The time since the last EU TPR in July 2017 has been quite eventful, to say the least, both at the European and global levels. We appreciate the opportunity that this review provides to take stock and exchange views with the WTO Membership about where the EU stands in the multilateral trading system at this 25th anniversary of the WTO.
The last three years were marked by mounting trade tensions, economic uncertainty and amplified challenges for multilateralism more generally. Nonetheless, the EU has remained firmly anchored in the rules-based trading system and remains committed to open markets. This is not just because of our conviction that global challenges are more effectively tackled through cooperation rather than unilateralism, but also because insertion into the global economy has been the basis for the EU’s economic success so far, enabling us to stay the number one trading block and biggest single market in the world. In fact, as described in the reports, the EU economy continued to grow, trade in goods and services as well as FDI flows expanded considerably, and unemployment continued to decrease during the period under review despite various challenges.
The EU economy exchanges goods and services with the rest of the world to the tune of 14 billion € per day. As the world’s second biggest exporter and second biggest importer of goods (accounting for 15% of global exports and imports, respectively), the EU existentially depends on open and rules-based trade relations. The vast majority of our imports is needed by EU companies as input for their production processes. Trade is an integral part of the lives of European citizens, defining the choices of consumers and providing livelihoods, as exports alone support around on 1 in every 7 jobs in the EU.
The EU’s dependency on imports is reflected in our tariff structure. The EU’s simple average applied MFN tariff rate is relatively low (5.2% in 2018, according to the WTO’s “World Tariff Profiles” publication for the EU). While MFN tariffs on agricultural products are somewhat higher than tariffs on non-agricultural products, the EU continues to be the world’s largest importer of agricultural goods from developing countries and Least Developed Countries, not least because of our expansive preferential schemes and liberalisation through free trade agreements.
Mr Chairman, the unravelling of the rules-based multilateral trading system has been and continues to be a major challenge. Unfortunately, the concerns we expressed in July 2017 about the state of affairs in the WTO turned out to be justified. The crisis of the multilateral trading system has deepened significantly and today, the WTO is facing unprecedented challenges, with its fundamental principles put into question. The EU sees no alternative to restoring the effectiveness of the WTO. As the EU has argued in many other meetings in this room, we believe that the WTO needs to be reformed in all its core functions in order to become fit for purpose again.
We have been working hard towards this objective over the last three years. In September 2018, the EU set out its views in a concept paper on how to reinvigorate the rulemaking, dispute settlement and monitoring functions of the WTO. On this basis, we have been working with WTO Members and presented concrete proposals on various topics. The EU’s main efforts have been, and continue to be, on relaunching the stalled negotiating function of the WTO.
This is necessary, first and foremost, in order to update the rules that can address the root causes of today’s trade tensions, for example on level-playing field issues such as industrial subsidies. The statement of the 21st EU-China summit in April 2019 as well as the trilateral EU-Japan-US Ministerial statement of January 2020 illustrate the progress achieved with key partners towards our objective of making WTO rules more effective again.
Second, a modernisation of WTO rules is indispensable to ensure the continued relevance of those rules in today’s economy, both for business and consumers. An updated rulebook should facilitate all forms of trade and investment, which have been transformed profoundly by technological change.
With this in mind, the EU has very actively participated in the ongoing multilateral and plurilateral negotiations – fisheries, e-commerce, domestic regulation for services, investment facilitation – and we hope to harvest the fruits of this work at the upcoming Ministerial Conference in Nur-Sultan in June. We have also invested in propping up the monitoring function of the WTO, through advocating for proposals on better notification compliance and guidelines for WTO bodies dealing with trade concerns, in the belief that the organisation cannot function properly without proper transparency on trade measures and having a framework for effective dialogue.
The EU takes its notification obligations very seriously. In 2019, again, we fulfilled all our obligations in time – with only a delay of government procurement-related statistics which we are working on, and the notable exception of the annual notification of domestic support in agriculture (“DS:1” notification) where delays are inevitable because of frankly unrealistic deadlines. Even in this isolated case, the EU remains among best performers.
The crisis of the Appellate Body, which unfolded over the past two years, has consumed a lot of energy of the EU and other Members. The proposals put forward by the EU and 13 other Members in November 2018 to address concerns voiced with the functioning of the Appellate Body led to the dedicated process, which has become to be known as the Walker process. Despite the commendable efforts of the facilitator and all our dedication, we could not avoid that the Appellate Body effectively stopped functioning on 11 December last year. Nonetheless, and more than before, the EU believes that an enforceable, 2-step and independent dispute settlement system is indispensable for ensuring open and fair trade. The EU will continue to engage with all Members to find a lasting improvement to the Appellate Body situation as a matter of priority, including through necessary reforms.
In the meantime, however, the EU also needed to take steps to mitigate the effects of the blockage of the Appellate Body and to preserve our rights under the WTO Agreement. In anticipation of the suspension of the functioning of the Appellate Body, the EU proposed interim appeal arbitration arrangements to those partners who are willing to continue to resolve disputes in a binding way in respect of the WTO rules. On 24 January in Davos, the EU and 16 other WTO Members agreed to develop a multi-party interim appeal arrangement that will allow the participating Members to preserve a functioning two-step dispute settlement system at the WTO in disputes among them. The arrangement is a contingency measure and it will only apply until a reformed WTO Appellate Body becomes operational again. The EU believes that an independent and impartial appeal stage, giving the necessary guarantees of rulings of the highest quality, must continue to be one of the essential features of the WTO dispute settlement system.
In conclusion on this point, let me stress again that we do acknowledge the fundamental issues raised by some Members in relation to the functioning of the Appellate Body, and we remain ready, open and willing to engage in tackling core issues. In light of that, the multi-party interim appeal arrangement remains merely a stop-gap measure, pending a more in-depth reform of the Appellate Body, as part of the broader WTO reform efforts.
Turning to developments in the EU. On 31 January 2020, the United Kingdom left the European Union according to the terms of the Withdrawal Agreement concluded between the EU and the UK. We have notified all its international partners, including WTO Members and the WTO itself, through a Note Verbale about the UK’s withdrawal and the transitional arrangements foreseen in the Withdrawal Agreement. The Note Verbale informs our partners that the UK is treated as a Member State for the purposes of international agreements of the Union during the transition period, which is planned to last until 31 December 2020. This means, inter alia, that the UK remains covered by the EU’s WTO commitments and concessions on goods and services during transition.
I understand the interest of Members in what happens after the transition period, however, the negotiating phase between the EU and the UK starts in March, and therefore certain degree of uncertainty is inevitable. The uncertainty surrounding Brexit has been challenging for stakeholders in the EU, the UK as well as third countries. Naturally, we received a number of questions in relation to Brexit, for example on the negotiations under GATT Article XXVIII on the apportionment of the EU’s bound tariff rate quotas. We will continue to conduct these negotiations with individual Members in good faith and in line with the relevant WTO procedures, as we have been doing since the start of the EU’s and UK’s joint engagement with WTO Members, hoping to bring them to satisfactory conclusion.
In any case, the EU remains the largest internal market of the world, the top trading partner for 80 countries, and continues its work in support of the rules-based multilateral trading system in line with its values. The EU and the UK are now opening a new chapter by entering negotiations about the future EU-UK relationship.
The EU also continued expanding our FTA network. To name but a few, particularly noteworthy achievements: The Comprehensive Economic and Trade Agreement with Canada is provisionally applied since September 2017, the EU-Japan Economic Partnership Agreement entered into force in February 2019, and in June 2019, the EU signed the FTA and Investment Protection Agreement with Vietnam and concluded negotiations with Mercosur. These agreements are not only our biggest in terms of market size, but ambitious in their coverage. They build on and go beyond WTO rules whilst fully respecting them. We have developed WTO+ provisions on subsidies and government procurement, for example, and regarding services; our most recent Free Trade Agreements include comprehensive commitments and state of the art provisions on telecommunications, financial services as well as a full Digital Trade Chapter. Negotiations are well underway with numerous other trading partners.
Mr Chairman, let me now turn to the questions that Members addressed to the EU in this TPR. We received more than 1600 written questions from 39 Members; around 1200 questions reached us within the deadline. This is about 600 more questions than last time and makes us the third most scrutinised Member in the TPR exercise after China and the US. I am pleased, and proud, to say that we have responded to all questions that were sent within the deadline by last Tuesday (11/02), i.e. the date set in the “alternative timeline”, as well as to those questions that missed the deadline by a couple of days. We are working on the replies to the remaining questions, which we will submit in due course, within the required timeframe.
I would like to pick up some of the main themes that Members addressed in their questions: agriculture, sustainable development, SPS and other regulatory measures, trade defence instruments, the Digital Single Market and investment.
As usual, many questions were about agriculture. Since the last TPR, the Common Agricultural Policy (CAP) continued on the path towards further market orientation and away from trade-distorting support measures. Examples include the abolition of sugar production quotas and implementation of the Nairobi Ministerial Decision on export competition. A new CAP for post-2020 is in the making; the legislative proposals of June 2018 aim at fostering a smart, resilient and diversified agricultural sector ensuring food security, strengthening the socio-economic fabric of rural areas and contributing to the environmental and climate objectives of the EU. The EU aims to use 40% of the overall financial envelope of the CAP to support climate objectives.
Promoting sustainable development through trade remains a top priority for EU trade policy. We were pleased to note that many Members have referred to the EU’s work on sustainable development issues. Let me recall that the EU and its Member States’ aid in support of trade and productive capacities represents a third of global Aid for Trade and makes the EU the biggest Aid for Trade donor. The updated EU Strategy on Aid for Trade of 2017 reflects the UN 2030 Agenda on Sustainable Development. The EU’s trade policy instruments, such as preferential trade regimes and economic partnership agreements, also contribute significantly to increasing exports from developing countries and diversifying their economies. Commitments to sustainability are also continuously being strengthened in EU trade agreements, for instance with regard to climate change and the effective implementation of Multilateral Environmental Agreements (MEAs). Quite a few questions focused on the EU’s work to help protect and restore the world’s forests as outlined in our Communication of July 2019. We have also noted the interest in the EU’s continued work on fair and ethical trade schemes as well as the promotion of gender equality through trade.
Now turning to the Sanitary and Phytosanitary measures where we received the highest number of questions. This did not come as a surprise, as indeed the EU enacted or implemented several new pieces of legislation during the review period, for example on official controls, plant health, animal health, or veterinary medicinal products. The EU is fully aware of the impact that changing standards on the EU market can have on exporters in third countries, and therefore takes its obligations of transparency and consultation very seriously. In addition to fulfilling all notification requirements and responding to Members’ questions and comments in the SPS Committee diligently, the Commission organised various conferences, information sessions, webinars and workshops on the main regulatory developments (e.g. in relation to pesticides, veterinary medicinal products, animal health, plant health, official controls). The EU also actively provides significant technical and financial assistance to enable exporters in developing countries to meet EU standards. Examples include the Better Training for Safer Food initiative, the Fit for Market programme and Market Access programmes.
Regarding matters discussed in the Committee on Technical Barriers on Trade, we received several questions on the two new EU Regulations that, on the one hand, enhance the EU market surveillance framework and, on the other hand, streamline the application of the mutual recognition principle of goods lawfully marketed in the EU. I would like to underline that these new rules reinforce the powers of market surveillance authorities in the EU, including through improved cooperation mechanisms among them, in order to ensure that only safe and compliant goods – whether produced domestically or imported – are placed on the EU market. In parallel, they further facilitate the free movement of goods across EU Member States.
Regarding the EU’s regulatory processes more generally, some questions enquired about advancements under the Better Regulation Agenda and how we take stakeholder input into account in the legislative process. One noteworthy characteristic in the EU’s policy development process is that public consultations take place very early at the conceptual stage of a policy initiative. With some pride, I admit, I would like to point out that the OECD Regulatory Policy Outlook 2018 ranked the Commission consultation system the best in the OECD.
We have also replied to many questions about the EU’s trade defence instruments. This was expected, given that our legislation saw two major changes since the last TPR: the introduction of a new dumping calculation methodology in December 2017, and broader changes that modernised and improved the instruments in June 2018. These changes were necessary to keep pace with the global challenges in international trade and the need to ensure that the EU’s commitment to free trade is underpinned by instruments that guarantee that this trade is fair. We are fully committed to dealing with unfair trade practices like dumping and subsidisation, which threaten and injure our industries. Similarly, when justified by the exceptional events causing trade diversion, we also need to address unexpected surges of imports by taking proportionate safeguard measures. We will continue to tackle these practices, when necessary and where justified, and always fully in line with our international commitments. In this context, let me recall that the EU’s legislation contains WTO+ elements such as a mandatory public interest test and the use of the lesser duty rule, which are more stringent than the WTO rules require. I would also like to add that the EU is still in a relatively early stage of implementing our legislative changes and therefore the practice may evolve over time.
The completion of the Digital Single Market (DSM) was a political priority during the period under review. The EU’s DSM strategy and related legal acts adopted over the last years attracted significant interest from many WTO Members. We received around 130 questions, focussing on copyright, e-commerce and online platforms, cybersecurity and measures in the field of electronic communications. The EU’s DSM strategy aims at providing individuals and businesses with the best possible access to the online world. In our view, a Digital Single Market is one in which the free movement of persons, services and capital is ensured and where individuals and businesses can seamlessly access and engage in online activities under conditions of fair competition, and a high level of consumer and personal data protection, irrespective of their nationality or place of residence.
Regarding investment, the EU received many questions on our Regulation on the FDI screening framework which will enter into force in October this year. While we hope our answers have provided the necessary clarifications, I would like to take this opportunity to stress a few aspects of this new instrument. First, it does not in any way undermine the Union’s openness for foreign direct investments. FDI is an important source of jobs, expertise, and competitiveness in the EU. It is too important to lose it. Hence, this new instrument was carefully designed so as not to affect the EU’s attractiveness for foreign investors and to minimize impact on foreign investors and their investments. Second, its objectives are very specific: It is meant to strengthen the awareness of the EU and its Member States of those FDIs that are likely to affect security or public order and enable EU Member States and the Commission to mitigate those risks.
Furthermore, Members sought clarifications on the division of competences between the EU and its Member States in the negotiation and management of investment treaties. Several questions also concerned the EU’s approach to investment dispute settlement and in particular the functioning of the Investment Court Systems set up under EU agreements. The EU has led the way in reforming investor state dispute settlement by moving away from ad hoc arbitration to permanent mechanisms consisting of first instance and appeal tribunals. The EU and its Member States have implemented this reform through bilateral trade and investment negotiations.
Work has also started on the creation of a Multilateral Investment Court, which would be open to all countries and, as a standing multilateral court, would offer the greatest guarantees of independence and impartiality, ensure correct and consistent decisions and hence create the legal certainty that is required for sustainable investment.
Mr Chairman, the end of the review period for the EU’s 14th TPR overlapped with the new European Commission taking up its work in December 2019. I would like to conclude with an outlook on some of the priorities of the new Commission, which may be of particular interest to WTO Members.
The first priority of the new European Commission is for Europe to become the first carbon neutral continent by 2050. To achieve this, the Commission presented the European Green Deal in December last year, which is a proposal for an ambitious set of measures to achieve a sustainable green transition and, at the same time, a strategy for growth. In fact, several questions addressed to us in the TPR made reference to parts of the Green Deal, such as the Farm to Fork initiative and the EU strategy on adaptation to climate change, including a potential carbon border adjustment mechanism for selected sectors that could be at risk of carbon leakage, should differences in levels of ambition worldwide persist.
Another priority is to make Europe fit for the Digital Age and advance the Digital Single Market, by further breaking down barriers to e-commerce within the EU and by creating the right conditions for digital networks and services to flourish. I am convinced that the further deepening of European integration as we tackle the “twin digital and climate transition”, as Commission President Ursula von der Leyen put it, will bring net benefits for the EU’s trading partners in the same way as they have benefitted from the single market integration for goods.
The new Commission also wants to reinforce responsible global leadership. A strong, open and fair trade agenda for the EU is key in this regard, together with ensuring the highest standards of climate, environmental and labour protection. The EU will have many other opportunities to discuss these initiatives with our international partners in detail as they evolve in the future, including through the EU’s extensive public consultation channels. But I would like to stress already now that all legislative proposals will be made ensuring the respect of WTO rules and other international obligations of the EU; and they will be founded on sound analysis and appropriate consultation.
Once again, we appreciate this opportunity to engage with Members on the whole range of EU policies that are relevant to our trading partners. The EU takes this exercise very seriously, together with all other work under the Trade Policy Review Mechanism. We just marked the 30th anniversary of the TPRM in November, which is indeed a fundamental part of the multilateral trading system. Trade Policy Reviews are an extremely valuable tool in the WTO’s transparency toolkit as they allow for a different type of discussion than other WTO meetings; being more holistic and focused at the same time. The many written questions and this meeting will provide valuable feedback from WTO Members on our trade relevant policies, which we can take back for internal reflections and inject into our regulatory processes. I am looking forward to our discussions today and throughout these coming days and to bring it to a positive conclusion.
Thank you for your attention.