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The Commission as trade negotiator (I): A preference for small partner countries

The EU may be a heavyweight in GDP terms, but it has long preferred to negotiate with flyweights


The European Commission is currently negotiating a trade agreement with the United States, called the Transatlantic Trade and Investment Partnership (TTIP). The negotiations still have some way to go, and it may then be some considerable time before an agreement can be ratified, and come into force. In the meantime, this chapter will consider the record of the European Commission in negotiating trade agreements over the past 42 years.

The World Trade Organisation (WTO) database on trade agreements in force shows that EU trade agreements have three remarkable characteristics:

  • They are overwhelmingly with small economies;
  • Only a minority include services;
  • They seldom include Commonwealth countries.

These are severe disadvantages from a UK point of view, especially when compared with the trade agreements of non-EU countries. The strategy and priorities that have guided European Commission trade negotiations over the past decades do not appear to have ever been the subject of debate in the UK or anywhere else. The Confederation of British Industries (CBI), along with many other trade federations and large companies, has warmly commended the transfer of responsibility for negotiating trade agreements from the UK to the European Commission. According to the CBI the European Commission has more ‘clout’ than the UK alone, though it has never bothered to conduct any assessment of what the impact of EU clout on UK exports might have been.

All the European Commission trade agreements in force in March 2016 are listed in the table below, along with the GDP in 2014 of all the partner countries. The European Commission preference for negotiating with smaller countries will be evident, and is thrown into sharp relief when compared with the agreements negotiated by Switzerland, Singapore, South Korea and Chile, none of which have much clout.

Chapter 32 - table

In 2014 the mean GDP of all the EU’s 34 partner countries was $191.1bn. The mean of Switzerland’s partners was more than three times larger ($893.2b), Chile’s nearly 12 times larger ($2,964.7b), Singapore’s 14 times larger ($3043.9b) and  Korea’s was $4396.46b, 17 times larger than that of the EU’s partners.

Over the past 40 years, the European Commission has never used its clout to go head to head with large economic powers. The largest country with which it has ever concluded an agreement is the Republic of Korea. It has preferred instead to secure a large number of agreements with small countries. In 2014 the total GDP of the EU’s partner countries was $6.5tn.

In the same year  the total GDP of Switzerland’s partners was $23.2t, Korea’s was $44.0 t, and Chile’s was $62.3t. The total GDP of Chile’s partners was more than eight times larger than that of the EU’s.

John Cridland, when director-general of the CBI consistently defended the clout of the European Commission in trade negotiations. He once claimed, ‘Thanks to our EU membership we have trade deals with countries across the globe, worth £15 trillion – we’d struggle to pull off deals of this scale on our own.’

He never explained where this figure of £15 trillion came from. The media never pushed him on this point. All the trade agreements in force that are listed in the WTO database are given in the table, and as may be seen they total $7.7 trillion, or about £5 trillion.[1] Even to claim £5 trillion would be exaggerating, since the worth of a trade deal can only be determined by ex post research on its impact. Mr Cridland declined to have the CBI conduct any research of this kind.

After asking the CBI where they acquired the £15 trillion figure, they referred me to their Our Global Future study’s footnote, itself referring to a CBI study. It included the EU itself (GDP $13 trillion) as one of the deals ‘we’d struggle… to pull off on our own.’ How clever!

Details of the Chilean, Korean, Singaporean and Swiss agreements currently in force are given in Table 32.2.

The EU’s preference for agreements with small or mini-states undercuts one of the familiar arguments for the UK ceding its right to negotiate FTAs to the European Commission. Supposedly, the UK alone would be unable to secure trade agreements with larger trading powers and blocs because it does not have the negotiating leverage or ‘collective clout’ of the European Commission.

The European Commission has preferred to negotiate with a large number of small countries like Andorra, Albania, Cameroon, Cote d’Ivoire, Costa Rica, including of course the four countries with which it is here being compared. The contrast with Korea is quite striking. Korea has only 10 agreements, but they include countries with very large markets: India, China, Canada, the US, and of course, with the EU itself. Korean trade agreement strategy is evidently very different from that of the European Commission.

And yet, one international company made this claim to the Balance of Competences Review:

The fact that the EU, comprising the world’s largest trading bloc, negotiates on behalf of the UK is a big advantage, which no individual state could hope to replicate – even assuming third countries wished to conclude such individual trade agreements.

EU competence for trade policy magnifies the UK’s influence into a trading block large enough to deliver the big value market access wins…[2]

Chapter 32 - table 2

Notes 

[1] p.76, Our Global Future: The business vision for a reformed EU, Confederation of British Industry, 2013.

[2] DIAGEO, Evidence submitted to 2013 Balance of Competences Review, p.1


 

 

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