The EU approach to FTA talks with ASEAN, India, Korea

On 6 December 2006, the EU Commission announced that it had finalised three draft mandates for negotiating bilateral free trade agreements with ASEAN, Korea and India, together with two mandates for negotiations with Central America and the Andean Community.

This announcement followed an earlier formal Communication called "Global Europe, Competing in the World" that was released on 4 October. In this paper, the Commission proposed a more aggressive EU trade strategy, including a new series of bilateral negotiations.

The drafts finalised by the Commission on 6 December still have to be discussed and approved by the EU Council (of Ministers of the 27 EU member states).

The discussion of the drafts is split into two parts: the purely trade substance will be discussed by the C133 committee (consisting of trade representatives of the 27 EU member states); the political and cooperation dimension, including the configuration of the EU-ASEAN FTA will be discussed by COASI, which is another working group of the EU Council, consisting of representatives from the foreign policy departments and Asia desks of the EU member states.

These discussions may take weeks, especially for EU-ASEAN since the Commission is at the same time still discussing the structure of the EU-ASEAN FTA with the ASEAN countries.

Nevertheless, Germany, which holds the EU Presidency, hopes that mandates can be adopted by the EU Council at its meeting of 5-6 March.

In the drafts, the Commission aims for the highest possible degree of trade liberalisation, including far-reaching liberalisation of services and investment; for a strong focus on the overall regulatory environment, with special emphasis on non-trade barriers; and for a number of new mechanisms for prior consultation and flexible mediation.

The drafts also have a heading on trade and sustainable development, proposing social and environmental clauses, the liberalisation of environmental goods and services, along with the standard non-compelling sustainable impact assessments.

Putting trade in a broader context

Another striking feature is the strong links that the Commission wants to establish between the FTAs and existing or proposed cooperation and association agreements between the EU and the targeted countries.

In past cases like EU-Mexico, EU-Chile and EU-ACP, and also in the case of EU-Central America and EU-Andean Community, the EU fist negotiates an overall Association Agreement containing provisions on political, economic and development cooperation along with the confirmation of a series of essential principles (democracy, human rights, rule of law, non proliferation, anti-terrorism, etc).

The FTA negotiations then come as part of the implementation of the overall agreement and are linked to the essential principles. This means that the non-execution of certain elements can have consequences for the implementation of other elements, i. e. the non- respect for human rights can lead to the suspension of political relations or development cooperation; or the non-implementation of trade commitments can be sanctioned with the suspension of aid, etc.

For the ASEAN, Korea and India, partial agreements on political and economic cooperation already exist or are being negotiated. The Commission therefore proposes not to negotiate new overall Association Agreements with these three partners but to go straight for FTA negotiations, while at the same time completing the set of political and cooperation agreements.

For EU-ASEAN, the EU has negotiations for "Partnership and Cooperation" agreements under way with Thailand, Singapore, Indonesia, Malaysia, the Philippines and Brunei and is about to start negotiations with Vietnam. It is with these seven countries that the Commission proposes to start FTA negotiations.

This means "EU-ASEAN minus three" negotiations instead of EU-ASEAN negotiations. The three countries left out are Myanmar, Laos and Cambodia which are the three LDCs of the region. In itself it is a good thing that the three LDCs will be spared the radical liberalisations that the FTA will bring, but their exclusion seems to be inspired more by the need to find an elegant way around having to deal with the "human rights outlaw" Myanmar.

It is this configuration issue that the Commission is still discussing with ASEAN; the results of which will be handed over to the EU Council before the conclusion of its discussions on the draft negotiating mandate. The Commission still leaves open three options: an all-ASEAN-EU FTA; an EU-ASEAN minus 3 FTA; or seven bilateral FTAs.

The content of the FTAs

The Commission does not only want to negotiate market access for trade in goods and services, based on GATT Art. 24 or GATS Art. 5. It is aiming for comprehensive agreements with all possible "trade-related" issues included. The description of the Commission's proposals below only highlights the most striking features.

The Commission is proposing to conclude the negotiations within two years. The transition period would be the standard 10 years, with extensions for the liberalisation of sensitive products and services.

The Commission proposes to use the applied MFN tariffs as the starting line for tariff elimination. This is surprising since developing countries enjoy preferential GSP tariffs. Not taking these as the starting line for the tariff elimination means that the Asian countries will already have to make offers to maintain the continuity of these preferential tariffs.

The Commission also mentions the introduction of general safeguard measures, but here again these measures will allow the parties to restore to the MFN tariffs. This means that the EU will be able to bring its tariffs back to a level which is higher than the current applied preferential GSP tariffs.

The Commission is prepared to allow for Special and Differential Treatment (SDT) in its FTAs with its Asian partners, but the approach is rather incoherent. For instance, the Commission proposes to take account of the different levels of development within the ASEAN region. This SDT would mainly come in the form of longer time periods.

In case of India however, no reference is made to the huge development gap between the EU and India or to the possibility of SDT in the EU-India FTA.

Also with regard to the "maximum frontloading" that the Commission is seeking for the tariff elimination, SDT is proposed for the ASEAN countries only, not for India. On the other hand, the Commission wants the maximum possible parity with other FTAs for ASEAN and Korea but not for India (parity with what these countries have offered in their FTAs with other parties than the EU).

India would also get some SDT with regard to the rules of origin, which is not mentioned with regard to Korea and ASEAN.

The draft mandates do not mention coverage (the percentage of goods or services to be covered in the FTAs). They do not give an interpretation of what the notion "essentially all" as mentioned in GATT Art. 24 or GATS Art. 5 should mean. In this case, the standard EU interpretation of 90% of trade will no doubt apply.

More worrying is that the drafts also do not mention "asymmetry", which is a key word in the negotiations on Economic Partnership Agreements between the EU and the ACP countries.

Asymmetry means that the EU will open its market more than the developing country partners to arrive at the 90% coverage as an average. For instance, if the EU would eliminate 95% of its tariffs, then the developing countries only need to eliminate tariffs on 85%.

The Commission therefore seems to strive for equal efforts for all parties in its new FTAs, apart of course from longer time periods as mentioned above.

Non-tariff barriers are a priority for the Commission. It proposes that the future EU FTAs will forbid any ban, restriction or other non-tariff barrier to trade, which are not justified by the general exceptions of GATT Art. 21.

The Commission proposes negotiations to deal with both product specific and sector specific NTBs; flexible mechanisms to handle any NTB that would occur; and preventive measures (based on consultations) to avoid new NTBs.

The Commission makes special mention of export tariffs. It wants to see all export tariffs removed (so that the EU countries can acquire access to cheap raw materials and inputs) and proposes a negative list approach to deal with these.

Services and investment are two sides of the coin for the EU Commission. It therefore proposes to treat these two issues together and in the same fashion.

The Commission has in fact been working on a template chapter for what it calls "services, establishment and e-commerce". It is already using this template in its ongoing FTA negotiations and intends to apply it also to its new FTAs.

The template implies a GATS-type approach of liberalisation per sector with an emphasis on market access and national treatment. This approach has to do with the fact that the EU member states want to maintain the competence to negotiate their own bilateral investment protection agreements (BITs). The draft mandates therefore do not entail investment protection, expropriation and investor-to-state dispute settlement; they do however include pre-establishment rights for EU investors.

As for the coverage, the EU Commission proposes the prior exclusion of certain sectors, i. e. national maritime cabotage (handling of cargo in the ports); certain air services, audio-visual and cultural services. Health, education and water, however, are not listed for exclusion.

The draft mandate also does not mention labour services, or what is known as Mode 4 of the GATS (movement of natural persons). However, the template for a chapter on services, establishment and e-commerce does contain a paragraph saying that with regard to Mode 4, the EU will not go beyond its WTO commitments.

SDT in the field of services, investment and e-commerce is again only foreseen for the ASEAN countries, but no transition periods should be longer than10 years. The Commission also seeks parity in investment and services with the treatment granted in other FTAs.

Government procurement is another priority for the EU. The Commission wants a mandate to negotiate both transparency and the liberalisation of government procurement, including for public utilities. SDT is again only mentioned with regard to ASEAN countries (but some of these countries have already indicated that they do not want to negotiate this issue at all).

The proposed approach for Intellectual Property Rights is in line with the EU's current practice in its FTAs. The EU will not so much introduce new commitments, but will instead demand that its partners adhere to a series of existing (far-reaching) IPR agreements. The EU does of course also want recognition of its geographical indications.

As mentioned earlier, the draft mandates contain a chapter on sustainable development which focuses on social and environmental standards and the liberalisation of environmental goods and services.

Finally, the drafts conclude with some institutional aspects, including the links with the cooperation agreements, "expedient problem solving and flexible mediation mechanism" and prior consultation with the private sector before introducing new regulations; procedures to avoid trade conflicts.

As earlier mentioned, in March the EU Council is scheduled to consider this Commission approach to the FTA negotiations with the selected Asian countries.

However, an endorsement of this approach by the EU Council does not mean that the negotiations will start right away. The EU Commission prefers not to begin any bilateral negotiations while the current and maybe last "window of opportunity" for a re-launch of the WTO Doha Round is still open.

(* Marc Maes is a trade analyst working with the Belgian non-governmental organization 11.11.11.)