Trade: removing barriers, spreading growth (The European Union: A Global Player)

The European Union is the world's biggest trading partner, accounting for over a fifth of all exports in 1999. Since its earliest days, the EU has been committed to removing trade barriers between its individual members on the grounds that this will stimulate economic prosperity and national and individual well-being. It has championed the same principles on the world stage.

The figures speak for themselves. The multilateral trading system has been progressively liberalised through a series of international negotiations over the past half-century. During that time, world trade has grown seventeen - fold, world production has more than quadrupled, world per capita income has doubled and average tariffs applied by industrialised countries have dropped from 40 % in 1940 to under 4 %.

The EU believes that multilateral trade liberalisation can yield very substantial benefits for the global economy and that much of this should go to developing regions. It considers that economic growth through trade liberalisation is a major factor in improving social conditions worldwide and contributing to sustainable development.

The Union is one of the strongest advocates of continuing this trend by pressing for as wide an agenda as possible in the next round of World Trade Organisation (WTO) talks involving 137 countries. Despite the setback at the ministerial meeting held in Seattle in December 1999, the EU is still committed to a broad agenda and is convinced the benefits will be significant.

Two European Commission studies published shortly before the Seattle conference concluded that further trade liberalisation could help sustainable development and bring about an annual welfare gain for the world of up to 420 billion euro - the equivalent of adding an economy the size of Korea or the Netherlands to world GDP every year. Economic growth translates into employment as the Union itself has shown with the creation of half a million new jobs after the abolition of its own internal trade barriers.

Freer trade can mean more business opportunities, more efficient allocation of resources and more wealth. Further reductions in tariffs will enable business to better exploit export potential because trade flows will be driven increasingly by quality, price and service and be less impeded by artificial obstacles like tariffs. Consumers should benefit from wider choice and lower prices through increased competition.

As part of this wide ranging agenda, the EU is in the vanguard of countries arguing that the next WTO negotiations should not be limited to the narrow agenda of agriculture and services left over from the last Uruguay round. It must be more comprehensive, covering both traditional topics and new issues to allow all participants to have an interest in the negotiations and meet the needs of the economy of the 21st century.

The Union has drawn two clear lessons from the failure to open the liberalisation talks in Seattle. The first is that the days when a handful of major trading nations negotiated deals among themselves and imposed them on the rest of the world are over. Others, particularly developing countries, now legitimately demand a bigger say in the process.

The second is that the WTO must be reformed to make it more inclusive, transparent, efficient and accountable. Its rulebook needs to be rewritten and civil society more closely involved so that environmental and social concerns can be considered alongside trade and development issues.

When a new round of WTO negotiations is launched, the Union believes it should cover at least four main areas if it is to be comprehensive and successful. In the EU's view, the round should:

While aware that the globalisation process is a trend that cannot be stopped and that economies must adapt to survive, the Union does not accept that unfettered market forces should dictate its peoples' way of life, culture and ultimately their society and core values. As a result, it sets out to reconcile the way societies and values are managed with the need to modernise and globalise.

In this respect, the Commission sees the WTO, with its membership of over 130 countries - and a further 30 queuing up to join it - and wide-ranging powers to set rules and arbitrate in trade disputes, as a crucial institution for global governance.

The WTO should cooperate more closely with other international organisations to promote the overall goal of sustainable development and contribute to the reduction of inequalities, both within and among nations. That is why the EU favours regular consideration of the relationship between trade and social development, including the promotion of core labour standards. It supports positive incentives for promoting labour rights and is firmly opposed to any protectionist or sanction-based approach.

The second largest national economy after the United States, accounting for two thirds of Asian GDP and 14 % of the global economy, Japan is one of the Union's major trading partners and its third largest foreign market. Friction during the 1980s over trade imbalances and the difficulties European firms encountered in exporting to Japan have given way to a far more constructive relationship, based on the 1991 political declaration governing relations between the two partners. This was consolidated by approval of an EU strategy in 1995 on Europe and Japan, and will be considerably extended by the action plan, which the two parties agreed to develop at their Tokyo Summit in July 2000. This will launch a 'decade of Japan-Europe cooperation' beginning in 2001 in four key areas: promoting peace and security, strengthening the economic and trade partnership, coping with global and societal challenges and bringing people and cultures together.

Apart from purely bilateral issues, existing collaboration extends to regular shared analyses on the political and security situation in North Korea, China's evolving role in Asia, the creation of security structures on the continent and promotion of development assistance.

One of the Union's major concerns has been to ensure that European exporters and investors are not prevented from entering the Japanese market by unnecessarily restrictive red tape and bureaucratic regulations. Since 1995, this has been achieved through the regulatory reform dialogue aimed at removing structural and other obstacles facing exporters. The Commission's gateways to Japan export promotion campaigns have also helped many EU businesses, especially smaller ones, to break into the Japanese market. This is being accompanied by moves to negotiate a mutual recognition agreement on testing and certification, which would constitute the first treaty between the EU and Japan and by an accord on the application of each partner's competition legislation. There are also regular contacts between the respective consumer and business communities.

Often dialogue has been successful in overcoming obstacles but, when not, the EU has turned to the WTO to defend the interests of European businesses. The Union is also keen to see fewer obstacles to European investment in Japan. Japanese direct foreign investment is seven times greater in the EU than European investment in Japan.

China has undergone dramatic changes since it opened up to the outside world in 1978, evolving from an inward-looking centrally planned economy to a market driven one engaged in global commerce. During the past two decades, EU-China trade increased more than 20 fold and was worth 70 billion euro in 1999. China is the Union's third largest non-European trading partner after the United States and Japan and the EU is China's fourth largest source of imports. In 1999, the Union became the largest foreign direct investor in the country, excluding Hong Kong, with 4.5 billion euro.

The Union has been a strong supporter of Chinese membership of the World Trade Organisation and has worked closely with the United States to help bring this about. In summer 2000, the two parties completed their lengthy bilateral negotiations on China's accession to the WTO. The agreement will give a major boost to trade between the two.

Under the terms of the EU-China WTO accession agreement, China agreed to substantial reductions on import tariffs for over 150 leading European exports, ranging from machinery to wines and spirits. The accord will make it easier for European distributors and companies to operate in China and restrictions which used to apply to a number of service sectors and professions such as bankers and lawyers will also be relaxed.

Although devoting considerable time and resources to China, the Union is keen to deepen its contacts with the whole continent. This may be done on a multilateral basis - a process begun with the first 'Asia-Europe meeting' in Bangkok in 1996 - or via ASEAN, the EU's fourth largest trading partner, or bilaterally.

Relations with Asia's second largest nation - India - are also moving up a gear as they broaden from dialogue and cooperation to partnership. That shift was epitomised by major initiatives in 2000. These included the first EU-India Summit and wider contacts between officials, policy-makers, opinion formers and civil society.

This is in addition to the extensive commercial contacts which already exist. The EU is India's most important partner in trade, investment and development cooperation. Indian exports to the Union grew from 1.8 billion euro in 1980 to 9.8 billion euro in 1998. Similar growth can be seen in trade going in the other direction which has risen from 2.4 billion to 9.5 billion euro.

The EU has organised its relations with Latin American countries around the recognition of three sub-regional groups: Central America, the Andean Community and Mercosur, as well as individual countries like Chile and Mexico. Over the past decade, relations between the EU and Latin America have consistently developed as bilateral trade has expanded and the Union has promoted regional integration in the area.

The Andean countries enjoy easier access to the European market under the 'generalised system of preferences' and the EU works closely with them on a programme to tackle drug trafficking. Caribbean countries enjoy trade preferences with the EU, while Cuba is the only Latin American country not to have signed a cooperation agreement with the Union.

A quantum leap in the Union's relations with this part of the world took place in June 1999 with the first ever summit between the EU, Latin America and the Caribbean, involving the leaders of 48 countries. This was followed in 2000 by a free trade agreement between the EU and Mexico. Under the ambitious deal, Mexican exports will enter the Union duty-free from 2003 and all tariffs on EU exports will disappear by 2007 at the latest. The accord provides a new dimension to a relationship which was already well anchored in the 1997 EU-Mexico Economic Partnership, Political Coordination and Cooperation Agreement.