Documents considered by the Committee on 8th December 2010 - European Scrutiny Committee Contents

13 Trade policy and the EU's 2020 strategy



+ ADDs 1-2

COM(10) 612

Commission Communication: Trade Growth and World Affairs — Trade policy as a core component of the EU's 2020 strategy

Legal base
Document originated9 November 2010
Deposited in Parliament16 November 2010
DepartmentBusiness, Innovation and Skills
Basis of considerationEM of 29 November 2010
Previous Committee ReportNone, but see footnotes
To be discussed in Council13 December 2010
Committee's assessmentPolitically important
Committee's decisionCleared


13.1 The Commission says that faster growth is the over-riding aim of European economic policy, and that, in setting out how trade and investment policy contribute to this objective, this Communication is a crucial element in the external dimension of the Europe 2020 strategy.

The current document


13.2 The Commission says that open economies grower faster than those which are closed, by fostering efficiency and innovation, providing domestic consumers with a wider variety of goods at competitive prices, and boosting foreign demand for goods and services. However, it observes that, if an open trade policy in Europe is to succeed politically, there must be a spirit of reciprocity and mutual benefit between the EU and its international partners, involving fair access to raw materials and economic opportunities.

13.3 At the same time, it observes that the world economy, and trading patterns, have undergone profound changes in recent years, with different parts of the globe being involved in the supply chain, and that this has required European companies to rely on imports, services and highly qualified people from abroad, and on the robust protection of their investments and intellectual property if they are to stay ahead. It therefore believes that, as set out in the 2020 Strategy, the EU's agenda must evolve accordingly, and that, although cutting tariffs on industrial and agricultural products is still important, market access for services and investment, opening public procurement, better protection of intellectual property rights, unrestricted supply of raw materials, and overcoming regulatory barriers will make a bigger difference, adding that this also underlines the need for greater coherence between the EU's internal and external policies.

13.4 The Commission says that it will act both multilaterally through the World Trade Organisation (WTO), and bilaterally through the completion of balanced free trade agreements with its major partners. It adds that, once those agreements currently under negotiation have been completed, they will account for about half of the EU's trade, but that it is equally important to deepen trade and investment links with the other big economies, such as the United States, China, Japan and Russia. At the same time, the Commission points out that trade also provides major benefits for developing countries, and that the EU is contributing to this through generous unilateral trade preferences, involving a carefully differentiated approach which depends upon levels of development.


Smart growth: forwarding to the future

13.5 The Commission says that the EU's economic future lies in maintaining a competitive edge in innovative high-value products, and that its trade policy must take on board the following elements:

—  Services

The Commission notes the reliance of an effective global manufacturing supply chain on transport, telecommunications, and financial, business and professional services, but points out that, although these represent about 70% of world output, they account for only about 20% of trade. It recognises that some services are non-tradable, but says that trade barriers also play a major role, and are in general much higher than those for manufactured products. It says that it will therefore seek greater openness for EU service providers, in line with the opportunities which the EU itself gives to providers from third countries, and that it will continue to offer integration with the internal market to some neighbouring countries[61] in sectors such as financial, postal and telecommunications services. In addition, it says that the EU should seek to ensure that the regulation of services in all third countries is open, non-discriminatory and transparent, and to prevent the erection of barriers in areas where technological change has led to the creation of new services.

—  Foreign direct investment

The Commission notes the enormous increase in capital movements and foreign direct investment, saying that around half of world trade now takes place between affiliates of multinational enterprises trading intermediate goods and services. It recalls that it has proposed a comprehensive European investment policy,[62] and it says that it will seek in ongoing trade negotiations with Canada, Singapore and India to integrate investment protection with liberalisation, and consider whether stand-alone investment agreements should be pursued with other countries, such as China.

—  Public procurement

The Commission says that public procurement is an area where foreign markets are particularly closed, not least in sectors such as transport, medical devices, pharmaceuticals and green technology where EU industry is highly competitive, and that it will both press for more opening and fight against discriminatory practices. It notes that the EU market is much more open than those of its trading partners, particularly at regional and local level, and it says that it will present in 2011 a legislative proposal to increase the EU's leverage to secure improved symmetry of access to public procurement markets in developed and large emerging countries. Likewise, it observes a similar need for symmetry regarding access to research and development programmes.

—  Innovation and new technologies

The Commission suggests that trade and investment flows are a key factor for both new and more traditional sectors. It notes that the EU is advocating an extension of a moratorium on tariffs for electronic commerce, and will pursue its efforts to update the 1996 WTO Information Technology Agreement.

—  Regulatory barriers

The Commission says that these are especially harmful, particularly in the EU's main trading partners, with the lack of acceptance (or use) of international standards and burdensome certification or inspection requirements being major concerns. It acknowledges that countries have a right to establish their own levels of protection in areas such as health and safety and environmental protection, and that this provides reassurance for consumers, but it suggests that it often imposes an important cost on EU companies abroad, and that non-tariff barriers are a significant cause of trade disputes. It therefore believes that enhanced regulatory cooperation is an important aspect of trade relationships, and it says that it will urge its major trading partners to join existing initiatives, such as the UN-Economic Commission for Europe (UNECE) regulations on automobiles, and to participate actively in the development of international standards or common regulatory approaches in a broad range of sectors, noting that it is easier to tackle potential barriers before they become entrenched.

The Commission also acknowledges the need for the EU's own system of regulation to be increasingly sensitive to the international context, and the relationship between the opening of external trade and internal market reforms; and it suggests that more needs to be done to leverage the effectiveness of those policies, thereby enhancing the EU's competitiveness in the global market. It says that it will explore how to improve coordination between regulatory actions in the two areas, and it notes that these issues are discussed in its recent Communication "Towards a Single Market Act".[63]

—  Movement of people

The Commission comments on the need to ensure that the temporary movement of people to provide services contributes to making service providers more competitive, and it says that bringing in the most highly qualified people from abroad is essential to enable its companies and research centres to maintain their record of innovation (and that there is a need for their European experts to be able to move to their establishments abroad). In so far as it considers there is a need to offer the same treatment to foreign firms, it believes that the proposed Directive on conditions of admission of third country nationals in the framework of intra-corporate transfer should help to create a stable and open environment.

Inclusive growth in the EU and abroad

13.6 The Commission observes that, despite the benefits from globalisation, there are concerns within the EU about the potential consequences in areas such as employment. It points out that trade openness creates more jobs overall, but recognises that the shift towards the best performing sectors may cause losses in other sectors, and the consequent need to equip people to adapt to these changes. It adds that, whilst it is the responsibility of Member States to put in place the right social, educational and labour market policies, the EU contributes additional support, with one such instrument being the European Globalisation Adjustment Fund, which it suggests could be extended and simplified. The Commission notes the importance of inclusiveness outside the EU's borders, and its commitment to promoting sustainable development and international labour standards; and in this regard it draws attention to its Economic Partnership Agreements with African, Caribbean and Pacific countries. It says that it will propose in 2011 a reform of the EU's General System of Preferences in order to focus on those countries most in need and which effectively implement international labour standards, human rights, environmental protection and good governance. Finally, it says that it will adopt in 2011 a Communication on trade and development, which in addition to considering in broad terms how trade policy can best serve development, will see how it can help countries hit by natural disasters, such as Haiti and Pakistan.

Sustainable growth in the EU and abroad

13.7 The Commission states that trade policy should continue to support green growth and climate change objectives, particularly the reduction in carbon emissions, and that the EU needs to ensure that its industry can compete in the sustainable economy of the future, including the fisheries and agriculture sectors (which it notes will see further reform). It says:

  • that its policy on climate change remains a global agreement, with emission reduction goals set for all countries, and that trade policy can contribute to this by eliminating barriers to the movement of environmental goods and services;
  • that trade policy should continue more broadly to support and promote green growth in other areas, such as energy, resource efficiency and the protection of biodiversity, with particular attention being paid to the implementation of the sustainable development chapters of the EU's trade agreements;
  • that the sustainable and undistorted supply of raw materials and energy is of strategic importance for the competitiveness of the EU economy, and that a number of other countries are developing industrial policies which create supply bottlenecks and other distortions: that it is preparing a new Communication by the end of 2010 on the implementation of the raw materials strategy paper[64] it put forward in 2008, and the way forward; and that it will use current trade rules to the maximum, pursuing the monitoring of export restrictions, and exploring approaches based on best practices, whilst continuing to observe its development objectives of poverty eradication and good governance;
  • that on energy the EU will use both bilateral and multilateral negotiations to include trade provisions which will help it to diversify its energy supplies (and hence energy security as well), and promote free transit and trade in sustainable energy, particularly as regards the development of its renewable energy industry.


Concluding Doha and building on the multilateral rules-based system

13.8 The Commission confirms that, despite the slow progress, completing the Doha Round remains the top priority, with the potential benefits — which could include annual increases of €300 billion in world trade, and €135 billion in world income — being too important to ignore. It says that 2011 represents the next best opportunity to conclude an agreement to which all involved both make a significant contribution and stand to benefit. It suggests that a successful outcome would confirm the central role of multilateral trade liberalisation and rule-making, and the WTO's role against protectionism, but that better use could be made of the organisation's surveillance and monitoring capacity. It adds that the EU should continue to give priority to further accession, and will seek to strengthen the dispute settlement mechanism: and, given the long-term benefit from strengthening the WTO's role in addressing the challenges of global economic governance alongside other institutions such as the G20, the Commission proposes to set up an eminent group with representatives from developed and developing countries to help shape views on its functioning after Doha.

Completing the on-going negotiating of Free Trade Agreements

13.9 The Commission says that the Global Europe agenda of an ambitious new generation of bilateral trade agreements with important trading partners is challenging, not least because these go beyond import tariffs, addressing regulatory barriers, intellectual property rights, government procurement, the protection of innovation, sustainable development and other important issues. However, it suggests that the benefits should be substantial, since these agreements will cover about half of the EU's external trade, are likely to reduce by one half the average tariff on EU exports and the average EU import tariff by one fifth, and add up to 0.5% to EU GDP in the longer run. It notes that agreements have been completed successfully with Korea, as well as Peru, Colombia and Central America, whilst talks with India, Canada and Singapore are at an advanced stage, and negotiations with the MERCOSUR region[65] have been reopened. It also suggest that the EU should make use of fast-growing regional trade in East Africa, and seek to conclude bilateral negotiations with ASEAN[66] countries such Malaysia and Vietnam: and it says that, in order to help establish an area of shared prosperity with Europe's neighbourhood, it will continue to pursue Deep and Comprehensive Free Trade Agreements within the Eastern and Euro-Mediterranean Partnerships.

Engaging strategic partners on trade, investment and regulatory convergence

13.10 The Commission says that, because of their economic size and potential, and their influence on the global economy, EU trade policy needs to pay particular attention to the US, China, Russia, Japan, India and Brazil, and that these must now become an even greater priority. It notes that intense negotiations with India are continuing, and believes that the relationship with Brazil will be transformed when an EU-Mercosur Association Agreement is concluded: and it summarises the issues currently arising with regard to the other four countries.


13.11 The Commission says that the EU must step up its efforts to enforce its rights under agreements, with proper enforcement of trade rules being an indispensable pillar of trade policy, particularly for SMEs. It says that at a global level it will continue to pay particular attention to actions taken in the recovery from the economic crisis, and notes the extent to which a G20 commitment in 2008 not to introduce protectionist measures has played an important political role, a commitment it says it will continue to monitor closely. At the same time, the Commission calls upon the EU's G20 partners to take action to reverse the trade restrictions introduced during the financial crisis, and says that it will act vigorously against any protectionist tendencies which may harm EU interests. Beyond this, it says that the EU must push hard for systematic implementation of all free trade agreements.

13.12 The Commission says that the Market Access Strategy will remain a key element of its enforcement activities, its market access teams in third countries having produced very good concrete results in removing trade barriers in countries with a significant export potential. Other action proposed includes working with major partners to strengthen consumer safety by market surveillance authorities, the adoption of proposed origin marking for imported end products, international customs cooperation, strengthening measures relating to intellectual property rights, including a harmonisation of rules within the EU, and pressing for the implementation of the Anti-Counterfeiting Trade Agreement, applying trade defence mechanisms to address trade distortions, developing international rules regarding state aid rules, and enhancing the role of EU delegations as contact points for EU business abroad.


13.13 The Commission says that its public consultations have provided useful inputs to the preparation of this Communication, and that it remains committed to this practice when drafting policy and proposing action. It also says that it will step up a gear in embedding impact assessments and evaluations in trade policy making, including the carrying out of such assessments on all new trade initiatives with a potentially important impact, and that it will also carry out ex-post evaluation on a more systematic basis.


13.14 The Commission says that the EU should aim to play a role in foreign affairs and global management commensurate with its economic weight, and that trade policy has its own distinctive contribution. It goes on to suggest that the EU's trade and foreign policies should be mutually reinforcing in areas such as development policy and the application of UN sanctions, in encouraging its partners to respect human rights, labour standards, the environment and good governance, and in its export control system for dual-use goods. More generally, it comments on the economic significance of export controls, and it says that it will bring forward a Green Paper to consult on the functioning of the current system and possible areas of reform.

The Government's view

13.15 In his Explanatory Memorandum of 29 November 2010, the Minister for Employment Relations, Consumer and Postal Affairs at the Department for Business, Innovation and Skills (Mr Edward Davey) says the Government strongly supports the Commission's focus on trade and investment as a means of securing growth within the EU, and welcomes its prioritisation of a successful conclusion to the Doha Development Round and a strengthening of the WTO. In particular, it supports the proposal to set up a group of eminent persons from developed and developing countries to obtain independent recommendations to help shape a view on the future agenda and functioning of the WTO post-Doha. It also agrees that these multilateral negotiations and agreements to secure greater liberalisation can be supported by bilateral Free Trade Agreements.

13.16 He says that the Government would have liked the Commission to focus further on what actions can be taken to ensure that poor countries can secure the benefits of trade, though it welcomes the proposed reform of the EU's General System of Preferences and the continuing use of Economic Partnership Agreements with developing countries. It also welcomes a number of proposals to make best use of existing levers to improve trade, including a better alignment of Single Market policies with those relating to external trade, the continuation of the activities of Market Access Strategy teams, and the enforcement of already completed bilateral and multilateral trade agreements. It notes that the Commission also proposes to review the EU's 2004 strategy on the enforcement of intellectual property rights in third countries, a course of action it supports.

13.17 The Minister says that the area of most concern to the Government is the proposed introduction in 2011 of legislation to promote greater symmetry in the level of openness in public procurement contracts to suppliers from third countries. Whilst he notes that the details are not yet known, he is concerned that the procurement instrument could be used to reduce access for third countries to the EU and in particular to the UK, increasing protectionism and undermining value for public money.

13.18 Finally, the Minister also notes two additional areas where it is not yet clear what the final proposal will entail — one being the a Green Paper on a potential Trade Defence Instrument, and the other the strengthening and simplification of the European Globalisation Adjustment Fund. Although the Government supports both trade defence and the need for adjustment policies, it is keen that any proposals should not constitute greater protectionism and are in keeping with WTO commitments: and it says that in all instances it will watch emerging policies and legislation closely.

13.19 The Minister says that the Government plans to respond to the Communication within the planned Trade White Paper due in early 2011, and that, in preparation for this, his Department will put forward a comprehensive UK trade and investment strategy and policies, on which it is consulting across Whitehall and the Devolved Administrations.


13.20 This document forms part of the Europe 2020 strategy, and deals with its external dimension by setting out how trade and investment policy can contribute to achieving faster growth within the EU. As such, it is wide-ranging and contains a number of suggestions for further action, and, although these are in the main supported by the Government, it is clearly right to draw it to the attention of the House. However, as with a number of other comparable Commission Communications which we have considered recently, its very breadth makes it difficult to have a focussed debate on the document itself, and it seems to us that any consideration of the issues raised would best be carried out as and when further specific proposals are brought forward. On that basis, we are clearing the document.

61   Such as Ukraine, Moldova, the Caucasus countries, Egypt, Jordan, Morocco and Tunisia. Back

62   (31783) 11952/10: see HC 428-ii (2010-11), chapter 3 (15 September 2010). Back

63   (32132) 13977/10: see chapter 11 of this Report. Back

64   (30202) 16053/08: see HC 19-ii (2008-09), chapter 14 (17 December 2008). Back

65   Comprising Argentina, Brazil, Paraguay and Uruguay. Back

66   Association of South East Asian Nations. Back

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