of the rapidly emerging economies the EU must make
some serious changes if they hope to stay relevant as an economic power on the global
stage in the decades to come. The EU Commission’s Communication on trade, growth and
development was an attempt to adopt the EU trade strategy to the changing economic
realities of today. However, although the discourse in the Communication states the EU’s
commitment to promoting growth and sustainable development abroad, the
implementation of policies demonstrate that vital parts of EU policy is intrinsically at odds
with the very essence of their trade and investment strategy. The CAP is not mentioned
anywhere in the Communication, for which it has received critique, because under the Policy
Coherence for Development, which is referred to in the report, the EU commits to tailoring
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all policy areas to encourage development. The case of the biofuel production and
consumption in the EU shows that the EU acts directly against their trade and development
goals, by supporting local production at the expense of foreign producers. In addition, the
EU further eliminates competition in its agricultural sector by imposing high quality criteria,
which effectively prevents producers in poor developing countries from competing with
European farmers. It becomes even more difficult for the EU to continue to justify the
subsidies of European biofuels as research demonstrate that the environmental benefits of
biofuels may not be as significant as previously thought, and that biofuel production abroad
is linked to a number of environmental concerns such as deforestation and ILCU. The rising
demand of biofuel consumption in Europe represents economic opportunities for farmers
and producers in developing countries, but the various tariff and non-tariff barriers to the
European market prevents them from taking advantage of this demand.
EU trade agreements with the ACP countries may initially seem as initiatives to
promote development through trade. However, the consequences of the collective failure of
the global community to conclude the Doha talks are falling disproportionately on the
poorest countries. Under a comatose Doha round, and despite their good intentions, the
intrinsic flaws in the EPAs are detrimental to the ACP countries’ development, and instead
facilitating pro-growth development, these agreements are creating a biased liberalization
and fiscal crunch, which in the long run is extremely detrimental to developing countries and
will hinder their regional integration as well as integration into world markets.
The EC’s Communication on trade and development fall a step too short in fulfilling
the promises of tailoring their trade and investment policies to those countries most in need.
Even though the discourse in the Communication are in line with both a liberalist view of
liberalization of world markets as means to promote development, and the social
constructivist paradigm of ideological component of foreign policy choices, the reality is that
the EU fails to address or revise vital policy decisions which negatively impact those
countries most in need.
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