The External Economic Relations of the EU

Foreign policy in the defence and security fields has always been jealously guarded preserve of national sovereignty in the EU. Even with the development of foreign policy cooperation and now security and defence policy, the EU’s role in this field is extremely limited. The differing interests and views of Member States make it difficult to achieve a common policy, it has proved difficult to even adopt and maintain common positions. The presence of neutral states in the EU adds to the complications of actions in this field. So the one area of foreign policy where the EU does power is external economic relations.

The reasons for the Common Commercial policy

A single market requires a

• Common External Tariff: otherwise trade checks would need to remain in place to prevent trade deflection, the routing of goods through low tariff countries to avoid high tariffs.
• Common Commercial Policy: the rules governing trade policy must be the same across the EU, requirements with regard to non-tariff barriers have to be harmonized and preferential trade agreements have to be common.
• Bargaining power: The EU can use its size and importance in world trade to pursue its interests in trade negotiations. Forces shaping trade policy
• Member States particular interests: countries, regions or products that are especially important.
• History of the Member States: in particular their colonial inheritance, these two factors have led to a host of preferential trade arrangements.
• GATT/WTO: rules and negotiations.
• Changing conventional wisdom of trade and development policy

The Common Commercial Policy

The EU’s trading policy towards the rest of the world is called the Common Commercial Policy and is established under Articles 100-116 of the Treaty of Rome (Title IX Articles 131-134 of the Consolidated Treaty). “By establishing a customs union between themselves Member States aim to contribute, in the common interest, to the harmonious development of world trade, the progressive abolition of restrictions on international trade and the lowering of customs barriers” (Article 131). The CCP was to be uniform policy (A133.1) and it encompasses

1. Tariffs and their operation.
2. Trade Agreements.
3. Trade liberalisation.
4. Export aids
5. Contingent protection: safeguard measures and anti-dumping.

The CCP is operated by the Commission (A133.2). New trade agreements are negotiated by the Commission, in conjunction with a special committee appointed by the Council, under a mandate laid down by the Council of Ministers (A.133.3). Decisions on trade agreements are made by QMV, unanimity is required where agreements contain provisions that go beyond the Community’s internal powers, or relate to cultural and audiovisual services, educational services, and social and human health services (A 133.5/6).

These current arrangements tidy up the situation resulting from an ECJ case concerned with the Uruguay Round Agreement. The URA covered not only trade in goods but also services and intellectual property. The Commission sought a ruling as to whether these new areas were part of the CCP and thus decisions relating to them coming under EC procedures. The ECJ ruled in November 1994 that trade in goods and some services (telecommunications, audio-visual services and electronically transmitted financial services) fell exclusively within the Commission’s jurisdiction. Other services were a joint responsibility of the Commission and the Council. Intellectual property was within the jurisdiction of Member States.

GATT Negotiations involving the EC/EU

• Dillon Round: 1960-62, tariff reductions of 20% on a wide range of industrial goods; compensated third countries for trade diversion caused by the formation of the EC
• Kennedy Round: 1964-67, Tariff reductions of about 32% on a wide range of industrial goods.
• Tokyo Round: 1973-79, reduced tariffs on industrial goods by a further 30%, improved legal framework for trade; addressed non-tariff barriers.
• Uruguay Round: 1986-93, expanded GATT rules to cover agriculture and services, improved dispute settlement, further reduced tariffs, created the World Trade Organisation (WTO) to replace the GATT.
• Doha Round: 2000- with the failure of the ministerial meeting in Cancun it is uncertain where this round is going.

Regulations in the CCP

Tariffs

Tariffs are no longer the major form of protection the average MFN tariffs is around 4%, although tariffs on some goods are much higher than this. Tariffs on agricultural goods can be over 100%! Tariffs are very low or not levied on raw materials but are much higher on labour intensive products. Poor countries account for less than one-third of rich country imports, but two-thirds of imports subject to tariff peaks, or duties of over 15%. India accounts for less than one per cent of the value of imports into Britain, but over three per cent of the value of British customs receipts (Oxfam, 2003; p. 28). Virtually all tariffs are fixed (bound) under WTO rules, so they cannot be increased.