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EU Commission wants to coordinate development policy

Europe’s misguided approach to bilateral trade diplomacy


10/2005
  

[ Trade ]

Bilateral pressure

At the Cancún summit in 2003, newly industrialising and developing nations successfully resisted the pressure to start talks on new commitments to protect investments. Consequently, the big economic powers are pursuing their trade policy goals in bilateral negotiations. The European Union is adopting much the same stance as the United States.


[ By Michael Frein and Klaus Schilder ]

After the collapse of the World Trade Organisation (WTO) summit at Cancún in 2003, US Trade Representative Robert Zoellick said that the United States would in future be looking to conclude more bilateral free trade agreements with willing states. The US would certainly not allow the way forward to be blocked by a group of “won’t do” countries. Zoellick’s criticism was directed at newly industrialising and developing nations whose resolute resistance – especially to talks on a new investment agreement – had caused the ministerial conference to collapse.

The Europeans use more moderate language but they pursue a very similar strategy. The EU has been an aggressive globalisation actor for years, asserting its foreign trade interests in a strategy played out at various levels – multilaterally within the WTO, regionally with groups of countries and bilaterally with individual states. “Globalist elites” among Europe’s business leaders are persistently pursuing the goal of opening up markets for their products, services and investments (van Apeldoorn, 2000:203ff; Schilder et al., 2005).

Since the late 1990s, trade agreements with developing countries have become a major instrument of the EU’s trade diplomacy. The European Union currently has 22 free trade agreements with individual countries and regional blocs. It is negotiating another nine treaties with individual developing countries or groups of states. These include African, Caribbean and Pacific (ACP) states, which, as former colonies of EU members, have a special relationship with the European Union. But they also include Mercosur (Argentina, Brazil, Paraguay and Uruguay), the Gulf Council and the Mediterranean countries. Moreover, negotiations might also be taken up in the near future with China and the ASEAN group. The EU is busy constructing a global network of bilateral trade treaties that is probably just as significant as any multilateral deal at the WTO. After all, bilateral deals tend to go far beyond WTO agreements, both in terms of the breadth and the depth of liberalisation.

Striving for these goals is official, proclaimed strategy. Last year, Pascal Lamy (who has in the meantime become director-general of the WTO) said in his earlier position as EU trade commissioner that Europe intended to go beyond the multilateral trading system and achieve “WTO-plus” results opening markets and establishing rules for trade in services, investment and intellectual property. This would also be done, he said, at an inter-regional level. With an eye on closer economic cooperation with the ASEAN nations, the Jakarta Post of 9. September 2004 quoted Lamy as saying that “all these so-called new issues are part of our bilateral trade agenda. So they will undoubtedly also be part of our bilateral trade agenda with this region (ASEAN).”


The example of investment

At the bilateral level, where their negotiating position is relatively weak, many developing countries find themselves confronted with issues and demands they have rejected at the multilateral because they severely curtail their scope of action. Developing countries which blocked a far-reaching investment agreement in the WTO, now face the same demands from the EU in bilateral negotiations.

Far-reaching rules for further liberalisation and investment protection have long figured in international trade diplomacy. EU members and the United States have been concluding bilateral investment treaties (BITs) with developing countries since the 1960s. Key demands on the EU agenda are provisions for promoting foreign direct investment, protection of investments, market access for foreign investors and regulation of existing foreign investments.

Some of the EU association agreements with Mediterranean countries (Algeria, Jordan and Tunisia, for example) are supplemented by bilateral agreements with individual EU member states. In some Euro-Med agreements, investment protection goes along with provisions for free movement of capital and repatriation of profits. Similarly, agreements with Mexico (2000) and South Africa (2000) contain “WTO-plus” provisions for the liberalisation of investment-related transactions and capital movements.

The negotiations initiated with the four MERCOSUR states in 1999 on an inter-regional association agreement go much further still. What the EU envisages is a treaty paving the way for unrestricted direct European investment in the food, textile, chemicals and plastics sectors, the metal-producing and -working industry, engineering, the electrical industry and communications and information technology, with a gradual opening of markets in forestry and the extractive sector. Also on the EU negotiating agenda are services, government procurement, intellectual property and trade-facilitation. Positions have hardened, however, and talks stalled last year.

In 2003, the EU reached its most comprehensive bilateral agreement yet – with Chile. This was the first treaty to extend the principle of national treatment (affording companies from a partner country the same rights as domestic actors) to all non-service sectors. At the same time, the treaty strengthened foreign investors’ rights across many areas of the economy. Major exceptions (for instance, in fisheries, acquisition of real estate and participation in state-owned enterprises) do not conceal the fact that this agreement substantially reduces Chile’s economic policy space.


ACP states – under pressure and dependent

The ACP states are currently getting a particularly painful taste of Europe’s WTO-plus logic. As early as 2001 in Doha, they had expressed sharp criticism at the prospect of a new investment agreement. Under pressure from the EU, the ACP countries (among others) agreed to a compromise that postponed the decision to the Cancún summit in 2003. There, nearly all ACP countries joined the “G90” group of developing countries that resisted the persistent calls from the EU to start negotiations on the “new issues” and ultimately caused the conference’s failure. Finally, in Geneva in July 2004, it was decided to take the contentious issues of investment, competition and transparent government procurement off the multilateral negotiating agenda. Only the fourth new issue – trade facilitation – stayed on the WTO agenda.

This marked a major victory for the ACP states. They had faced down the EU and the United States at the multilateral level by refusing to accept new commitments protecting foreign investors. Later, however, the EU stepped up bilateral pressure. Under the Cotonou Agreement signed in 2000, EU and ACP states had already agreed to work towards bilateral agreements including, specifically, investment issues with the aim of “creating a favourable environment for private investment” (Art. 21.1). The idea was to “take measures and actions which help to create and maintain a predictable and secure investment climate as well as enter into negotiations on agreements which will improve such climate” (Art. 75).

On 2. October 2003, just weeks after Cancún, Brussels started the second round of negotiations on “Economic Partnership Agreements (EPAs)” as the new trade and investment agreements between the EU and the ACP states are called. The first team at the table was from the Economic and Monetary Community of Central African States. The EU has since taken up talks with another five ACP regions. In its negotiating mandate, it asks the six regional negotiating groups to liberalise investment regimes by defining regional investment frameworks based on the principles of non-discrimination, openness and transparency as well as general investment protection provisions. In the context of bilateral agreements, investment frameworks as comprehensive as these are unprecedented.

Meanwhile, the ACP countries are pursuing a strategy similar to the one adopted at the multilateral WTO level. They systematically reject the EU’s demands. In June, that stance was expressed yet again by the trade ministers of the African Union at their conference in Cairo. Individual regions announced their desire to restrict talks on investment to the creation of transparent and predictable frameworks in line with the terms of the Cotonou Agreement.

The example of investment shows with particular clarity that the EU pursues its agenda aggressively at both bilateral and multilateral levels. One might have thought that the ACP states’ long resistance to investment agreements, which had culminated in the failure of Cancún, would have prompted the EU to consider its weaker partners’ interests and to abandon its insistence on investment agreements. Patently, however, the EU agenda is driven by forces that seek a high degree of protection for investment. And whether that objective is pursued bilaterally or multilaterally is evidently just a matter of tactical choice.

For the countries affected, this approach is painful. Many ACP states are in a precarious negotiating position anyway. They already have privileged access to EU markets and can keep that access only if they make further concessions. So what the current negotiations are really about is the ground to be lost on the down side. For the ACP nations, there is nothing on the up side beyond maintenance of the status quo. The poorest countries in the ACP group are in the worst position. For them, joining a regional free trade zone with the EU would not only mean having to open their markets to European goods. The value of the duty-free access they currently enjoy because of the EU’s “Everything But Arms” initiative would also sharply decline within a few years.

The majority of ACP states are not equipped to tackle such complex issues. They lack negotiating capacities as well as legal and institutional resources. Their diplomats are inadequately qualified to negotiate detailed treaties. Even the six ACP negotiating groups fail to pursue a coordinated strategy towards the EU.

Not that that bothers the EU. Its objective seems clear, its efforts are geared to re-drawing the map of trade politics. If the agenda gets bogged down on one track, it is simply pushed forward more vigorously on the other. In terms of impact, there is no real difference between a multilateral WTO agreement and a global network of bilateral agreements. What is more, multilateral accords are easier to put in place if the ground has been prepared by bilateral deals. What country will reject a multilateral investment agreement if the provisions it contains have already been ratified – at least in essence – in a bilateral treaty?


Conclusion

The WTO is unable to guarantee a stable world trade system, which looks like disintegrating into regional blocs because of a “spaghetti bowl” of bilateral trade agreements (World Bank 2004). Nor does the EU offer a convincing alternative to the United States’ unilateral line on trade. Accordingly, the crisis of the world trade system is not merely defined by the polarity of the powerful economic blocs on either side of the Atlantic; it is fuelled even more by the markedly different interests of North and South. This fact becomes evident in the formation of tactical Southern alliances at the multilateral level in recent years and conflict-loaded bilateral negotiating processes.

In the end, it is the have-nots who will probably throw in the towel. Squeezed between multilateral WTO and bilateral WTO-plus strategies, they will find their scope for crafting a development-friendly trade policy steadily reduced. The alarm bells are ringing, greater vigilance is needed. The WTO is only one instrument in the trade toolbox of advanced countries that the developing world needs to deal with. There are also bilateral and regional agreements, which do as much to endanger developing countries. And the situation is made worse by the fact that multilateral and bilateral levels are closely meshed together, propelling the world further down the road to liberalisation. What is needed is for the big economic powers to completely re-think their trade stance – and re-gear it to poverty reduction and development, the realisation of economic, social and cultural human rights and the preservation of natural livelihoods.


Michael Frein
is an environmental and trade policy adviser with the Protestant Church Development Service (Evangelischer Entwicklungsdienst – EED) in Bonn. michael.frein@eed.de

Dr. Klaus Schilder
works on European trade and development issues at the NGO WEED (World Economy,
Ecology & Development) in Berlin. klaus.schilder@weed-online.org



Literature:

Bastiaan van Apeldoorn, 2000:
Transnationale Klassen und europäisches Regieren: Der European Roundtable of Industrialists (Transnational classes and European governance: the European Round Table of Industrialists). In: Bieling, Hans-Jürgen and Steinhilber, Jochen (ed.) Die Konfiguration Europas. Dimensionen einer kritischen Integrationstheorie (The configuration of Europe. Dimensions of a critical integration theory), Münster.
Klaus Schilder, Christina Deckwirth, Peter Fuchs and Michael Frein, 2005:
Freie Fahrt für freien Handel? Die EU-Handelspolitik zwischen Bilateralismus und Multilateralismus (Full speed for free trade? EU trade policy between bilateralism and multilateralism). Bonn and Berlin, April 2005. Available from http://www.eed.de and http://www.weed-online.org
World Bank, 2004: Global Economic Prospects 2005 –
Trade, Regionalism and Development