Introduction to EU Trade Policy Objectives and Approach to Free Trade Negotiations

1. Introduction to EU Trade Policy Objectives and Approach to Free Trade Negotiations Presenter: Dr. Mareike Meyn Ho Chi Minh City, 07 April 2016

2. Organisation of the day • Presentation: Principles of EU trade policy and role of EU in global trade, EU positions in WTO Doha Round negotiations • Group work and discussion: Commonalities and differences of EU‘s/Vietnam‘s positions at WTO • Presentation: EU approach to free trade agreements (FTAs): trade in goods, services, investment and “behind the border measures”; EU-ASEAN trade relations; EU-Vietnam trade relations; Scope and content of the Vietnam-EU FTA • Discussion Round: What are Vietnam‘s/the EU’s offensive and defensive interests in the Vietnam-EU FTA? Could PCA serve as instrument for regulatory reform in Vietnam?

3. EU Trade Policy • EU trade policy was formed under the spirit of liberalization in a peaceful, global market. • Liberalization was hampered during recessions, because of unanimous voting requirements, & the absence of a common policy or attitude toward unemployment; • Since the Uruguay Round (1994), the EU has removed 6,300 non-tariff barriers. • The EU has followed a process of liberalization because of:  • Increased international business competition • Individual firms prefer free trade • Increased power of openness interest groups • Changing attitudes of policy makers (ideas)

4. Mission of EU Trade Policy • Policy Mission: "To Secure Prosperity, Solidarity & Security in Europe & Around the Globe.” • Economic Mission: free trade and open markets within the rule based structure of WTO to promote EU exports (Market Access Strategy) • Advocacy for minimization of tariffs, transparency and non-discrimination in regulation • Multiple bilateral and regional trade agreements as market access instruments; • Free trade on industrial goods but significant protection on agriculture remains.

5. EU Trade Policy Structure and Objectives • Average tariff rate is around 6.5% (range: 0% to 604.3%) • Agricultural products have the highest rates and often are regulated under quota systems • During Doha talks, the EC expressed willingness to reduce agricultural supports, eliminate export subsidies by 2013, and significantly cut average tariffs – however, external implications of EU Agricultural Policy remain disputed • Leading user of "contingency trade remedies" (anti-dumping, subsidies, safeguards, etc.) • Harmonization of technical requirements among member states is an ongoing process • Services are essential for refining the internal market

6. Policy concept A competitive European economy in an open world trade system organised by multilateral rules • Ensure that the European economy is open to the world and competitive in foreign markets • Secure real market access in foreign countries • Support a strong multilateral trading system • Most effective means of managing trade and enforcing rules • Promote European values • on democracy, rule of law, environment, social rights... • Enforce sustainable development

7. The EU’s role in global trade • Responsible for around 16% of world trade (2013) • Largest exporter and importer in the world

8. EU-28: Moving towards a positive global trade balance

9. Main trading partners for EU exports (2014) DATA: IMF WEO

10. Main trading partners for EU imports (2014) DATA: IMF WEO

11. Main exports per product category (2014)

12. Main imports per product category (2014)

13. Bilateral/ Regional Multilateral Unilateral Principles of EU Trade Policy 3 DIMENSIONS

14. Multilateral Dimension of EU Trade Policy: WTO • Promotes comprehensive coverage and stricter rules at WTO with respect to market opening for services and investment, governance on IPR, competition policy, social and environmental issues. • EU demands are largely blocked on the multilateral level so FTAs should pave the way for further progress at the WTO and act as building blocs to further multilateral liberalisation; • Negative effects of WTO DDA impasse are mitigated by multiple bilateral and regional frameworks (more than 200)

15. Opening markets • Agricultural goods • Industrial goods • Services • EU seeks real new MA Development Sustainable development (to respond to concerns of developing countries and civil society) Regulatory framework Improving existing rules (e.g. anti-dumping, geographical indications) and creating new rules (e.g. “trade facilitation”) EU Trade Policy Objectives in WTO Doha Round

16. The EU‘s agenda in the WTO Doha Round (2) • Motives: further expansion of trade by effectively tackling TBT and strengthening WTO rules; • EU aimed for “comprehensive round“, tackling not only liberalisation of trade in goods (agriculture) but “behind the border measures”; • Negotiation modality: “single undertaking”; i.e. the whole package has to be accepted/implemented by member states; • Transitional periods for developing countries combined with technical support envisaged; • Originally aimed for short round of about 3 years envisaged (“early harvest”)

17. The EU‘s agenda in the WTO Doha Round (3) • Market Access: • Industrial goods: enhanced access to China, Brazil and India by tariff cuts and negotiations on common, transparent trading rules; • Agricultural goods: ready to cut agricultural (bound) tariffs by 60% and to reduce “trade distorting farm subsidies” by 80% and to eliminate export subsidies by 2013; • Aims for enhanced market access for processed agricultural products. • Subsidies • Reduced subsidies for industrial goodsdemanded

18. The EU‘s agenda in the WTO Doha Round (4) • Agriculture: protectionist approach; EU trade policy instruments are controversial at WTO: • Special safeguards: additional tariff that can be triggered when import price of a commodity falls below a reference price (used for sugar and some dairy products); • Tariff escalation: higher tariffs for processed than for raw materials to promote agricultural value added in the EU; WTO Trade Policy Review (2015): average MFN for agricultural products is 14.4% but higher for dairy products (36%) and sugar products (25%) • Tariff rate quotas: for sugar, beef, wine etc. – DC receive zero tariff quota; regulated by license; • Export subsidies: to be phased out by 2015; relevance has shrunk considerably with shift from product to direct support; • Domestic support: Single Farm Payment (pillar I) and agri-environment payments (pillar II);

19. Excursion - Example of protectionist agricultural tariffs Tariffs: averages range between 6.4-36.1% (compared to 4% for industrial goods) –with very high ad valorem duties; resulting into tariff equivalents >100% for some sensitive products

20. Excursion: Evolvementof EU protectionistmeasures on agriculturalproducts

21. The EU‘s agenda in the WTO Doha Round (5) • Trade in Services: • All issues and service sectors covered with a view to obtaining more and better commitments on market access & national treatment; • Further market opening coupled with regulatory discipline (strengthening regulatory provisions of GATS to enhance competition); • Investment • Establish multilateral framework to ensure competitive practices so as to enhance non-discriminatory access for FDI; • Protection of investment and right to regulate (multilateral rules on investment protection)

22. The EU‘s agenda in the WTO Doha Round (6) • Competition: • Establish multilateral rules to avoid anti-competitive behaviour; • Common approaches on anticompetitive practice for international trade and investment • Trade facilitation • Creation of international rules and standards to facilitate international trade and enhance transparency, e.g. with respect to customs automation and coordination of controls between different government agencies • Trade and environment • Include rules on environment in WTO framework to ensure the protection of consumers

23. The EU‘s agenda in the WTO Doha Round (6) • Trade and labour standards • Include rules on labour standards (e.g. compliance with core ILO labour standards) to ensure protection of labour • TRIPS (Trade Related Intellectual Property Rights): • Expand TRIPS Agreement by (a) incorporating new international treaties (e.g. WIPO); and (b) reviewing provisions on patents and geographical indications. • Public procurement • Include rules, transparency and market access provisions on public procurement into WTO • Trade defence • Tighten the discipline of trade defense measures (e.g. anti-dumping and subsidies) • Aid for Trade

24. Group work and discussion EU / Vietnam: What are the commonalities and what are differences with respect to countries‘ position at the WTO?

25. Regional dimension of EU Trade Policy: FTAs • Comprehensive trade agreements with ALL major trading partners; • Deliver on market access to serve the requirements of EU businesses (EU Market Access Strategy) • Clear economic criteria: market potential and level of tariff and non-tariff barriers against EU export interests. • Competitor analysis: what access is granted to other countries • Focus on ASEAN, India, South Korea as well as on ENP (Russia, Ukraine); • No offensive interests in negotiations with ACP countries (Economic Partnership Agreements) – but still comprehensive trade framework

26. Regional dimension of EU Trade Policy: FTAs (2) A sharp focus on barriers to trade behind the border • Regulatory issues • Access to ressources • Intellectual property (IPR) • Services • Foreign direct investment (FDI) • Public procurement • Competition – State aid

27. EU Free Trade Agreements

28. The EU‘s approach to FTAs - NAMA • EU is largely competitive on industrial products and has a very low applied tariff (4% on average); • Generous offer to access market but also highly ambitious to enter external markets (strong offensive interests); • Remaining sensitive industries are those that are also interesting for developing countries, such as textiles, clothing, footwear (labour-intensive industries)

29. The EU‘s approach to FTAs – Agriculture (1) • Liberalisation remains limited compared to industrial • products; • Tariff concessions are both full and partial (e.g. by • reduction of ad valorem tariff); • Tariff quota for specific goods (often with seasonal • Limitations for fruits and vegetables); • Safeguard clauses (triggered on quantity or price plus • “shortage clause“; • Strict RoO to protect EU food processing industry • Option for flexible adjustment in case “one partner” • changes his agricultural policy

30. The EU‘s approach to FTAs – Agriculture (2) • High domestic protection leads to a low willingness for tariff reduction, as this could undermine high domestic prices; • Products affected are beef, swine, poultry, dairy, sugar, cereals, some fruits and vegetables, olive oil, flowers, rice, citrus fruits and grapes • High domestic protection supplemented by risks of internal surpluses leads to additional restrictions on imports by not extending TRQs. • Products affected are meat, dairy, sugar, cereals and all processed products containing these products.

31. The EU‘s approach to FTAs – Services (1)

32. The EU‘s approach to FTAs – Services (2)

33. The EU‘s approach to FTAs - Investment Investment promotion by means of information exchange, regulatory coordination and/or technical assistance. Investment protection incl. a) the liberalisation of current payments and capital movements; b) guarantees of investors’ property rights (incl. compensation provisions); c) provisions on the settlement of investment disputes. Market access for foreign investors defining his rights with respect to entry and establishment in certain economic sectors in the host country. ‘Post-admission provisions’ on the regulatory treatment of foreign investors once they are established in the host country (national treatment principle)

34. The EU‘s approach to FTAs – Competition policy and state aid WTO addresses competition issues in its single agreements but there is no single framework on the regulation of competition policies since members cannot agree; EU FTAs cover competition policy to different extents: while first generation MED agreements have only non-binding provisions, later FTAs foresee to develop competition policies that closely or fully resemble European standards State aid comes under scrutiny and has to be made transparent and measures have to be reported to Council; Monopolies of commercial character have to be phased out in many FTAs.

35. The EU‘s approach to FTAs – Trade Facilitation

36. The EU‘s approach to FTAs – Sanitary and Phytosanitary Standards (SPS) • SPS aim to provide a certain level of food safety or health based on strict scientific reasoning. Therefore, no preferences can be granted in the form of easier or softer requirements FTA partner; • EU FTA provisions foresee: • Consistent application of WTO SPS measures by pursuing a common understanding of the existing provisions; • Mutual recognition of SPS provisions and cooperation on SPS measures with objective to harmonise standards; • Technical assistance in SPS issues (assisting trading partners to comply). • Some FTAs (e.g. with Chile) include provisions on animal welfare and time schedule on internal reporting/consultation

37. The EU‘s approach to FTAs – Dispute Settlement Mechanism (1) .

38. The EU‘s approach to FTAs – Dispute Settlement Mechanism (2) • All new generation FTAs have binding dispute settlement mechanisms; • The provisions have become stricter over time (Chile, Mexico, EPA compared to TDCA, MED Agreements)

39. The EU and ASEAN 2007: negotiations towards regional FTA started 2009: negotiations broke off, primarily because of the human rights situation in Myanmar, and EC started negotiations at a bilateral level – ‚building block‘ towards region-wide FTAs Today, bilateral EU FTAs have been concluded with 4 ASEAN states (Singapore, Malaysia, Vietnam and Thailand) and are ongoing with 2 ASEAN states (Philippines and Indonesia). 2015: EU published Communication, calling for „an ambitious region-to-region FTA building on bilateral agreements” EU Reason: Improved situation in Myanmar plus increased competition from other regions… Challenge: Aligning different FTAs into one regional FTA. Possible solution: different liberalisation schedules, joint framework

41. EU-ASEAN Trade in Goods

42. EU Top 10 Trading Partners (2015) ASEAN (10): Rank 3 of EU trading partners! Largest EU trading partners within ASEAN: 1. Singapore (27% of total EU-ASEAN trade), 2. Vietnam (21.3%), Malaysia (20%), and Thailand (18.3%)

43. EU-ASEAN Trade in Goods (2) • Four ASEAN countries account for almost 87% of total trade with EU • Dominance of industrial and manufacturing exports • High level of intra-industrial trade (with agricultural products accounting for about 7.5% of total trade) • Major ASEAN exports to the EU include: machinery and transport equipment (43%), misc. manufactures (23%), chemicals (9%)51%) • Major EU exports to ASEAN include: machinery and transport equipment (51%), chemcials (14%), misc. manufactures (9%)

44. Vietnam – EU Trade and Investment Relations Second largest trading partner for Vietnam (after China, together with US), accounting for 18.6% of Vietnam’s global exports in 2014. Huge trade surplus of €18 billion helps Vietnam to balance its significant trade deficits with China and South Korea Vietnamese exports to the EU concentrated on labour intensive products including assembly of electronic items/ telephone sets, footwear, garments and textiles, coffee, seafood and furniture. EU exports to Vietnam are high-tech products, including boilers-machinery & mechanical products, electrical machinery & equipment, pharmaceutical products, and vehicles EU is third largest FDI source for Vietnam, accounting for €1.3 billion in 2014

45. EU-Vietnam Trade (in million EURO)

46. Vietnam – EU FTA – trade in goods • EU-Vietnam Framework Agreement on Comprehensive Partnership and Cooperation (PCA) was signed in 2015 after 3 years of negotiations. • PCA providesforliberalisationof 99% of bilateral trade • Asymmetricalliberalisationschedulebutsymmetriccoverage: • VN: 65% immediate liberalisation; restgraduallyover 10 years • EU: 71% immediate liberaliation; restgraduallyover 7 years – withtextile apparel and footwear sectors being liberalised only at the end of transition period. • EU exclusionbasket: Retainstariffquotasforrice, sweet corn, garlic, mushrooms, sugar and high-sugar-containing products, manioc starch, surimi and canned tuna. • VN exclusionbasket: Retainstariffs on certainfood and drinkproducts

47. Vietnam – EU FTA – trade in services • ‘GATS Plus”: Improved market access conditions for EU services providers in the fields of six services sectors: • business services • environmental services • postal and courier services • banking • insurance • maritime transport • Regulatorydisciplines and incresedtransparencyaccepted. • Further opening-upprovision:contains a clause allowing the best results of FTAs being negotiated at the moment to be incorporated in the PCA

48. Vietnam – EU FTA – investment • VN opened following sectors for EU FDI: • food products and beverages • fertilisers and nitrogen composites • tyres and tubes • gloves and plastic products • ceramics • construction materials • VN removed restrictions on the assembly of marine engines and agricultural machinery • Investment protection and disputesettlement still undernegotiations

49. Vietnam – EU FTA – Trade rules Focus on tradedisciplinestofaciliate EU marketaccess: • VN toincreaseuseof international standardswhendraftingregulations; • EU recognizedassingleentity in VN forfood and non-food products in ordertofaciliateaccessfor EU companies; • Marking ‚Made in EU‘ acceptedfor non-food products (exceptpharmaceuticals); • Non-tariffbarriers (NTBs) addressed in keytradingsectors, such asautomotiveindustry • Strong enforcementofGeographicalIndications(GI) for 169 EU products(withnew GIs tobeadded in thefuture);

50. Vietnam – EU FTA – Behind the border measures Addressing ‚behindtheborder‘ measures: • VN to open publicprocurementmarketfor EU companiesforMinistries, selectedSoEs, multiple publichospitals; • Fiscaldiscipline and transparency on SOEs and subsidies; • ‘WTO plus’ on Intellectual Property Rights (IPR): Strong protection of EU innovations, artworks and brands as well as improved data and extended patent protection for EU pharmaceutical sector. • Reiterationof multilateral labour and environmental standards • Mechanismtoinvolve CSOs in monitoringimplementationoflabour and environmental provisionsof FTA • Establishment of formal disputesettlementmechanism plus informal mediationsystem