European Commission (Brussels)
Bilateral Agreements in EU trade policy
Speech by Peter Mandelson at the London School of Economics
London, 9 October 2006
Europe is a trading continent. Our economic strength is built on trade, and our prosperity is directly linked to the openness of the markets we try to sell to. Opening a market to trade is not just about lowering tariffs - it is about creating markets in which foreign companies - European companies - get a fair deal, with freedom to compete and legal protection when they do.
Our first means of doing this is through the WTO. The WTO is the essential platform for ensuring Europe’s interests are recognised in the global trading system. It is the most effective means of expanding and managing world trade. It helps put trade at the service of development. It is a central pillar of the international system. It is the engine room of the global trading system. We helped build it. We benefit from it. We stick by it.
The suspension of the Doha negotiation in July was a heavy blow for the global trading system - because of the missed global economic opportunities for the world, but because even slow progress is an important symbol of the global consensus in favour of an open trading system. That is why EU is working to see a return to the negotiating table before the end of the year.
In the next few months the European Commission will also set out a series of linked initiatives under the Global Europe framework which I launched last week. They are designed to improve the terms on which EU companies compete abroad. We will renew our Market Access Strategy to focus much more closely on barriers behind borders in our trading partners. We will set out a comprehensive new strategy on China, which will be the single greatest challenge for EU Trade policy in the years to come. We will launch the next steps in our global strategy for protecting intellectual property rights.
And as part of these objectives we will propose a new generation of carefully chosen bilateral free trade agreements. We will focus in particular on major growing markets such as ASEAN, India, South Korea and Russia.
This policy has attracted strong support from European business and industry because Europe’s companies know that their competitiveness depends on access to these rapidly expanding markets. Europe is the world’s biggest exporter and highly competitive. But our exports are not sufficiently focussed on the very economies that are growing the fastest. These agreements can help change that.
Bilateral trade agreements are not of course new in EU trade policy. We have many, and have for a number of years been pursuing others, notably in Latin America and the Gulf. It is not a question of choosing between multilateral and bilateral trade policy. We are not, as some have suggested "shifting our focus away from the WTO". They are two sides of a single programme. This is important. I would like to address it in detail here.
Those who object to this approach tend to do so for three reasons. First, they say bilateral deals complicate and divert trade, rather than creating it. Second, they say negotiating bilateral agreements undermines the multilateral system by diverting energy and attention from the multilateral and weakening countries interest in the multilateral. Third they say that poor countries get a bad deal out of bilaterals - either because they are excluded, or because they are the weaker party.
Do FTAs divert more trade than they create?
It is true that too many bilateral agreements skip the sensitive issues and therefore don’t create new trade. But this is a political choice. We’ve argued strongly at the WTO that rules on FTAs should require real depth, liberalising substantially all trade.
That is why the chief criteria for our new bilaterals is economic. We’ve made it clear to our partners that the EU is only interested in deep Free Trade Agreements across the full range of sectors - like the agreement we signed with Chile in 2002. Not just goods, but services, non-tariff barriers and rules on issues such as investment, competition and public procurement as well.
It is also clear that if the creation of trading blocs or free trade agreements encourages protectionism against those outside the agreements, then a little liberalisation can indeed act as a block to larger liberalisation.
That is why we have to make a political commitment to rooting our bilateral agreements in the wider multilateral trading system. Even if that system delivers results more incrementally. Europe has made that commitment. We expect the same commitment of our trading partners.
Remember that back in the 1980s, some feared a European single market would create a "fortress Europe"; open on the inside, closed to the outside.
In fact, the single European market has not only increased trade between European countries, but Europe’s external trade barriers, have been consistently cut: unilaterally and through two WTO trade rounds.
Today, the EU is the largest export market for more than 120 of the world’s economies. We are party to more FTAs than any other economy in the global trading system and we have some of the lowest average tariff rates in the world. And because the single market has replaced 25 sets of rules with one, it is easier to trade with Europe.
Europe’s bilateral agreements will of course be driven by competitiveness considerations that reflect our trade priorities. But they will be part of a wider commitment to the WTO and stepping stones to future multilateral agreements from which everyone can benefit.
Do FTAs undermine the multilateral system?
And that "stepping stone" role is the chief reason why deep and ambitious FTAs can reinforce the WTO system rather than undermining it.
Over the last five decades the GATT and the WTO have made remarkable progress in lowering tariff barriers and progressively liberalising trade. As a member-led organisation, in which every member has an effective right of veto, the WTO cannot move faster than its collective ambition will allow. The WTO locks in progressive liberalisation: but in necessarily small and consolidated steps.
Bilateral agreements between partners obviously have an important role in driving down tariffs for our exporters. But they can also enable those who want to go further to build on WTO rules. There are areas of importance to EU exporters in areas such as investment, competition and public procurement where WTO rules do not yet fully apply. Pushing ahead in these areas does not undermine the WTO system.
Our bilateral agreements road-test liberalisation that can ultimately be extended to the global system. Global WTO agreements like GATS, which establishes basic rules for trade in services, have been built on the positive experience of services liberalisation at the bilateral level.
And many of the changes the EU will push for bilaterally in the markets of our trading partners - like tougher action on counterfeiting and clearer rules on investment - will also benefit non-EU businesses as well.
Are FTAs bad for development?
What about the argument that bilateral agreements will exploit small or weak economies - or leave them out in the cold? I understand these concerns. But when the EU is talking about agreements with the emerging economies of ASEAN, or Korea, or India the warning about strong-arming seems a little misplaced.
Part of the argument for region to region agreements like that we are seeking with ASEAN is the creation of bigger markets, fully able to define and defend their interests. And I have already made the point that it is these markets themselves that are looking for these agreements.
Europe also has bilateral trading agreements with developing countries that are not yet ready for ambitious liberalisation or adding to WTO rules. Our Economic Partnership Agreements with African Caribbean and Pacific countries set out to achieve many of the same goals - building regional markets, strengthening businesses and creating sustainable industries and jobs, slowly lowering barriers to markets to let them grow. But the timeframes here are long and tailored to the needs of the countries themselves.
We do however need to consider carefully how our bilateral agreements with emerging economies affect the preferential market access we grant to the poorest through tariff reductions or eliminations. We need to weigh that impact very carefully. For these agreements to give everyone a leg up, many of our emerging country partners will need to consider how they can help the poorest - especially by extending their own preferential access schemes.
In development terms, bilateral agreements can also be a spur to reform. Reforming governments like that of India or members of ASEAN see bilateral trade negotiations with the EU first as a means of increasing their access to our markets, creating opportunities for growth and development in their countries.
But countries like India also look to the outside world for ways to encourage and lock in reform. This is one of the reasons why there are so many countries pressing for bilateral agreements with the EU - far more actually than we can respond to.
Bilateral agreements can also help drive forward regional economic integration which is also good for development. This is one of the reasons why the EU has always looked for regional bilateral partners where that is possible.
With Mercosur and ASEAN, the Gulf Cooperation Council and the Central American and Andean countries, our goal is to reach agreement not with individual countries but with regional groupings who want, in their own ways, to draw the lessons of Europe’s successful experience of economic integration.
Just as an example; the ten countries of ASEAN have more than 30 free trade agreements among themselves - each with its own slightly different rules, all of which have to be navigated by exporters. The prospect of an EU-ASEAN bilateral trade agreement is one of the strongest incentives to replace that complexity with a more unified market: replacing thirty sets of rules with one.
India, which is our focus tonight, is a good example of these potential benefits. India’s strategic choice in the early 1990s for economic reform and openness has been the basis of its economic growth.
India of course faces huge challenges as it develops. But it is committed to a policy of openness. India’s growing role in the WTO is an important sign of that: India is committed to a Doha agreement.
And yet at the same time they are pressing for a bilateral trade and investment agreement with the EU. Why? Because India wants access to our markets, of course. Because they want to strengthen relations with the European Union. And because they want to maintain the dynamic of integration into the global economy and reform within India. India sees bilateral and multilateral trade policy as reinforcing each other.
For Europe - and for Britain - this is something we must support. We want to see the full integration of these emerging economies into the global economy and wider international system. And we want to strengthen our ties to them. That is why at the EU/India summit later this week I expect both sides to indicate their willingness to move towards negotiations for a wide-ranging trade and investment agreement.
Conclusion: No retreat from multilateralism
I think that at the roots of concern about how an active bilateral trade policy fits with commitment to the WTO is the fear of the bilateral trade deal as a quick political fix: the easy option that distracts politicians and trade negotiators from the bigger picture.
In reality, five decades of multilateral liberalisation have continued in close parallel with a number of waves of regional and bilateral free trade agreements. Even the boom in bilateral and regional agreements since the mid-1980s did not prevent agreement in the Uruguay Round and has not stopped us coming close to a Doha deal that already offers two to three times the liberalisation agreed in Uruguay. In the end, it all comes down to political choices.
Doha has not stalled because of bilateral trade agreements, and bilateral trade agreements need not be fatal to its success. The bilateral agreements I proposed last week have been in preparation for over a year - long before our current Doha problems.
What I have suggested tonight is that the risks in trade policy are not so much in the balance between multilateralism and bilateralism, but the choice between an open and ambitious approach to bilateralism that drives forward the dynamic of global liberalisation and a closed approach to bilateralism that looks for the quick political fix or opens some borders only to close others.
The WTO will remain the essential platform for ensuring Europe’s interests are recognised in the global trading system. Bilateral and regional policy can only complement the multilateral system. The key is to prioritise effectively in your choice of partners - which we have done - and to manage negotiating resources effectively, all the time ensuring that the first priority and the first call on the time of the Trade Commissioner and of my services is the WTO.
The EU’s priority will be to ensure that any new bilateral agreements, including our own, serve as a stepping stone, not a stumbling block for the widest possible openness in the global trading system.