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European Union Summary

While the EU has been active in furthering the development interests of the Doha Round, particularly in terms of preference in market access, the reform of its agricultural policy remains a formidable challenge for the negotiations. The EU has demonstrated a willingness to hear the complaints of the developing world voiced in Cancun, as evidenced by the altering of its stance on the Singapore Issues and the introduction of its "commodity action plan". Furthermore, the EU demonstrated a willingness to lead, as evidenced by a May 2004 letter sent by the EU to all WTO trade ministers outline opportunities for progress in the agenda. The political pressures hindering domestic policy reform remain, however, and they will likely continue to temper the opportunities for breakthrough Doha's advancement.

Reform of Agricultural Protection

In the context of the Doha Development Round, the European Union's agricultural policies have been under considerable scrutiny by the international community. Its Common Agricultural Policy (CAP) has been criticized for its high level of production subsidies and price-supports which have particularly distorting effects on world agricultural markets. The EU asserts, however, that its policy is oriented primarily towards the non-trade aspects of agriculture, such as environmental quality, consumer protection and the preservation of farming as an important element of Europe's culture. However, even its proposed non-trade agricultural policies, such as geographical indication labeling and a ban on hormone beef imports and genetically modified crops have been argued as significantly impacting trade for countries exporting to the EU.

The reform of the EU's system of direct subsidies remains the primary obstacle for openness in EU agricultural trade. Prior to the Cancun ministerial meeting, the EU and the US presented a draft framework for the liberalization of agricultural trade. Neither mentioning the gradual elimination of export subsidies nor addressing the specific complaints of developing nations, the proposal was far less ambitious than the expectations set at the start of the Doha Round. The limited reform embodied by the proposal has been credited as a primary cause of the breakdown in negotiations. Since Cancun, the EU has sought to communicate a willingness for greater flexibility in agricultural negotiations. In a May 2004 letter addressed to all WTO trade ministers, Trade Commissioner Pascal Lamy made explicit EU willingness to fully eliminate export subsidies. However, political difficulties surrounding CAP reform compounded by the need for parallel movement by politically compromised actors such as the US imply that progress towards an actual agreement may be slow to come. [1]

Singapore Issues and the Doha Agenda

The EU has been pushing for a multilateral agreement on the Singapore Issues-government procurement, investment, trade facilitation, and competition policy. While most developing nations remain unconvinced of the necessity or value of negotiating multilateral rules on these issues, the EU maintains that they are fundamental to the sound functioning of global trade. It insists that all WTO members would benefit greatly from a multilateral framework for the issues. Many developing nations fear that the inclusion of the Singapore issues in the negotiations would overload the already crowded agenda and undermine the development focus of the Doha round.

Since the Cancun ministerial, the EU has sought to communicate that it has heard the concerns of the developing countries, stating the intention to be more flexible and to support the "unbundling" of the Singapore issues--treating them on an issue by issue basis. [2] The EU, however, maintains its conviction regarding the value of incorporating the Singapore Issues into the WTO, and particularly emphasizing trade facilitation and transparency in government procurement.

Development

The European Union supports granting least-developed countries (LDCs) tariff-free access to the markets of industrialized nations and suggests that industrialized nations should be willing to offer extremely generous tariff cuts to developing nations without concern for reciprocity. [3] The EU is making progress toward deepening economic relations with 76 developing countries in the designated African, Caribbean and Pacific Group of States (ACP). Negotiations based upon the Cotonou Agreement concluded in June 2000 focus on fostering regional integration among the ACPs, building up institutional capacities, progressively and flexibly liberalizing trade in goods and services, and establishing simple and transparent rules for conducting business. The EU intends that this process, aimed at improving domestic production through the creation of wider markets for standard goods, will enable the developing states to gain competence in trade and development. In February 2004, the EU adopted a "commodities action plan" intended to help developing countries to combat commodity dependence. Particular attention in the plan will be directed towards the African cotton sector, both offering technical assistance to improve competitiveness, and discussing reform in EU production support for its domestic cotton farmers. [4]

Environment

The EU recognizes that trade liberalization and environmental protection both constitute important bodies of international regulation. However, in the exceptional cases that multilateral environmental agreements (MEAs) have trade implications or that WTO actions have environmental implications it is unclear which should take precedence. The EU sees an impending need to clarify this relationship in the international legal arena, balancing both trade and environment objectives such that member countries will be able to reconcile the rights and responsibilities embodied in MEAs with the rights and responsibilities of WTO membership. Initial proposals by the EU to allow observer status for MEA secretariats in the meetings of the WTO's Committee on Trade and the Environment (CTE) are currently being considered by other member countries. [5]

The EU is also concerned about the role of production and process methods (PPMs) in the WTO. A country cannot discriminate against imports on the basis of the way in which they are produced or harvested; however, the European Union wants the WTO to allow the use of PPM rules and MEA trade measures to pursue environmental objectives. It also wants greater recognition for the precautionary principle, used to invoke a trade barrier when scientific evidence is inconclusive or insufficient on a matter, and it is up to politicians to determine and safeguard the level of risk acceptable to the population. Developing countries have doubted the motives of the European Union in wanting environmental issues like these to be addressed in a trade round, since they often enable rich countries to create import barriers by imposing complicated regulations that poor countries may have difficulty meeting. Since the breakdown at the talks in Cancun, the EU has taken a more flexible attitude on the environment and the issue of geographical indications in order to maintain some momentum in the negotiation process. [6]

Labor Standards

The EU supports core labor standards and urges the WTO to cooperate more closely with the International Labor Organization. It wants labor standards incorporated into the WTO, but understands that any attempt to link labor standards to trade sanctions or other trade-protection measures would be doomed to fail against a groundswell of opposition from other nations. Instead, it proposes that the WTO offer positive incentives to developing nations who adhere to high labor standards, while helping other developing nations hurt by the system to use the dispute settlement process to guarantee fairness in trade relations. [7]

Transatlantic Trade Relations

The economic relationship between the EU and the US is the deepest and broadest of any two trading bodies today. However, in recent years, these two have also in recent years had an unprecedented number of trade disputes. [8] During the 1990's the US brought successful action against two aspects of the EU's agricultural policy: the prohibition of hormones in beef imports, and a quota system for banana imports. In a WTO dispute settlement case filed by the US in 1996, the Appellate Body ruled that the EU's refusal to accept imports of US hormone-treated beef violated its WTO commitments, and authorized the US to impose retaliatory tariffs on imports from the EU of $117 million per year. This measure is still active. A similar process ruled that a system of import-quotas for bananas held by the EU was in violation of its WTO commitments, authorizing retaliatory tariffs on the order of $191 million per year by the US. A 2001 deal between the US and the EU ended the dispute.

On the other hand, the EU has repeatedly filed WTO dispute settlement cases challenging US antidumping and countervailing measures for steel. The most recent case challenged safeguard measures (30% import tariffs) enacted by the US in March 2002; in May 2003, the Dispute Settlement Panel ruled that the tariffs violate WTO rules. After the EU threatened to impose $2.2 billion in retaliatory tariffs on the US (strategically tailored against production in electorally important states) the Bush administration agreed to end US tariffs on foreign steel. This ruling marks a significant achievement for the multilateral dispute settlement process in the WTO. More recently, the EU began the process for a new round of trade sanctions against the US, in retaliation to its Byrd Amendment, which mandates the distribution of anti-dumping duties to US companies. In January 2003, the WTO Appellate Body ruled that the US had until December 2003 to bring the amendment into compliance with WTO rules. The US has not yet complied and the EU is presently seeking authorization for its retaliatory duties for this matter. The EU has also appealed to the WTO to rule against the way the US calculates anti-dumping duties in a practice called "zeroing." "Zeroing" involves calculating average dumping margins by stating negative dumping margins as zero instead of the actual negative amounts. [10] The EU claims that as a result of this methodology, the US calculates an amount of dumping in excess of the actual dumping practiced, and is seeking the establishment of a panel to investigate the WTO compatibility of these practices. Finally, in May 2003 the EU was granted permission to impose countermeasures in retaliation to US Foreign Sales Corporations (FSCs), a system of tax breaks for US exporters, ruled by the WTO as constituting an illegal export subsidy. The EU's retaliatory sanctions began in March 2004, and will be gradually imposed to the level of $4 billion, if the tax breaks are not repealed by the US Congress.

Looking Ahead

The collapse in negotiations in Cancun was a formidable setback for multilateral trade negotiations, and the EU's posturing played a large role in the conference's fate. Agriculture was the central issue at Cancun while the Singapore issues were a damaging distraction. If negotiators are moving towards accommodation on the Singapore issues, the next step for the EU is to focus on making significant progress on agriculture. The EU should take the initiative and not be held back by attempts to extract concessions from developing countries in other areas of the negotiations, or its desire to extract a reciprocal offer on agriculture from the United States. Without new initiatives in reaching a multilateral consensus for agriculture, particularly from the EU, there is still likely to be drift without real energy being put into multilateral WTO negotiations and increasing attention being paid to bilateral and regional negotiations.

Last updated May 2004

[1] Letter by Pascal Lamy and Franz Fischler to all WTO Members, 9 May 2004.
[2] "EU may be willing to drop Singapore issues from WTO trade talks." EU Business, November 19, 2003.
[3] For more info on EU and Development, see the EU-LDC Network.
[4] "EC Adopts Commodities Action Plan" BRIDGES Weekly Trade News Digest Vol.8, Number 6.
[5] "WTO Environment Committee Stuck on Role of MEA Secretariats" BRIDGES Weekly Trade News Digest Vol.7, Number 25.
[6] For more information on EU policies regarding trade and the environment, see: Europa Trade Issues Page
[7] "Commission welcomes conclusions promoting core labor standards." Malta Business Weekly. 24 July, 2003.
[8] Transatlantic Trade Relations: Challenges for 2003, Jeffrey Schott and Gary Hufbauer, Journal of International Economics.
[9] Under the standard practice for calculating antidumping duties, an investigating authority makes multiple comparisons of export price and normal value of an allegedly dumped good, and then aggregates the results of these individual comparisons to calculate a dumping margin for the product as a whole. In short, where there is a positive dumping margin, there is dumping and vice versa. However, the US practice counts as zero all negative margins -- i.e. where there is no dumping -- hence the term 'zeroing' (for a more detailed description, see Appellate Body Report, WT/DS141/AB/R, 46).


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