Sabine Weyand Director-General for Trade, European Commission
The Treaty of Lisbon represented a once in a generation reset of the EU’s trade and investment policy. Effectively, it transformed trade into a truly European competence, providing the foundation for the EU to become the global trade and investment powerhouse it is today.
As the Common Commercial Policy (ccp) continues its transformation into a frontline European policy, highly important both in its own right and through its impact across the policy nexus, this book can serve as a “go-to” reference point for academics, researchers, policymakers and students of the European Union for years to come.
In a similar way to Opinion 1/94 on the wto Agreement in the mid-1990s, the Treaty of Lisbon provided the basis for the EU to play its full role in the shaping of international trade and investment policy. It achieved this by completing the process – which had been taking place in fits and starts since 1957 – of transferring to EU level the competences which the EU’s competitors wield.
Key in this has been the Europeanisation of trade competences regarding services, commercial aspects of intellectual property, and investment, which now join trade in goods as Union’s exclusive competences. The EU now speaks with one voice on these matters at an international level, bringing its considerable heft to bear on crucial debates and acting decisively when legislative or treaty-making activity is required.
The second key stage of the post-Lisbon journey was Opinion 2/15, which joined the dots to create EU-only trade agreements. Whilst the Treaty of Lisbon was a significant step forward, it did not provide complete clarity in this regard.
It was, perhaps, inevitable that the agreement reached in the Constitutional Convention (which eventually led to the Treaty of Lisbon) would lead to debates on the precise extent of the transfer of competence.
This did indeed transpire to be the case, particularly in two fundamental areas of the EU’s future trade and investment policy: trade and sustainable development (tsd) and investment. Between the entry into force of the Treaty of Lisbon and the rendering of Opinion 2/15 in May 2017, there was an ongoing tension between the Council and the Commission as to the exact contours of the Union’s competence in these matters.
This manifested itself whenever the Commission made a proposal to the Council which touched on either one of these matters, leading the Commission to eventually request an Opinion from the Court as regards the Singapore fta. The Court’s Opinion confirmed the nature of the shift. Most importantly, it confirmed that the EU had exclusive competence for trade and sustainable development (tsd) matters and for foreign direct investment (albeit not for isds and portfolio investments).
This confirmation permits the Union to include tsd chapters in EU-level agreements and to ensure that these are ratified only at EU level, giving the EU a leading voice in developing a coherent approach to sustainability in its trade agreements.
Just as importantly, the Court confirmed that the Union had exclusive competence for investment market access and for investment protection rules (and shared competence for investment dispute settlement and portfolio investment).
This gives the Union a clear set of powers to act in the field of investment policy, an area which has received increased attention from policymakers in recent years.
Looking to the future, the European Union is taking steps to build on the foundations provided by Lisbon.
The Union’s strength as a trading power is highlighted by the number of agreements it continues to sign and bring into force with partners around the world. Notable examples include the comprehensive deals with Japan and Canada.
The economic data is overwhelmingly positive in relation to the benefits of this trade agenda: estimates show that one in seven EU jobs is directly or indirectly supported by exports.
However, in the increasingly interconnected global economy, trade is by common consensus about much more than trade.
Recognising that “with great power comes great responsibility,” European leaders are moving towards a view that the strength of the EU trade and investment policy should be leveraged for wider geopolitical goals, helping to defend European interests at home and abroad.
The Commission is notably reinforcing its implementation and enforcement agenda, both inside the Single Market and across the Union’s worldwide network of trading relationships. This encompasses a mix of offensive and defensive tools, such as increased investment screening and measures to address the distortive effects of foreign subsidies within the Single Market, and internationally, stronger measures to help EU exporters gain more value from partner markets, and stronger enforcement of tsd commitments, notably on climate action and labour rights. With the clarifications brought by the Court in Opinion 2/15 regarding tsd this can advance on a solid base.
The ccp was already moving in an increasingly geostrategic direction before the Covid-19 pandemic struck. The unprecedented nature of the crisis – with its devastating health, social and economic impact – only served to boost the momentum and support behind this approach.
The coronavirus political environment accelerated changes and shifts that were already in evidence before the pandemic, including widespread calls for protectionism, stronger state intervention in the economy, economic nationalism and the rejection of global institutions.
The European Commission therefore adopted a twin-track approach to evolving the ccp, doubling down on its commitment to openness, global cooperation and rules-based multilateralism, while launching a root-and-branch review of the policy to assess where it could be reinvigorated to deal with the unique conflagration of new challenges.
The next evolution of the ccp, then, is centred around a bespoke EU trade policy approach for the post-coronavirus global economy, based on the concept of “Open Strategic Autonomy”.
In essence, this means reaffirming the ccp’s contribution to Europe’s global leadership ambitions across a range of areas, in line with the aims of a more geopolitical European Commission;
“Open Strategic Autonomy” juxtaposes the need to build stronger alliances with like-minded partners and the need to shape a fairer and more sustainable globalisation based on strong and up-to-date multilateral rules, with a tougher, more assertive approach to protect European businesses and consumers, notably through stronger trade defence and enforcement, and through the diversification of supply chains to assure strategic independence.
With this latest evolution, the ccp continues to widen and deepen its significance and influence as a truly European policy, and this very welcome publication will provide a helpful compendium for the scholars and policymakers charged with its future development.
Bernd Lange Chair of the Committee on International Trade, European Parliament
Trade Policy Since the Entry into Force of the Treaty of Lisbon
This book traces the development of the ‘Common Commercial Policy’ in the last 10 years, and editors and authors merit praise for their remarkable work: Indeed, the Treaty of Lisbon marks a fundamental shift in the evolution of the European Union’s trade policy. It formalises the European nature of this policy field – for which the added value of a ‘common’ approach has been undeniable since 1957 – by subjecting the Common Commercial Policy to the full participation of the European Parliament. Europe is only strong when we speak with one voice on the global stage, and what better way to leverage the power of our common market than by representing it with a common stance when engaging with the rest of the world. Especially during times in which the global, rules-based order is under attack, the world needs a champion of values-based trade to defend the rule of law – an actor whose actions are based on a strong democratic mandate and whose executive is scrutinised by the directly elected Members of the European Parliament and the governments of EU Member states represented in the European Council.
Empowerment of the European Parliament
The Treaty of Lisbon turned the European Parliament into a fully-fledged co-legislator and thereby into a decisive actor on the trade policy stage. This marked a fundamental shift in how this institution and the Members of parliament engaged in this policy field. On the basis of Article 218 tfeu, the Parliament’s approval of all trade agreements is now required. While this is primarily a change of internal EU institutional competence, granting Parliament competences where it used to have none, it meant de facto a substantial transfer of competence from the national level to the Union level. I remember very well how a Secretary of State of a Member state government called me after the Lisbon Treaty entered into force and asked me whether this transfer of competence was really to be understood in this way.
The European Parliament had to define its role, ambitions and positions and establish ways of engaging with other institutions, governments of EU Member states and those of third countries. This did not happen overnight.
Before the Lisbon Treaty, trade policy was, in the European Parliament, an appendix of industrial policy: During the 1990s, the Committee on Industry, External Trade, Research and Energy was in charge. The need to give trade policy a stronger weight was recognized by Parliament with the establishment of a separate committee and by engaging in a constant dialogue with those responsible in the Convention for a European Constitution, which then led to the Lisbon Treaty. Representative of the Parliament’s commitment was Enrique Barón Crespo, who was also chairman of the new Committee on International Trade from 2004 to 2007.
Meanwhile, the European Parliament, led by the Committee on International Trade, has become a very active player in the world of trade and has ensured that the voices of citizens are not drowned out in this complex policy landscape.
Cooperation with other institutions, Member states, and third countries has become a regular feature of the day-to-day work of the inta committee. The European Parliament has continuously fought for – and won – new rights in all phases of the common commercial policy. The main instrument for this was the inter-institutional framework agreement of 2010, which Parliament and the Commission concluded to fill their bilateral relations with substance. In it, the Commission committed itself to information and consultation routines vis-à-vis Parliament. For the phase prior to the Council’s mandate to start negotiations of international trade agreements, a de facto informal right of consultation applies.
We have established an excellent working relationship with the European Commission’s Directorate General for Trade based on the understanding that at the end of the day, we all work for the benefit of the citizens of the European Union but also because both the European Parliament and the Commission share the broad view that a European approach is the best way forward, in contrast to the Council which is often more oriented towards national interests. The Commission is fully aware of the fact that without a positive vote in the plenary of the European Parliament, no trade agreement or trade legislation will ever see the light of day.
This does not mean that we always see eye to eye, far from it. The Parliament has clashed with Commission and Member States on numerous occasions, most notably in 2012, when it proved that it would not shy away from voting down agreements that it considered lacking in substance or going against the interests of citizens. The most famous agreement which did not pass the test was the Anti-Counterfeiting Trade Agreement, also known by its acronym acta. For the first time, Parliament has made use of its right under the Lisbon Treaty to reject an international trade agreement. 478 meps voted against acta, 39 in favour. 165 meps abstained. acta had become a symbol of pre-Lisbon intransparent backroom policies which parliamentarians clearly rejected. With this vote, the European Parliament had truly arrived on the trade stage.
Following up on the acta controversy, inta pushed hard to increase transparency. Today, trade policy affects entirely new areas about which there is more need for public debate than was the case, when the crux of trade policy consisted in lowering tariffs. Transparency is therefore an absolute imperative; an intensive debate with civil society is equally so. In that context, I have secured acceptance for vital improvements: access to EU negotiating documents is markedly better, all meps have equal and full access to them, EU negotiating proposals are now published on the websites of the European Commission, minutes of negotiating meetings are made public, and a standing civil-society advisory group has been set up, among a host of other improvements.
The European Parliament has pushed for its own priorities on numerous other occasions. The current focus on trade and sustainable development would be unthinkable without the European Parliament championing this particular aspect of trade policy. The link between trade and labour and environmental standards is highlighted not only in the EU’s trade agreements, but also in many regulations, most notably in the EU’s Generalised System of Preferences, which requires the adherence to 27 international conventions in return for improved access to the European market.
The protection of investments through the use of Investor-State Dispute Settlement (isds) provisions marked a major clash at the beginning of the Juncker Commission’s mandate. A majority of members of the European Parliament made clear that it rejected isds on grounds of far-reaching provisions protecting the rights of investors and their impact on the right of states to regulate, lack of transparency in proceedings and stipulations for the conducts and selection of arbitrators.
We are experiencing unprecedented globalisation and our citizens and businesses are in the midst of it. As meps, it is our democratic duty to play a leading role in this process. If this process is to benefit the whole population, we cannot allow the negotiators to act alone. That is why we have […] set out our guidelines for the type of trade agreement that the Commission should be advocating in the negotiations.
These guidelines led to an overhaul of the European Union’s investment policy and a new approach to balance the rights of investors with the legitimate objective of states to regulate in the public interest. It was totally clear that a trade agreement with Canada (ceta) with an old style isds would not have had a chance of getting passed by the European Parliament. Working with other Social-Democrats, I have resolutely opposed private arbitration panels, which are not transparent, and, in the face of fierce resistance, I have secured acceptance for refocusing European investment policy. In the long term, we are committed to the establishment of a multilateral arbitration tribunal with an appeal chamber and independent judges. With my close personal involvement, we even managed to secure inclusion of those provisions in ceta, even after negotiations on the text had officially been concluded. The system that emerged, known as Investment Court System, has become the only acceptable dispute resolution mechanism for the EU’s investment treaties from thereon and hopefully the foundation for a multilateral investment court.
As co-legislator, the European Parliament is also fully involved in the legislative process and has turned out to be a strong negotiator in its final phases, during the so-called trilogue, when Parliament’s negotiating team, the Council presidency and Commission representatives meet to find a compromise that is acceptable to all institutions involved. Thanks to its years of experience in these settings, and faced with a rotating presidency which often has little experience dealing directly with the European Parliament, the Parliament’s team enters these talks with a built-in advantage.
New Issues
Not only the actors have changed, so have the issues and the attention of the public, both having a strong effect on the way trade policy is shaped. We have moved away from a narrow approach to trade, with a focus on trade in goods and traditional barriers to their trade such as tariffs and quotas to a much broader approach. Today, every EU trade agreement features a trade and sustainable development chapter, with provisions on labour rights and environmental standards as well as corporate social responsibility. Services and intellectual property rights are covered extensively. We try and find ways to tackle 21st century challenges, such as data flows and look for answers to the question of how the challenge between the need to protect citizens’ data and enabling companies to do business across borders can be resolved. Trade remains a slow-moving policy field, due to the ever-increasing number of actors, themes and stakeholders involved, but we are making steady progress.
The rise in public attention also has had a major effect on our trade policy. While trade traditionally was a rather niche policy field, public attention spiked during the early days of the ttip negotiations. Tens of thousands of protestors took to the streets in my home country Germany, a protest movement unimaginable only a few months before. The ensuing public discussion saw the Commission being pushed into a corner, constantly having to defend itself against an ever-increasing list of accusations, some more true than others, ranging from conducting negotiations in secret, to undermining consumer standards and enabling ‘fracking’ inside the European Union. This development led to a substantial increase in transparency measures, long called for by the European Parliament and other actors. The European Commission, for the first time in its history, published EU negotiating positions on its website. I was personally involved in the push for transparency, having negotiated full access to all negotiating documents for Members of the European Parliament with then trade Commissioner Cecilia Malmström. This access was subsequently broadened and now applies to all EU trade negotiations.
Another remarkable development during the last years is the shift towards a values-based trade policy. If economic interests and European values diverge, the latter should prevail. While reality may still be lagging behind this ambitious goal, the European Commission’s 2015 “trade for all” strategy nevertheless marked a clear departure from the approach of earlier Commissions.
This has also led to active enforcement of sustainable development provisions. For the very first time, the European Commission took action under an fta to address non-compliance with tsd chapter provisions: The case launched against South Korea in 2019 is seen by many as a watershed moment in the Union’s trade policy which may lead the way towards a trading block that enforces the entirety of its agreements with the same rigor. Proceedings on withdrawing preferential market access for Cambodia for non-compliance with the 27 core conventions which are part of the gsp regulation tell the same story.
Where Is Our Trade Policy Heading in the Next Decade?
In the face of global change, measures must be developed now to shape future trade. It seems clear that the consequences of the Corona pandemic will lead to a longer-term change of the role of the state and of the EU’s positioning with regard to globalization. For the development of trade policy measures, the following four principles should offer guidance.
1. The best way to maintain economic, social and political stability is the further development of the multilateral system. It is therefore important to respect the rules of the wto and, of course, to modernise them in order to adapt them to the requirements of these times. Unlimited subsidies for the relocation of production are not in line with the gatt agreements and Article 3 of the wto Agreement on Subsidies and Countervailing Measures. As the wto jurisprudence has shown, wto rules are quite clear in this respect.
2. Values-based trade policy should always have the interest of the partners in mind, especially those of the less developed countries. This is particularly important given the current trend of nationalistic, selfish reflexes and brutal economic power structures.
3. Even if the current lockdown measures result in less co2 emissions, the climate crisis did not disappear with the corona pandemic. If no coordinated measures will be taken, more shocks for trade and value chains seem unavoidable. In this respect, the greening of trade policy must also rank high on the agenda of post-corona recovery trade policy
4. In all trade policy measures, it must also be clear who ultimately benefits from the measures. The retrospective analysis of the 2008/2009 global financial crisis management reveals that rescue operations benefited large companies more than ordinary people. In 2017, the oecd pointed out that this exacerbated pre-existing trends towards greater inequality of wealth and income. It will be crucial to ensure that the trade policy measures developed to fight the consequences of the Coronavirus pandemic benefit all stakeholders, including workers and smes and do not only benefit a few companies. Only if this is achieved, public acceptance of continued open trade will be possible.
Sustainability
Europe must ensure that trade policy supports green and sustainable policies across the board. There are many levers that we have already identified. Work on a carbon border mechanism is on-going, fta provisions on trade and its impact on the environment are becoming more detailed and robust. As the largest economic bloc in the world, I believe we must also live up to the consequences of our consumption. We cannot tolerate human rights abuses and look the other way. That is why the European Parliament has pushed for a horizontal due diligence legislation. We have started work inside our house; I expect the Commission to come forward with a legislative proposal by next year. Very recently, the EU adopted a new strategy on a European green deal. A consensus is emerging that environmental provisions should be reinforced in the trade agreements in particular when it comes to enforcement.
Implementation
A key aspect for future work will be the implementation of concluded agreements and passed legislation. Insofar, we have our work cut out for us: the at times astonishingly low utilisation rates of our trade agreements by small operators needs to be analysed; no doubt, our agreements need to become more user-friendly. We need to be vigilant in applying the Union’s trade defence instruments and investment screening policies to strike the right balance between a Europe that is open for business but not naïve. Compliance of our trading partners with the entirety of our trade agreements will also be high on our agenda. The creation of the post of a ‘chief trade enforcement officer’ suggests that the Commission has understood the task ahead and is willing to tackle it head-on. The European Parliament will keep close watch and will do its part in guiding the work of the enforcement officer.
Coherence
Trade policy is not conducted in a vacuum, a fact we at times forget. The most striking example of lacking coherence to me are the fisheries subsidies talks at the wto, during which the EU was a staunch supporter of cutting subsidies to new fleets and the EU’s very own fishery policy, in which it calls for the exact opposite. We need to ensure better coordination between policy fields, and trade policy, with its many cross-cutting issues, must pay special attention to this need
Resilient and Fair Supply Chains
At the time of writing, the Covid-19 crisis has the world in a tight grip. The crisis has spread from its Chinese origins with incredible speed and forced major economies into shut-downs, bringing production to a stand-still, disrupting global value chains and stifling demand. It also led to trade restrictions and export bans on medical products and even foodstuffs.
The most important lesson we need to learn from the current crisis is that value chains which rely exclusively on certain countries or regions are exposed to substantial vulnerabilities. In rebuilding more resilient supply chains, companies need to ensure that labour rights are guaranteed throughout the supply chain, that there is job stability to allow proper planning and that orders are paid on time. Outsourcing economic risks at any price is not compatible with global responsibility. There is a clear need for a level playing field. And the level playing field in the internal market also calls for a uniform EU approach. Europe needs a binding supply chain law that ensures the sustainability and crisis resistance of the value creation process. It should oblige companies to carefully examine their human rights ́ and environmental risks and their susceptibility to crises and to take appropriate measures to prevent and mitigate such risks.
It is abundantly clear that we live in a global village. Tackling global challenges will only be effective through international cooperation. Unilateral measures, going at it alone, will ultimately harm everyone in the interconnected global village. One result of the 2008/2009 global financial crisis was the G20’s undertaking to abstain from protectionist measures and to maintain the rule-based trading system. However, the necessary steps remained very limited. In view of today’s challenges, the need for a fair, rule-based multilateral trading system has increased significantly.
The Corona Pandemic will not end globalisation. We have the opportunity to make it better and fairer and the European Parliament has an important role to play.