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WHAT IS A TRADE BLOC?

A regional trading bloc is a group of countries within a geographical regionthat protect themselves from imports from non-members. Trading blocs area form of economic integration, and increasingly shape the pattern of worldtrade. There are several types of trading bloc:

Preferential Trade Area

Preferential Trade Areas (PTAs) exist when countries within a geographicalregion agree to reduce or eliminate tariff barriers on selected goodsimported from other members of the area. This is often the first small steptowards the creation of a trading bloc.

Free Trade AreaFree Trade Areas (FTAs) are created when two or more countries in a regionagree to reduce or eliminate barriers to trade on all goods coming from othermembers.

Customs Union

A customs union involves the removal of tariff barriers between members,plus the acceptance of a common (unified) external tariff against non-

members. This means that members may negotiate as a single bloc with 3rdparties, such as with other trading blocs, or with the WTO.

Common Market

A common market is the first significant step towards full economicintegration, and occurs when member countries trade freely in all economicresources not just tangible goods. This means that all barriers to trade ingoods, services, capital, and labour are removed. In addition, as well as

removing tariffs, non-tariff barriers are also reduced and eliminated. For acommon market to be successful there must also be a significant level ofharmonization of micro-economic policies, and common rules regardingmonopoly power and other anti-competitive practices.

There may also be common policies affecting key industries, such as theCommon Agricultural Policy (CAP) and Common Fisheries Policy (CFP) of theEuropean Single Market (ESM).

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Trading blocs are groups of countries that have reached a commonagreement to lower trade barriers throughout the group (e.g., NAFTA,ASEAN, and the European Union).

HISTORY

The European Union is an organization of 27 nations. Its original aim was toform an economic union but, as time went on, the EU developed into a fargreater organization.

Today the EU is developing into a political union, trying to bring together thedemocratic countries of Europe. It is the biggest trading bloc in the world,has more people than the United States and exports and imports more goodsthan any other country in the world.

According to the Congressional Budget Office, since the end of World War IIthere has been significant support, especially from the United States, toeliminate artificial trade barriers and to support a greater liberalization ofinternational trade. The General Agreement on Tariffs and Trade (GATT) wascreated shortly after World War II, between twenty-three countries, tofacilitate and coordinate trade between the nations. In addition to creating amore liberal trade environment, it also had provisions and charters creatingrules for employment, commodity agreements, restrictive business practices,international investments, and services. The process of creating a free tradeagreement followed a pattern of discussion, negotiation, and eventual

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ratification. The full process was termed, "rounds." There were eight roundsin the GATT treaty. Despite numerous difficulties and differences betweentheinvolved countries, much was accomplished by GATT; although portions werenever fully ratified by all of the countries.

In 1995, during the Uruguay round of GATT negotiations, the World TradeOrganization (WTO) was created. The WTO became the official successor tothe GATT. The WTO is the only international organization dealing with theglobal rules of trade between nations. Its main function is to ensure thattradeflows as smoothly, predictably, and freely as possible. At the center of theWTO is its multilateral trading system that functions by seeking consensusbetween member nations (148 members). The notion of consensus facilitatescooperation and, potentially, an agreement that is most beneficial to allinvolved countries.

TRADE BLOC-EUROPEAN UNION

Europes single most importan t contact with the world beyond its borders is

through trade. Every day, Europe exports hundreds of millions of eurosworth of goods and imports hundreds of millions more. Europe is the worldslargest exporter of manufactured goods and services, and is the biggestexport market for more than one hundred countries. Trade is the motor ofEuropes prosperity. New technologies, faster communications and moreefficie nt means of transport have made it possible to produce, buy and sellgoods around the world, underpinning Europes place in the world.

The 27 Member States of the European Union share a single market, a singleexternal border and a single trade policy. This gives the EuropeanCommission tremendous leverage when it talks trade with the EUs partners.It means there is one negotiation, one negotiator the Commission - and atthe en d of the process just one agreement instead of 27 different sets oftrade rules with each of our trading partners.

The EU was originally called the Economic Community ( Common Market , orThe Six ) after its formation following the Treaty of Rome in 1957. The originalsix members were Germany, France, Italy, Belgium, Netherlands, andLuxembourg.

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The initial aim was to create a single market for goods, services, capital, andlabour by eliminating barriers to trade and promoting free trade betweenmembers. In terms of dealing with non-members, common tariff barrierswere erected against cheap imports, such as those from Japan, whose goodsprices were artificially low because of the undervalued yen.

By 2014, following continuous enlargement, the EU had 28 members. Croatiais the latest country to join, in July 2013.

Austria Germany Norway

Belgium Greece PolandBulgaria Ireland PortugalCyprus Italy RomaniaCroatia Latvia SpainCzech Republic Lithuania SloveniaDenmark Luxembourg SlovakiaEstonia Malta SwedenFinland Netherlands UKFrance

The Commission also represents the EU Member States in the World TradeOrganization. By speaking with one voice, the EU has the weight both to

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shape an open global trading system based on fair rules and to ensure thatthose rules are respected.

The EU has become the most powerful trading bloc in the world with a GDPnearly as large as that of the United States.It is also the largest importer ofagricultural products from developing countries, and maintains close links toits former colonies in the ACP group through trade preferences and aid deals.

The EU has found it difficult to shed its protectionist past based on the ideaof self-sufficiency in agriculture which limits agricultural exports from theother countries, although it has implemented a major reform of its CommonAgricultural Policy to shift subsides to support the environment.

Standing Up for Fair and Open Trade for Everyone

European countries were amongst the founding members of the moderninternational system of trade rules. This system, which has grown over sixtyyears into the network of agreements and obligations overseen by the WorldTrade Organization, helps to ensure that trade is open, predictable and fair.

The WTO provides a forum in which all of its members have an equal say in

the making of trade rules and in the negotiation of new WTO tradeagreements.

The WTO system has helped to shape and maintain a system of global traderules that not only keeps the global economy open for trade, but reflects andrespects the special needs and concerns of developing countries. Maintainingthe WTO system, and ensuring that it continues to adapt to a fast-changingworld, is a central priority for Eu ropes trade policy.

EU TRADE POLICY AND PROCESS

The EU has a common external trade policy, which means that trade policy isan exclusive competence of the EU and no member state can negotiate itsown international trade agreement.

The Treaty of Rome called for internal and external liberalization

Forty years ago, external protection was high in most countries and Europe

was comprised of many trade for -tresses . The founders of the Communityshared a coherent economic policy view, with the Treaty of Rome calling foran internal market with no obstacles to trade and strong competition, as wellas for multilateral liberalization. This publication retraces the external

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liberalization efforts, discusses the current trade regime in internationalcomparison , and sets out the Community s future trade agenda.

The EUs trade policy is one of its most well -developed and integratedpolicies. It evolved along with the common market which provides for the

free movement of goods within the EU to prevent one member state fromimporting foreign goods at cheaper prices due to lower tariffs and then re-exporting the items to another member with higher tariffs.

The scope of the common trade policy has been extended partially to includetrade in services, the defense of intellectual property rights, and foreigndirect investment. The European Commission and the Council of Ministerswork together to set the common customs tariff, guide export policy, anddecide ontrade protection or retaliation measures where necessary. EU rules allow theCouncil to make trade decisions with qualified majority voting, but in practicethe Council tends to employ consensus.

Decision-making on foreign trade policy is largely centralized atthe EU level

Partly by nece ssity, partly by design, the EUs trade policy has been walking

on two legs since its early days: multilateral liberalisation and regionalintegration. The long-standing pursuit of deeper integration andenlargement, and the involvement in regional preferential agreementsmakes the EU s experience unique. Another unique feature is theinstitutional set-up. While largely prepared by the Commission, majordecisions are taken by the Council (for trade in goods and part of services).Some competencies are shared between the Union and the Member States.

However, the negotiation and decision making process is not differentbetween the areas of mixed or exclusive competence. Centralization of mostdecisions on foreign trade policy at the EU level is necessary to ensure thefunctioning of the internal market. Centralization should, in principle,strengthen the EU s position in international trade matters. Whether a strongnegotiating position is a good thing for its trading partners depends on theposition the ne gotiating club is taking, for instance, whether it pursues aninward or outward looking agenda.

In addition to the size of the club, its The European Commission negotiatestrade agreements with outside countries and trading blocs on behalf of theUnion as a whole.

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As a result of the Lisbon Treaty, both the Council of Ministers and theEuropean Parliament must approve all such trade agreements before theycan enter into force.

The process for negotiating and concluding a new international tradeagreement begins with discussions among all three EU institutions and aCommission impact assessment, including a public consultation on thecontent and options for any future trade accord.

Provided there is a general agreement to proceed, the Commission initiatesan informal scoping exercise with the potential partner country or trade blocon the range and extent of topics to be considered in the negotiations.Quality matters: if club members push different views, slow decision

making or paralysis could be the consequence.

Within the Commission, the department that handles EU trade policy theDirectorate General for Trade (DG Trade) leads the negotiations but drawson expertise from across the Commission. Typically, there are a series ofnegotiation rounds; the duration of the negotiations varies but can rangefrom two to three years or longer. During the course of negotiations, theCommission is expected to keep both the Council and the Parliamentapprised of its progress, and the Council and the Parliament may take theopportunity to voice their respective views and concerns.

The Parliament may conduct its own oversight hearings through itsInternational Trade Committee (INTA). When negotiations reach the finalstage, both parties to the agreement initial the proposed accord. It is thensubmitted to the Council and the Parliament for review. If the Councilapproves the accord, it authorizes the Commission to formally sign theagreement.

Once the new trade accord is officially signed by both parties, the Councilsubmits a draft decision to conclude negotiations to the Parliament for itsconsent. The Parliament reviews the signed agreement both in the INTACommittee and in plenary session. Although the Parliament is limited tovoting yes or no to the new accord, it can indicat e that it would notsupport the agreement should it find fault with any of its provisions, and canask the Commission to review or address its concerns. If parts of the tradeagreement fall under member state competence, all EU countries must also

ratify the agreement according to their national ratification procedures.

After Parliament gives its consent and following ratification in the memberstates (if required), the Council adopts the final decision to conclude the

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agreement. It may then be officially published and enter into force.

The Union is a frequent user of non-tariff barriers and of the WTOdispute settlement mechanism

Non-tariff border measures have traditionally been more prevalent in theUnion and the United States than in Japan or Canada. The textile sectorremains the most protected by non-tariff barriers, while tariffication impliedasharp fall in the pervasiveness of such barriers for agricultural products andin the processed food sector. Concerning anti-dumping and other pricecontrol measures, the Union is a major user, second only to the UnitedStates. In contrast, Japan has hardly used such measures at all. The EuropeanUnion changed anti-dumping legislation in 1994, while revising otherprovisions such as those on circumvention. The new regulation provides forfairer price comparisons, stricter injury requirements and for a broader roleof the Community interest test but, even after these changes, proving theexistence of unfair trade practices has remained highly contentious. TheEuropean Union, with the United States, is a frequent user of the World

Trade Organization (WTO) dispute settlement mechanism. While manydisputes could be settled without creating frictions, some have led to serioustensions, most prominent being the banana case, EU imports of hormone-treated beef and of genetically-modified food.

ADVANTAGES AND DISADVANTAGES OF TRADE BLOCS

There are five major advantages of trade bloc agreements: foreign directinvestment, economies of scale, competition, trade effects, and market

efficiency.

Foreign Direct Investment: An increase in foreign direct investment resultsfrom trade blocs and benefits the economies of participating nations. Largermarkets are created, resulting in lower costs to manufacture products locally.

Economies of Scale: The larger markets created via trading blocs permiteconomies of scale. The average cost of production is decreased because

mass production is allowed.

Competition: Trade blocs bring manufacturers in numerous countries closertogether, resulting in greater competition. Accordingly, the increased

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competition promotes greater efficiency within firms.Trade Effects Tradeblocs eliminate tariffs, thus driving the cost of imports down. As a result,demand changes and consumers make purchases based on the lowest prices,allowing firms with a competitive advantage in production to thrive.

Market Efficiency: The increased consumption experienced with changes indemand combines with a greater amount of products being manufactured toresult in an efficient market.

The disadvantages, on the other hand, include: regionalism vs.multinationalism, loss of sovereignty, concessions, and interdependence.

Regionalism vs. Multinationalism: Trading blocs bear an inherent bias infavor of their participating countries. For example, NAFTA, a free tradeagreement between the United States, Canada and Mexico, has contributedto an increased flow of trade among these three countries. Trade amongNAFTA partners has risen to more than 80 percent of Mexican and Canadiantrade and more than a third of U.S. trade, according to a 2009 report by theCouncil on Foreign Relations.

However, regional economies by establishing tariffs and quotas that protectintra-regional trade from outside forces, according to the University ofCalifornia Atlas of Global Inequality. Rather than pursuing a global tradingregime within the World Trade Organization, which includes the majority ofthe world's countries, regional trade bloc countries contribute to regionalismrather than global integration.

Loss of Sovereignty: A trading bloc, particularly when it is coupled with apolitical union, is likely to lead to at least partial loss of sovereignty for itsparticipants. For example, the European Union, started as a trading bloc in1957 by the Treaty of Rome, has transformed itself into a far-reachingpolitical organization that deals not only with trade matters, but also withhuman rights, consumer protection, greenhouse gas emissions and otherissues only marginally related to trade.

Concessions: No country wants to let foreign firms gain domestic marketshare at the expense of local companies without getting something in return.Any country that wants to join a trading bloc must be prepared to makeconcessions. For example, in trading blocs that involve developed and

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developing countries, such as bilateral agreements between the U.S. or theEU and relatively poor Asian, Latin American or African countries, the lattermay have to allow multinational corporations to enter their home markets,making some local firms uncompetitive.

Interdependence: Because trading blocs increase trade among participatingcountries, the countries become increasingly dependent on each other. Adisruption of trade within a trading bloc as a result of a natural disaster,conflict or revolution may have severe consequences for the economies of allparticipating countries.

Understanding how trade is conducted between countries is an importantaspect of international economics. Globalization is a process of deeperinternational economic integration that involves a rapid expansion ofinternational trade in goods and services between countries, and a hugeincrease in the value of transfers of financial capital across nationalboundaries, including the expansion of foreign direct investment (FDI) bytransnational companies.

The globalization process in the last decades has accelerated, due in a largepart to rapid developments in information and communications technology,resulting in falling transport cost and faster information flows.

EU POSITION IN WORLD TRADE

The EU is in prime position when it comes to global trade. The openness ofour trade regime has meant that the EU is the biggest player on the globaltradingscene and remains a good region to do business with. The EU has achieved astrong position by acting together with one voice on the global stage, ratherthan with 28 separate trade strategies.

Europe has become deeply integrated into global markets. Thanks to theease of modern transport and communications, it is now easier to produce,buy and sell goods around the world which gives European companies of

every size the potential to trade outside Europe.

Workers often deliver their services across different countries within amultinational or by specific service contracts. As investors thrive in a stable,

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sound and predictable environment, they are looking for investment barriersto be dismantled and investments to be protected.

Every day, Europe exports hundreds of millions of euros worth of goods andimports hundreds of millions more. Europe is the world's largest exporter ofmanufactured goods and services, and is itself the biggest export market foraround 80 countries. Together, the European Union's 28 members accountfor 16% of world imports and exports.

Trade in goods and commercial services 2013

Why need a trade policy?

The European Unions tradepolicy must be seen in thecontext of two of todaysrealities. The first is theimportance of the Union itself asa major world player. The secondis the way globalization ischanging the international

environment.

The EU is the largest economy inthe world, the biggest exporter

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and importer, leading investor and recipient of foreign investment andbiggest aid donor. With just 7 % of the worlds population, it accounts forover one quarter of the worlds wealth as measured by gross domesticproduct (GDP) the total value of goods and services produced.

The single market with the free movement of goods, services, people andcapital within the EUs borders is the cornerstone of the Unions ability tocreate jobs by trading with other countries and regions. The EU, not nationalgovernments, is responsible for this market. It also manages trade relationswith the wider world.

Speaking with a single voice, the EU carries considerably more weight ininternational trade negotiations than any of its individual members would. Itis an active economic and political player with growing regional and globalinterests and responsibilities.

Why does it matter?

The development of trade - if properly managed - is an opportunity foreconomic growth. So EU trade policy seeks to create growth and jobs byincreasing the opportunities for trade and investment with the rest of theworld.

By working together, Europe has the weight to shape an open globaltrading system based on fair rules and to ensure that those rules arerespected.

The EUs success is inextricably bound up with the success of our trading

partners, both in the developed and developing world. For this reason,sustainable development is central to trade policy.

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Facts and figures on the EUs position in global markets

The EU is the largest economy in the world. Although growth isprojected to be slow, the EU remains the largest economy in the worldwith a GD P per head of 25 000 for its 500 million consumers.

The EU is the world's largest trading block. The EU is the worlds largesttrader of manufactured goods and services.

The EU ranks first in both inbound and outbound internationalinvestments

The EU is the top trading partner for 80 countries. By comparison the USis the top trading partner for a little over 20 countries.

The EU is the most open to developing countries. Fuels excluded, the EUimports more from developing countries than the USA, Canada, Japanand China put together.

The EU benefits from being one of the most open economies inthe world and remains committed to free trade.

The average applied tariff for goods imported into the EU is very low.More than 70% of imports enter the EU at zero or reduced tariffs.

The EUs services markets are highly open and we have arguably themost open investment regime in the world.

The EU has not reacted to the crisis by closing markets. However somethe EUs trading partners have not been as restrained as the EU has

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highlighted in the Trade and Investment Barriers Report and the reporton protectionism.

In fact the EU has retained its capacity to conclude and implement tradeagreements. The recent Free Trade Agreements with South Korea andwith Singapore are examples of this and the EU has an ambitious agendaof trade agreements in the pipeline.

Globalization

Today, products are no longer made in one place from start to finish. Instead,they are assembled over a long series of individual steps often located indifferent parts of the world. The description Made in one single country isnow the exception rather than the rule. This means that their needs to be a

more sophisticated approach to exports and imports than seeing finishedgoods as simply entering or leaving a country.

Today, products like cars are no longer made in one place from start tofinish.

The growth of other economic powerhouses, such as China, India and Brazil,intensifies competition in terms of the price and quality of goods theyproduce, and, perhaps more importantly, for access to energy and rawmaterials.

At the same time, these countries are creating a new group of affluentconsumers and their economies are more open than they were 10 to 15years ago.

Chinese import tariffs fell from 19.6 % in 1996 to 4.2 % in 2013. Over thesame period, the decrease in India was 20.1 % to 8.2 % and in Brazil 13.8 % to7.6 %, although other, less visible, barriers to EU exports remain.

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The Major World Trading Powers

What are the characteristics of the EU as a trading bloc?

The EU is the worlds largest trading bloc. It is a union of 27 member statescreating a single market of over 500 million consumers.

At least three of the EUs member states are major world economies Germany and France are the worlds fourth and fifth largest economiesrespectively, while the United Kingdom is ranked either sixth or seventh onmost tables compiled by organizations such as the International MonetaryFund (IMF) and the World Bank.

Note that some European countries such as Switzerland and Norway are notmembers of the EU, while others such as Iceland and Turkey are candidatecountries currently in the process of negotiations for membership.

The EUs member states share a single ma rket, a single external border, anda single trade policy. This means they can trade freely with one anotherwithout paying customs duties or taxes. It also means that in the globalmarket place, they act as one actor with one voice.

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The EU is the worlds largest exporter of manufactured goods and services,and the biggest export market for more than 100 countries. It representsalmost one-fifth of global trade.

The EU has harnessed its international economic position to shape tradingrules and regulations, by setting standards for goods and services that areoften followed by the rest of the world.

The Euro 5 and Euro 6 standards limiting pollutant emissions for light roadvehicles is one such example, as is the controversial carbon emissions tax forairlines flying into or out of the EU.

Shares in the world market for exports, 2013 (% share of worldexports):

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Shares in the world market for imports, 2009 (% share of worldimports):

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Why did the EU become a trading bloc?

Given the clout they have in the global market place, large countries have anatural advantage by default when it comes to trade, especially during tradenegotiations. To project a more powerful presence on the world stage,European countries have banded together as a bloc.

As a single, influential actor, the EU is better placed to shape the rules andnorms in the global trading system and influence the standards andregulations.

What is the EUs trade policy?

The EUs trade policy has four main themes:

1. Creating a global system for fair and open trade, to prevent internationaltrade distortions through subsidies or dumping;

2. Creating opportunities for European companies and their workers byincreasing opportunities to trade with the rest of the world;

3. Making sure others play by international trade rules;

4. Ensuring trade is a force for sustainable development, in actively helpingcountries and people around the world to use trade as a tool fordevelopment.

5. The EU also uses its trade policy to promote other goals relating to theenvironment in the fight against climate change, working conditions, andhealth and safety standards for all products.

How does the EU conduct external trade negotiations?

The EU speaks with one voice in international trade negotiations. Instead of27 different sets of trade rules, there is one negotiation, one negotiator, andone agreement.

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The European Commission, the EUs executive body, represents the interestsof all member states in trade negotiations with other countries, with otherregional blocs, and in the World Trade Organization (WTO). The Commissionrequests authorization to negotiate a trade agreement from the Council ofMinisters.

This authorization provides the guidelines and objectives to be achieved inthe negotiation. Once negotiated, the Council and the European Parliamentformally agree the outcome. The agreement enters into force once it is fullyratified across the member states.

What about the EUs protectionist practices?

The EU has traditionally been protective of its agriculture sector, limitingagricultural imports from other countries because it wanted to be self-sufficient in agriculture. This protectionism was part of the CommonAgricultural Policy (CAP), which has now been reformed. The CAP wascriticized for giving European farmers unfair advantages over theircounterparts in developing countries. The EU is now opening its markets to

agricultural products from least developed countries and giving themexpanded trade preferences, such as in extending duty and quota free accessto all products originating from these countries, except for arms andammunition.

2. The EU and Free Trade Agreements

Why do countries pursue free trade agreements (FTAs)?

FTAs are a popular phenomenon globally, there are more than 200 FTAscovering a large part of global trade. Countries pursue them primarilybecause they reduce barriers to trade and enhance the cost-competitivenessof exports.

FTAs are designed to create opportunities by:

opening new markets for goods and services

increasing investment opportunities;

making trade cheaper (by eliminating customs duties);

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making trade faster (by facilitating goods transit through customs and

setting common rules on technical and sanitary standards);

making the policy environment more predictable (by taking joint

commitments on areas that affect trade).

Are bilateral and sub-regional free trade agreements stumblingblocks in the quest for multilateral free trade in the WTO?

Bilateral 1 and sub-regional 2 FTAs build on what can be achieved in the WTO.

They can go further and faster in promoting openness and integration, bytackling issues that are not ready to be discussed in a multilateral forum.These issues might include investment, public procurement, competition,intellectual property rights, and other regulatory issues.

At the same time, these FTAs can challenge the multilateral trading system.

They disadvantage countries with weaker economies, which have lessnegotiating power than they might have in the WTO. They also complicatetrade, meaning that flows of goods dont necessarily reflect who can producethings most cheaply.

The EU has argued that to have a positive impact, FTAs must becomprehensive in scope, provide for the liberalization of substantially alltrade, and go beyond the WTOs capabilities. Future FTAs should serve as a

stepping stone, not a stumbling block, for multilateral trade liberalization.

What is the EUs policy on free trade agreements?

In 2006, the EU announced its Global Europe Policy a new trade agendaaimed at creating jobs and growth in Europe, as well as increasing its externalcompetitiveness. The action plan for increasing competitiveness has twopillars: an internal focus on adopting sound policies to ensure the EU is opento international trade and investments, and an external focus on openinggrowing foreign markets for the benefit of European businesses.

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As part of this external focus, the EU decided to pursue a new generation ofcomprehensive and ambitious FTAs. These FTAs aim for a far-reachingliberalization of services and investment.

They must also go beyond the scope of multilateral trade agreements to

address issues that hamper trade and access to markets, such as non-tariffbarriers in areas like intellectual property rights, public procurements,regulatory barriers, and unfair competition.

1 Bilateral FTA = an FTA signed between two countries.2 Sub-regional FTA = an FTA signed between members of a smaller region such as Southeast Asia. Onekey example is the Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA), a trade blocagreement signed in 1992 by the ASEANmember countries, supporting local manufacturing.

These new-generation FTAs are carefully selected and prioritized based ontheir economic value to the EU. There are two main criteria for choosing newFTA partners:

1. market potential (economic size and growth)2. Current level of protection against EU export interests.

Based on these criteria, FTAs with ASEAN, South Korea, and Mercosur arepriorities because they combine high levels of protection with large market

potential. The EU is also particularly interested in FTAs with Russia, India, the

Gulf Cooperation Council3 and China.

Why has the EU altered its trade policy?

The EU was previously focused on multilateral trade negotiations, but shiftedthe focus of its trade policy towards bilateral FTAs for a number of reasons.

Negotiations had stalled in the WTOs Doha agenda and the EU had alreadybeen forced to drop some important issues that it wanted the agenda tocover: investment, competition, and transparency in governmentprocurement.

Other countries, such as the USA, began to pursue bilateral and regionalFTAs. If the EU did not respond in like, it would be left in a relatively less

competitive position by missing out on the advantages conferred by a freetrade agreement.

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Asias strong economic growth a nd the growing number of FTAs in the regionmeant that the EU needed to strengthen its presence in Asian markets. Untilits FTA with South Korea, the EU was the only leading power not to haveFTAs in Asia.

SUMMARY OF EU POLICY REVIEW DURING 2013

Trade Policy Reviews are an exercise, mandated in the WTO agreements, inwhich member countries' trade and related policies are examined andevaluated at regular intervals. Significant developments that may have animpact on the global trading system are also monitored. All WTO members

are subject to review, with the frequency of review depending on thecountry's size.

1. The EU, as a single entity, remains the largest trading bloc in the world andimports and exports continued to increase in 2011-12, although its share ofworld trade is declining due to faster growth in other countries. The EU isalso an open economy with extra-EU trade in goods and servicesrepresenting over 33% of GDP in 2011. Its rules and procedures are alsotransparent and, despite the wide diversity among its member States interms of their economies, legal systems, and public institutions, it is a highlyintegrated economic unit with a single trade policy and common legislationin most trade-related areas.

2. The focus of EU policy over the past two years has been on the financialcrises and there have been relatively few changes to trade policies, laws, or

institutions in other areas. However, the fact that there has been no retreatinto protectionism is, in itself, a positive sign.

Among the causes of the crises were lack of appropriate fiscal reforms in acontext of easy access to credit and low borrowing costs relative toeconomic growth for governments and the private sector which resulted inunsustainable levels of private and/or public sector debt and some banks'exposure to such debts. A related factor that exacerbated the crises was adecline in competitiveness in some member States as their unit labour costand real effective exchange rates rose relatively quickly.

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3. At both the EU and member State levels, steps are being taken to reducepublic deficits and improve economic governance. The full implementationof those measures is expected to support economic recovery in 2013 and2014.

4. In terms of customs procedures, the EU has been steadily moving towardsan EU-wide system of electronic procedures with centralized clearance, withan ultimate deadline of 2020. Single authorizations for simplified proceduresbecame more widely used during the review period. For goods coming fromoutside the EU, it is now possible to complete customs formalities at the port

of arrival when the destination is in another member State while an "EntrySummary Declaration" may now be lodged at the destination instead of atthe point of first entry. The first project of the Single Window is expected tobe in place in 2014.

5. There have not been any major changes to tariffs or market accessgenerally in the EU. Although there are a large number of duty-free tarifflines and the average MFN tariff is 6.5%, some sectors, particularlyagriculture, remain relatively well protected, sometimes by complex orseasonal tariffs. However, relatively few countries trade with the EU on anMFN basis as the EU has a considerable number of trade agreements withother countries as well as a GSP and GSP+, and EBA schemes.

6. Different member States charge different rates of value added tax andexcise duties while corporate and personal taxation systems and rates of tax

vary widely from one member State to another. The complexity of thetaxation system, including collection and payment, for example for VAT, canresult in additional compliance costs for economic operators while theapplication of reduced VAT rates for some products results in significantrevenue transfers to some sectors that are typically not traded. If all reducedrates were removed, the standard rate of VAT could in certain memberStates theoretically be dropped by up to 7.5% without any impact on overallrevenue.

7. There is little official information available at the EU level on state-ownedor controlled enterprises although some sources indicate that there are

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several hundred among the member States. The total number may haveincreased over the past few years as a number of banks have been takenover by some member States in response to the financial crises. Of course,the definition of a "state-owned or controlled" enterprise is not the same asa "state-trading enterprise" in the sense of Article XVII of GATT and theUnderstanding on the Interpretation of Article XVII. However, many of thesestate-owned enterprises in the EU member States are commercial entitieswhich have effects on trade and investment.

8. Although there are extensive data for the EU on procurement above thethresholds set out in EU law and the Government Procurement Agreement, aconsiderable proportion of public procurement takes place below these

thresholds. It is not clear how procurement takes place below the thresholdbecause of differences in reporting among member States, includingprocurement by sub-national authorities and state-owned enterprises. Thisproblem is not peculiar of the EU, but public procurement is a large portionof GDP in the EU and some member States have federal structures with asignificant proportion of procurement taking place at sub-federal level.

9. To a large extent, SPS measures are harmonized at EU level as is EUlegislation on technical requirements. However, there remain significantdifferences in some areas among Member states. As noted by theCommission: "Technical obstacles to the free movement of goods within theEU are still widespread." During the review period, the EU had an agreementon conformity assessment and acceptance enter into force, which not onlyaligns legislation on technical requirement but also foresees the possibility ofmutual market access of specific products that are lawfully placed on

partners' markets.

10. In the area of intellectual property rights (IPR), the EU is continuing acomprehensive process of reviewing and developing the existing body oflegislation in order to move towards a coherent and balanced overallframework. For that purpose, the European Commission's "blueprint" of May2011 to boost creativity and innovation in the EU proposed a comprehensivestrategy for the modernization of the IPR regime.

Among the most significant developments during the period under review isthe creation of a European patent with unitary effect. It will allow future

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right holders to request the grant of a patent title that provides uniformprotection and is automatically valid in the 25 participating member States.In parallel, a unified patent litigation system will be put in place.

The EU's trademark system and copyright regime are also undergoing amajor review. As part of this process, the Commission has submitted anumber of legislative proposals in the field of copyright, including withrespect to the collective management and multi-territorial licensing ofcopyright, and is reviewing the legislative framework in general. Anotherimportant step towards a more coherent regime has been made in the fieldof geographical indications: a unified framework has been set up to promotequality agricultural products and foodstuffs, including through

denominations of origin and geographical indications. That said, theestablishment of an equivalent legal framework for the protection ofgeographical indications for non-agricultural products continues to be underexamination.

Finally, the imminent adoption of the revised customs regulation aims atstrengthening the enforcement of IPRs at the EU's external borders. For thispurpose, its scope will be extended, customs procedures be simplified, and

further clarity will be provided as regards Customs action in relation to goodstransiting the EU. Whether and what type of update of the existing legalframework for the civil enforcement of IPRs within the EU's internal marketis needed continues to be subject of an extensive consultation process.

11. During the review period there was no major change in agricultural policyas implementation of the last set of reforms continued. More reform isexpected to be decided in 2013 for implementation in 2014. As a result of

past reforms and higher international prices for agricultural commodities,the total level of support to the agriculture sector has declined over the pastfew years and for most products there is now little difference between EUand international prices. However, the EU's reforms have not affectedmarket access conditions and tariffs remain higher than on non-agriculturalproducts and in some cases these tariffs are complex and/or seasonal.

12. Overfishing remains a serious problem for the EU as total allowablecatches have regularly exceeded sustainable limits. However, for some timenow the EU has been increasing the emphasis on long-term planning andmore reform of the Common Fisheries Policy should take place this year.

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13. On financial services, the policy objectives for reform have been fourfold:the first is the creation of a banking union through a single supervisorymechanism, a European deposit guarantee system, and a Europeanresolutionframework for banks in cases of bankruptcy; the second objective is thereform of financial institutions and markets to improve stability through theestablishment of European supervisory authorities, higher capital

requirements for banks and insurance companies along with specificregulations on credit rating agencies, auditors, securities markets andderivatives, and speculative trading practices that may lead to excessivemarket volatility; the third objective is the reinforcement of accountability inthe financial system towards consumers; and the fourth is the institution of afinancial services tax for some member States.

These reforms have maintained third party access and developed new

regulatory instruments in that regard such as the notion of equivalence.

14. For environmental services the most notable trade development is theongoing reform of the legislative framework for concessions in order toensure more transparency and more competition.

15. On air transport, the rules for the single aviation market are goingthrough a "fitness check" process while other reforms on ground handling,

slots, and noise are being considered and the common external aviationpolicy continues to be extended, particularly through the generalization ofthe "Community clause". On maritime transport the main developmentsover the review period relate to competition issues with ongoing revision ofstate aids and anti-trust guidelines. The third energy package, which hasimplications for pipeline transport, contains reinforced unbundling and thirdparty access provisions; it entered into force in all its components starting in2011 and finishing in 2013.

16. The EU is a highly integrated economic unit with common policies andlaws for many trade-related areas. As noted, in many areas integration is

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increasing including foreign investment policy which, as provided for in theTreaty on the Functioning of the European Union (TFEU), is now the exclusivecompetence of the EU. While the EU is in the processing of developing andimplementing its investment policy, member States may maintain in forcetheir investment agreements with third countries that were signed beforethe entry into force of the TFEU.

17. However, in many areas of EU competence, the member States areresponsible for implementing the law and in other areas the memberStates have competence or share it with the EU. These areas include:monetary policy for countries outside the Euro-zone; corporate and personaltaxation; and (at least to some extent) technical regulations, fiscal policy,

government procurement, value added tax and excise duties. In addition, thenumber and importance of state-owned enterprises varies considerably fromone member State to another. Overall, therefore, there are several reasonswhy future trade policy reviews of the EU should pay closer attention totrade-related practices in the member States, not least because they areWTO Members in their own right.

3. The World Trade Organization (WTO) and the EU

What does the WTO do?

The WTO is an international organization based in Geneva with more than150 members. Its purpose is to promote free trade by encouraging countriesto eliminate tariffs and other barriers to trade; as such, it is closelyassociated with economic globalization.

The WTO has four main roles:

1. Oversee the rules of international trade.

2. Ensure the rules of international trade are applied.

3. Settle trade disputes between countries.

4. Organize trade negotiations.

It primarily covers trade in manufactured goods and services (liketelecommunications and banking), and other issues like intellectual property

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rights. However, most developing countries in the WTO oppose the inclusionof these issues.

Why does the EU participate in the WTO?

The WTO creates conditions such as predictability and stability that areessential for global economic growth. Through the WTO, the EU seeks to:

ensure new markets for European countries;

observe the rules of international trade and make sure others also playby them;

Promote sustainable development in trade.

How is the EU represented in the WTO?

As the worlds largest trading bloc, the EU is a key player in the WTO along

with other large economies like the USA and Japan. It is represented at theWTO by the EUs Commissioner for Trade, and by the European Commission(the executive body of the EU).

The Commissioner for Trade sits in the WTOs Ministerial Conference, whichis the WTOs highest decision -making body. Underneath the Conference arethe General Council and a number of other bodies. The EuropeanCommission represents the EU in these forums.

The European Commission coordinates with EU member states through theTrade Policy Committee and is given guidelines for negotiations by memberstates through the EUs Council of Ministers. The EUs Commissioner forTrade then negotiates on behalf of its 27 member states in the WTO. Oncean agreement has been negotiated at the WTO, the European Commissioncan only sign this agreement on the EUs behalf once it has rece ivedauthorization from the Council of Ministers and the European Parliament.

How does a country join the WTO?

Becoming a member of the WTO requires compliance with its rules and

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negotiations with the existing member states.

When an applicant country submits its request, the WTO will form a workingparty to determine which of the applicants economic rules and regulationsneed to be brought into line with the WTOs requirements. The applicant

country then needs to negotiate bilaterally with each member state to agreeon the specific terms of membership. These negotiations are not alwaysquick China joined the WTO in 2001 after 15 years of negotiations.

In Chinas case, membership of the WTO promised to reduce discriminatorymeasures against low-cost Chinese products, attract foreign directinvestment, and enhance Chinas international status. Bilateral negotiationswith the EU and the US were the key to Chinas success in joining the WTO.

Negotiations with the EU took a particularly long time. The EU wanted tostrengthen its economic presence in Asia, to maintain its leading role in theworld economy. It was also concerned about the gains it was securing,relative to other major players like the USA and Japan.

The next decade of EU trade policy: confronting globalchallenges?

The EU Council issued its Conclusions on 16 March, stating that the Council iscommitted to:

Promoting a multilateral agenda for trade and development (e.g. pursuing

the Doha Round and the LDC package);

Promoting market access for developing countries (e.g. the Generalised

System of Preferences (GSP), Economic Partnership Agreements (EPAs));

Working towards sustainable development through a green economy

(e.g. liberalization of green goods and services, financing and public private

partnerships); and Developing more focused, targeted and coordinated Aid

for Trade (AfT).

General views on the EC Communication on Trade, Growth andDevelopment; Trade-related instruments to support trade, investment andgrowth; Other instruments to support trade, investment and growth; andRegional views on the EC Communication.

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A series of major concerns for EU

There is a major concern that the EU is moving towards protectionism

There is no clear strategy behind the EUs approach towards

differentiation, which is currently applied largely on an ad hoc basis

The Communication neglects the importance of non-trade policies for

developing country growth and fails in its duty to promote Policy Coherence

for Development (PCD)

The EU is taking the wrong approach to the role of trade in tackling globalproblems

Trade policy has little meaning without being embedded in and linked to

policies for growth.

CONCLUSION

Overall, the Unions track record in the international trade and investmentarea is encouraging, but the Union itself could, for instance, still gainconsiderably from freeing up trade in agriculture and textiles. Globalizationalso implies that cross-jurisdictional spillovers will become more serious. TheWorld Trade Organization is tackling many trade-related issues for which theUnion has found practical solutions and the EUs exp erience shows that deepintegration is possible. However, building a global club, whose governance

structure is accepted by all participants, will probably be a long process aseconomic structures, laws and institutions are diverse and free-riding atemptation.Walk ing on more than one leg might also be fruitful in these areas forfinding mutually acceptable solutions and for providing domino effects tofree up trade elsewhere

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