During the 90’s, the EC concluded important economic agreements like the EEA and the World Trade Organization (WTO) agreements, enlargement agreements were negotiated with some of the former EFTA countries and association agreements with Eastern European countries and investment agreements. In the 90’s the EC embarked upon a twin-track strategy of simultaneously promoting the adoption of multilateral investment agreements both within the OECD (Organisation for Economic Co-operation and Development) and the WTO. When the OECD project - the now infamous Multilateral Agreement on Investment (MAI) - have collapsed in late 1998, the EC instantly switched its focus to the WTO.
The recent “EU” international agreements have been characterized as multi-pillar and multi-faceted agreements. They contain subjects within all three pillars of the EU and concern many different facets of the specific fields. Furthermore, they contain rights and obligations being political, legal and economic in nature.
3. WTO
EU external trade policy is increasingly shaped by the Union’s obligations (and reciprocal rights) under the WTO. The World Trade Organization was created in 1995 at the completion of the “Uruguay Round” of GATT (General Agreement on Tariffs and Trade) negotiations. WTO did not cancel out the GATT; rather, the WTO began to enforce that agreement and others, using its status as a permanent institution with a huge secretariat. The purpose of the WTO is both to establish and monitor the rules for trade policy-making in its members and to encourage the liberalization of trade through successive rounds of trade negotiations to reduce tariffs and other barriers to trade in goods and services.
This means that WTO is responsible for administering dozens of international trade agreements and declarations on a range of issues from agriculture to intellectual property rights. It also handles trade disputes, monitors national trade policies, and operates as the overarching forum for global trade negotiations, called ‘rounds’.
The WTO is crafted like no other international agency. Unlike the GATT, which was effectively a business contract between nations, the WTO has a “legal personality” and the power to enforce its rulings. It has an international status equivalent to the United Nations, but unlike the UN, it carries the powers and tools of a global government. WTO rulings are so powerful, they take precedence over Multilateral Environment Agreements (MEAs) such as the Convention on Biological Diversity; human rights agreements like the UN’s Universal Declaration of Human Rights; and international labour codes, such as those of the International Labour Organization (ILO).
WTO rulings also apply to laws at every level of domestic governance – federal, provincial, state and municipal. Under the WTO’s dispute settlement mechanism, member countries, often acting on behalf of their business sector, can challenge the laws, policies and programs of any other country as being in violation of WTO rules. Panels of unelected experts have the power to adjudicate claims of alleged violations of these rules and to hand out punishments. One of its core principles is that of Most-Favoured-Nation (MFN) treatment, which means that members undertake not to discriminate in their treatment of imports originating in different members.The losing country has three choices: change its law to conform to the WTO ruling; face harsh, permanent economic sanctions; or pay permanent compensation to the winning country. Because their only task is to judge whether or not a country’s policy is a “barrier to trade,” the panels do not have to consider other factors such as public health, economic justice or democratic sovereignty. Non-governmental organizations (NGOs) and other non-commercial interests are entirely excluded from this process.
The major agreements administered by the WTO include among others: The General Agreement on Tariffs and Trade (GATT), The General Agreement on Trade in Services (GATS), Trade Related Intellectual Property Rights (TRIPS), The Agreement on Agriculture (AOA), Trade Related Investment Measures (TRIMS), etc.
4. GATT, GATTS, TRPIS, TRIMS…
The battle lines for the 5th Ministerial meeting of the World Trade Organization (WTO) which will take place in Cancun in couple of mouths have been already drawn up. Intensive pre-negotiations occur at the Trade Negotiations Committee (TNC), a new body of the WTO co-ordinating the Doha work program in preparation for Cancun. While little is known about the trade related requests of most nations, the entire European Union set of requests was put on the Internet. These requests are really ambitious and cover a range of aspects from agriculture and investment to services and intellectual property.
Trade Related Investment Measures (TRIMS)
Almost all of the now-developed countries restricted the entry of foreign investment in the past. When entry was permitted, governments placed numerous performance requirements on investors in order to maximize the benefits to their economies. Some countries, such as Taiwan, went further and explicitly required foreign investors to help their local suppliers to upgrade their technology. In the late 19th century, the USA even banned the employment of foreign workers thus forcing foreign firms to train local workers. The exact strategies that were used to regulate foreign investment varied from country to country however, one common factor is that they all took a strategic approach to foreign investment. As a result, countries generally moved towards a greater degree of liberalization as they developed. In that sense, liberalization of foreign investments is better seen as an outcome of development (and not as a tool to develop). This is totally in contradiction with the common investment politics of the EU.
Like said before the MAI (Multilateral Agreement on Investment) failed, which was abandoned in the face of massive civil society resistance (in both developing countries as in the EU Member States). But even in the absence of an MAI, many of the policy measures on foreign investment adopted in the past by today’s developed countries are already constrained by WTO agreements such as the TRIMS agreement on which EC is now concentrating. The powerful corporations and investors are seeking binding protection for foreign direct investment around the world, and want WTO rules that would drastically limit the right of national governments to set any conditions whatsoever on this money. There preference definitely goes in the direction of the MAI agreements, but these agreements were to ‘ambitions’, so another approach is necessary. On the other hand many developing countries have turned proposals on investment rights away before, calling them a form of ‘neo-colonialism’. These two totally different worlds are very difficult to combine, but EC suggests having solution for this problem. In its discussion paper on trade and investment the Commission says that the elements of an ideal result that at the same time opens markets to new investments and then protects those that are made would include:
- A broad definition of investment;
- National Treatment/MFN;
- Investment protection (expropriation, compensation);
- Free transfer rights;
- Disciplines of performance requirements;
- Free entry of key personnel;
- Effective enforcement mechanisms;
- Last but not least, opening commitments for foreign investment at the admission stage.
Further the Commission stated that:
‘Some, if not all, of these issues will be controversial, as the discussion in the WTO Working Group on Trade and Investment (WGTI) are showing. Thus, the "ideal" result sketched out above may well not be the final deal. But even if a perfect result is not achieved in a first agreement, the main point is to get investment rules firmly implanted in the WTO. Further improvements of these rules and additional liberalization can be part of future agendas, once we have basis from which to work. The GATS experience shows that an agreement based on a flexible, country by country, bottom-up approach, can prove to be extremely effective.’
But even this EC's 'flexible’ proposition can greatly undermine the right of nations and communities to regulate the entry and performance of foreign investment and investors in their territories, because all these aspects can be characterized as liberalization of foreign investments. And as we have seen above liberalization of foreign investments is only positive for the countries already developed (it can be seen as an outcome of development), that’s why this proposition can never be positive for the countries in development. Moreover, despite the fact that this EC's 'flexibile' proposition would be bad enough, the EC has even much higher ambitions (see the quote: ‘Further improvements of these rules and additional liberalization…’).
Agreement on Agriculture (AOA)
As I can see from the ‘EU Outgoing request’ countries with totally different economies and food production systems have only months to come up with binding agricultural commitments. Many Third World countries are seeking protection from market fluctuations in commodity prices, what they call “security crops,” as well as rural development programs, while trying to get the EU (and the U.S.) to cut back on the heavy subsidization of their food exports. But this is a very uneasy issue for the EU.
When the EC was created, one of its key domestic interests was to secure and protect its agricultural production. This has not changed and it is highly unlikely that it will change in the short future. It is even expected that, for a number of decades to come, absolute amounts of spending on agriculture will further increase. This is despite reforms that may take place in order to render agricultural policies more consistent with WTO rules. While EU agricultural policies are predominantly based on the objectives of protecting EU producers and ensuring surplus food production, the EU has been promoting trade liberalisation as a policy in relation to third countries. The EU is engaged in negotiations on ‘Free Trade Areas’ with a number of countries and groups of countries. The EU has now also introduced regional Free Trade Agreements (FTAs) in the negotiations on a successor agreement to the Lomé Convention. These are called Regional Economic Partnership Agreement (REPAs) . The negotiations with South Africa on an FTA have demonstrated that ‘free trade’ in theory is not necessarily ‘free trade’ in reality. While liberalisation across the board could perhaps be beneficial to developing countries, particularly those heavily dependent on agriculture, agricultural products important to EU producers are excluded from negotiations on FTAs as ‘sensitive products’.
Trade Related Intellectual Property Rights (TRIPS)
Another example is intellectual property. It is an increasingly important part of international trade. Most of the value of new medicines and other high technology products lies in the research, innovation, design and testing involved.
The negotiations during the Uruguay Round culminated in the Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement), which, alongside the GATT and GATS, forms one of the three pillars of the WTO. TRIPS negotiations were championed mainly by the United States and the EU against much initial opposition from developing countries. Divisions surfaced again when it appeared that TRIPS protection would prevent developing countries from gaining access to generic drugs as part of their public health programmes. At Doha in November 2001, WTO ministers issued a declaration emphasizing that the TRIPS Agreement should not prevent member states from protecting public health. They confirmed the right of countries to grant compulsory licenses (authorization, under certain conditions, to produce a drug or medicine without the consent of the patent holder) and to resort to parallel imports (where drugs produced by the patent-holder in another country can be imported without the patent-holder’s approval) where appropriate. Difficulties remain in finding a resolution to the problems of the least-developed countries that do not have the indigenous pharmaceutical manufacturing capability to produce their own generic drugs.
Social dimension in external trade agreements
The social dimension to increased international trade has received increasing attention given the concern that trade and investment flows should benefit people at large and not just international business. This has led to calls for a ‘social clause’ (especially initiated by EC) in WTO rules which would allow trade barriers to be invoked against imports from countries deemed to violate minimum labor standards. Human rights and moral advocates of a social clause see it as a way of promoting and enforcing core labor standards and helping to eradicate exploitative working practices. The difficulty is that trade sanctions will do little for the bulk of the labor force in developing countries which is employed in the informal sector, and could even have the opposite of the desired impact.
5. Decision-making process
Like said before, under the Amsterdam Treaty, the European Commission has already extensive powers in international trade negotiations. However, under current practice an agreement to be concluded with a third State on matters partly within the competence of the Community and partly within the competence of the Member States is the subject of a single "mixed" instrument. This means that the agreement must be signed jointly by the Community and the Member States and, before it is concluded, is submitted for ratification procedures in all 15 EU countries. But according to the Commission this practice has two disadvantages:
‘– it means that the qualified majority rule which is often applicable to the bulk of the provisions of a 'mixed' agreement cannot be used as the whole text has to be adopted by common accord;
– the failure of one or more Member States to ratify the provisions of the agreement which come within their competence means that the agreement as a whole, including those provisions which are within Community competence, cannot come into force and that such provisions cannot be provisionally applied’
The proposed changes in EU external policy are attempts to gain 'fast-track' powers over external trade policies, bypassing the current system of ratification, etc. If the Commission had such powers in the past, many controversial EC proposals would almost certainly have become reality, as the Member States would not have had the possibility to block them. Member States would not have been able to withdraw from the negotiations, as France followed by the United Kingdom did during the MAI negotiations. The Commission pushed for an agreement before the opposition would grow too strong. Commission issued a strong warning against further delay:
‘It would be bad for the globalised economy in general. The world would be further away from global investment rules than ever, and this for a long time, if we in the OECD cannot agree on the first cornerstone’.
Fortunately the Commission lacked the authority to make such decisions and I hope that this status quo will remain.
6. Conclusion
European trade policies have much greater effect on developing countries than do aid policies. The EU constitutes the largest trading bloc in the world. Excluding intra-EU trade, exports of the Union accounted for 18.4% of world merchandise exports in 2001. The United States and Japanese shares were 15.4% and 8.5% respectively. About 41% of extra-EU trade is directed towards developed countries. It is, therefore, important that trade policies be consistent with the objectives of EU development policies. Unfortunately, the basic direction in which European trade policies are moving causes significant problems for developing countries, particularly least developed countries. The liberalization being foisted onto developing countries by the EU is fundamentally very one-sided.
Liberalization presently determines the direction of the major economic powers, including the EU. While this liberalization, in theory, leads to fair competition, the protection of major economic areas by the major powers at present creates uneven playing fields for economic development. This undermines the viability of liberalization as an economic policy that can help foster social and sustainable development. Despite much liberalization, the EU continues to maintain strong defenses against ‘sensitive’ imports. Balancing the conflicting interests of domestic lobbies, not least agriculture, as well as of the developing countries seems to be very difficult for the EU.
The European Union is demanding that many countries offer up water, energy, transport, agriculture, intellectual property, competition policy, etc. to the discipline of the WTO. Since its creation in 1995, the WTO has become a major influence in the lives of the world’s citizens. Using both the fundamental rules of most WTO-enforced agreements combined with WTO enforcement mechanisms, the major power blocks and their big business sectors are forcing many countries to weaken their regulatory frameworks in several important areas. Regarding GATS, it’s obvious what the dangers of further liberalization of foreign investments are. Like formulated above, liberalization of foreign investments is better seen as an outcome of development and can never be seen as a tool to achieve development.
Finally, is the EU commitment to sustainable development likely to be compromised by the EU commitments to free trade?
Throughout the day, there has always been a split Commission: we see parts of the European Commission fighting very strongly for sustainable development, and having very good intentions with the Doha Development Agenda. At the same time, we have other parts of the European Commission very aggressively promoting a free trade agenda with very different interests, even though they sometimes use exactly the same arguments. It’s very difficult to resolve the imbalance between sustainable development agreements on one side and the strong and strict enforcement rules of the WTO on the other. The only conclusion which can be drawn is that EC external trade policy is not consistent with the objectives of EU development policies and that the EU is not put forward any practical proposals.
As long as the Comission is not having ‘fast-track' powers over external trade policies, bypassing the current system of ratification we will still as a community have powers to influence EC external trade agreements and new polices.
7. Bibliography
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Brulhart M. & Matthews A. (2003) ‘The European Union: Economics & Policies’, 7th edition, Prentice Hall
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Corporate Europe Observatory "MAIgalomania" [downloaded on 11 August 2003]
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Cremona, M. (1999) ‘External Relations and External Competence: The Emergence of an Integrated Policy’, in Craig and de Burca (eds), The Evolutuion of EU Law, Oxford UP
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Corporate Europe ‘Leaked EU discussion paper on investment for Committee 133’ [downloaded on 12 August 2003] and GATTS 2000, EU
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Commission of the European Union (2001), ‘Promoting Core Labour Standards and Improving Social Governance in the Context of Globalization' COM(2001) Brussels.
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Conference of the representatives of the governments of the Member States (2000) ‘Intergovernmental Conference on Institutional Reform’ [CONFER 4750/00]
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Commission of the European Union (2003) Outgoing request EU ‘’ [downloaded on 12 August 2003]
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European Commission Representative at High-Level Meeting on the MAI (1998) ‘’ Paris [downloaded on 12 August 2003]
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European Commission External Relations [visited on 11 August 2003]
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European Commission External Relations [visited on 11 August 2003]
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European Commission directorate general 1 (1998); ‘Discussion paper trade and investment’ Brussels
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GATTS 2000, EU Outgoing request’ ‘’ [downloaded on 12 August 2003]
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GATTS 2000, EU Outgoing request’ ‘’ [downloaded on 12 August 2003]
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Hix S. (1999) ‘The Political system of the European Union’ Basingstoke, Macmillian Press Ltd.
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ICTSD African Policy Dialogue on Globalization, Liberalization and Sustainable Human Development (2000) ‘ACP-EU Trade Arrangements in a Post-Lome World: Towards a successful partnership? Maastricht, The Netherlands
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Pelkmans, J. and Brenton, P. (1997) ‘Free trade with the EU: driving forces and effects’, paper presented to workshop ‘Multilateralism and Regionalism in the Post-Uruguay’, Rotterdam, 12–13 May 1997
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Rijsen M. van (1999) ‘EU Global Player’ [downloaded on 11 August 2003]
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Roeny A. (2000) ‘EC/EU Fact Book’, London, Kogan Page Limited
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Trachtman P (2002) ‘Decisions of the Appellate Body of the World Trade Organization, European Communities – Asbestos’ [downloaded on 12 August 2003]
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Wallach L. (1999) ‘Whose Trade Organization? Corporate Globalization and the Erosion of Democracy’ Washington, Public Citizen
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Weiler J. J. H. (1983) ‘The External Legal Relations of Non-Unitary Actors: Mixity and the Federal Principle’ Kluwer Law
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Wellenstein E. (1979) ‘Twenty-five Years of European Community External Relations’ Luxemburg, Office for Official Publications of the European Communities
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World Trade Organisation (2003) ‘http://www.wto.org/english/res_e/doload_e/inbr_e.pdf’ [visited on 11 August 2003]
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World Trade Organisation (2002) ‘WTO Report (2002) of the working group in relationship between trade and investment to the general council’ WT/WGTI/6
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World Trade Organization (2003) ‘http://www.wto.org/english/tratop_e/trips_e/intel1_e.htm’ [visited on 11 August 2003]
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World Trade Organization (2001) ‘Ministerial Declaration’ http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm [downloaded on 12 August 2003]
University of Portsmouth
M.A. European Law and Policy
Rijsen M. van (1999) ‘EU Global Player’ [downloaded on 11 August 2003]
Roeny A. (2000) ‘EC/EU Fact Book’, London, Kogan Page Limited
Wellenstein E. (1979) ‘Twenty-five Years of European Community External Relations’ Luxemburg, Office for Official Publications of the European Communities
GATT = General Agreement on Tariffs and Trade
EFTA States = Presently: Iceland, Lichtenstein, Norway and Switzerland
ACP countries = African, Caribbean And Pacific
Hix S. (1999) ‘The Political system of the European Union’ Basingstoke, Macmillian Press Ltd
Weiler J. J. H. (1983) ‘The External Legal Relations of Non-Unitary Actors: Mixity and the Federal Principle’ Kluwer Law
Eeckhout (1994), p. 339, citing Loukas Tsoukalis: The New European Economy: The Politics and Economics of Integration.
Cremona, M. (1999) ‘External Relations and External Competence: The Emergence of an Integrated Policy’, in Craig and de Burca (eds), The Evolution of EU Law, Oxford UP.
EEA = European Economic Area; It’s an agreement signed by all governments concerned to extend the Single Market to EFTA countries and to make trading bloc of 19 countries. Roeny A. (2000) ‘EC/EU Fact Book’, London, Kogan Page Limited
A Briefing by corporate Europe Observatory "MAIgalomania" [downloaded on 11 August 2003]
The negotiations were stoutly defended by the global corporate lobby, and pushed aggressively by the US and the EC, the negotiations nevertheless collapsed after France (followed by several other countries) withdrew from negotiations in 1998. As a result of this controversy, it is now considered politically dangerous to promote such ambitious, "all revealing" investment agreements. The EC (for example) argue that its current WTO-Investment proposals are substantially different from the MAI12.
Cremona, M. (1999) ‘External Relations and External Competence: The Emergence of an Integrated Policy’, in Craig and de Burca (eds), The Evolution of EU Law, Oxford UP.
World Trade Organization (2003) ‘http://www.wto.org/english/res_e/doload_e/inbr_e.pdf’ [visited on 11 August 2003]
GATTS 2000, EU Outgoing request’ ‘’ [downloaded on 12 August 2003]
Trachtman P (2002) ‘Decisions of the Appellate Body of the World Trade Organization, European Communities – Asbestos’ [downloaded on 12 August 2003]
Wallach L. (1999) ‘Whose Trade Organization? Corporate Globalization and the Erosion of Democracy’ Washington, Public Citizen
Corporate Europe ‘Leaked EU discussion paper on investment for Committee 133’ [downloaded on 12 August 2003] and GATTS 2000, EU Outgoing request’ ‘’ [downloaded on 12 August 2003]
Pelkmans, J. and Brenton, P. (1997) ‘Free trade with the EU: driving forces and effects’, paper presented to workshop ‘Multilateralism and Regionalism in the Post-Uruguay’, Rotterdam, 12–13 May 1997
European Commission directorate general 1 (1998); ‘Discussion paper trade and investment’ Brussels
See for more information: ‘WTO Report (2002) of the working group in relationship between trade and investment to the general council’ WT/WGTI/6
GATTS 2000, EU Outgoing request’ ‘’ [downloaded on 12 August 2003]
European Commission External Relations [visited on 11 August 2003]
European Commission External Relations [visited on 11 August 2003]
ICTSD African Policy Dialogue on Globalization, Liberalization and Sustainable Human Development (2000) ‘ACP-EU Trade Arrangements in a Post-Lome World: Towards a successful partnership? Maastricht, The Netherlands
World Trade Organization (2003) ‘http://www.wto.org/english/tratop_e/trips_e/intel1_e.htm’ [visited on 11 August 2003]
World Trade Organization (2001) ‘Ministerial Declaration’ http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm [downloaded on 12 August 2003]
Commission of the European Union (2001), ‘Promoting Core Labour Standards and Improving Social Governance in the Context of Globalisation' COM(2001) Brussels.
Conference of the representatives of the governments of the Member States (2000) ‘Intergovernmental Conference on Institutional Reform’ [CONFER 4750/00]
European Commission Representative at High-Level Meeting on the MAI (1998) ‘’ Paris [downloaded on 12 August 2003]
Brulhart M. & Matthews A. (2003) ‘The European Union: Economics & Policies’, 7th edition, Prentice Hall