External trade policy
Promoting easier trade between Europe and the rest of the world has been one of the most significant roles of the European Commission since the European Union was founded in 1957. The EU represents its member states in World Trade Organisation (WTO) negotiations and has a responsibility for promoting EU trade. While the European Communities played an important role in the reduction of barriers to trade in the years after World War II, progress in recent years has been slower.
In 1968 the European Economic Community, which became the EU, set a common external tariff. This meant that all member states agreed to the same tariff rates on imports coming into the EEC from other parts of the world. This was an important step toward economic integration and the creation of a European single market.
Within Europe, the EU has had free trade agreements (FTAs) for some time. It signed FTAs with Switzerland, Iceland and Norway in 1972. These developed into the bilateral relationship Switzerland has, and the European Economic Area which grants Norway and Iceland single market access.
Since its foundation, the EEC has been engaged in a series of worldwide trade negotiations which have led to reductions in tariffs and reducing the cost of exporting or importing manufactured goods. However, the EU and other developed countries such as the USA, Australia and Canada have made far less progress in areas of agriculture and primary manufactured goods, such as textiles. In these areas, the EU has maintained a system of tariffs and subsidies that protects products made within the EU from external competition.
In 2001, a new round of World Trade Organisation negotiations, known as the Doha Round, started, but broke down in 2008 because of failure to find agreement between developed and developing nations, particularly on agriculture. These areas particularly affect developing countries that can produce crops and manufacture goods cheaper, but face the cost of tariffs imposed on their exports by developed countries, making it harder to export. Negotiations can be difficult. The EU was accused of blocking progress in the Doha Round by refusing to offer significant cuts in agricultural tariffs. The breakdown of these talks has led to countries seeking other trade agreements such as the Transatlantic Trade and Investment Partnership, which the EU and USA are currently negotiating. Trade deals with Canada and Singapore have made more progress, and are in the final stages of agreement.
How does international trade negotiation work?
Under the Treaty of Rome, the European Commission has full authority to negotiate issues of trade on behalf of EU member states. During trade talks, which are mainly held through the WTO, all the negotiating partners come together to try to reach a compromise where they can all agree on how far they are willing to cut tariffs and subsidies, and what regulation that will require.
The Commission must request permission to negotiate a trade agreement from the Council of the EU, which sets out the general objectives to be achieved. The Commission should report to the Council and the European Parliament during the negotiations. Once completed, the negotiated deal is presented to the Council and the European Parliament. They must both approve the deal before it is ratified. The trade agreement enters into force on an agreed date once it is fully ratified.
The EU has been increasingly keen to make bilateral free trade agreements since the WTO process slowed in the 1990s. It has such agreements with 12 Mediterranean countries, South Korea, Mexico, Chile, Switzerland and South Africa. The EU also grants favourable tariff terms to former colonies in Africa, the Caribbean and the Pacific, and to developing non-EU neighbouring states. This is important: for countries with a GDP per capita of under £5,000 per year, the average EU import tariff is 6%, compared with 1.6% for countries with a GDP per capita of over £15,000 per year.