November 22, 2019

EU Trade Policy and Estonia: What are our Opportunities and Role?

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The European Commission logo on the Berlaymont building, its headquarters in Brussels. The Commission doesn’t perform merely a “follow-my-leader” role in trade negotiations.
The European Commission logo on the Berlaymont building, its headquarters in Brussels. The Commission doesn’t perform merely a “follow-my-leader” role in trade negotiations.

The European Commission is a powerful instrument for conducting trade negotiations.

Trade policy is an important tool for countries seeking to achieve their goals both at home and internationally. Domestically, trade contributes to economic growth and the creation of new jobs. The European Union has calculated that, on average, 70,000 euros-worth of exports will provide one job, and that 36 million jobs were dependent on exports in 2017. In addition, externally there is an opportunity to influence the behaviour of trading partners. Both domestic and foreign policy are currently at the centre of heated discussions, especially in relation to the steps taken by China—which, as the European Commission said,1 is at the same time a negotiating partner, a cooperation partner, an economic competitor and a systemic rival of Europe and the United States. The EU, as the largest trading bloc in the world, has a strong position on these and other trade-policy issues. As a single market with 500 million consumers, it is both the largest importer and exporter, whose attitudes cannot be ignored by any trading partner.

But what does trade policy mean for a country that is a member of the EU? Can “its own” trade policy be pursued at all? At first glance, the answer is no, because the EU has a single trade policy—otherwise, it would be very difficult to ensure the functioning of the single market, which is the cornerstone of the Union, based on the customs union and equal treatment. As a result, the common trade policy falls within the exclusive competence of the EU through the Treaty of Rome, in force since 1958 and by which the European Economic Community was established. Article 113 of the treaty mandated the future Commission to negotiate trade with third countries and, where necessary, to protect the single market, for example in cases where a third country exports goods at below cost (so-called “dumping”). This is now established in Article 207 of the Treaty on the Functioning of the European Union (TFEU), in the chapter governing external actions of the EU. In view of the increasing complexity of trade agreements, it should be added that the common trade policy is based on the movement not only of goods, but also of services, trade aspects of intellectual property, and foreign direct investment.

In practice, this means that EU member states give up the right to their own negotiations and dealings on trade with third countries in the World Trade Organization (WTO). The common trade policy brought both visible and legal effects to Estonia upon joining the EU. Visually, this meant that, in May 2004, the Estonian diplomat no longer took her place in the WTO according to the usual alphabetical order but took the nameplate and walked to the end of the room, where the EU countries and the Commission sat in one group. And since that day, Estonia has not spoken in the WTO (with some exceptions) as, by convention, the Commission speaks for the whole EU. Of course, Estonia is still a full member of this organisation, and thus there is every reason to celebrate our 20th year of membership, but things have not changed in a similar manner for us as in the UN. In legal terms, the change was greatest in respect of the bilateral trade agreements Estonia had concluded, which had to be cancelled as our trade relations began to be governed by the agreements those countries had made with the EU. There were, of course, legal changes in the WTO as well, where Estonia’s obligations had to be brought into line with the terms that the EU—a separate WTO member in its own right—had negotiated for itself. Among other things, this meant increasing several tariffs that Estonia had fixed in the WTO in the spirit of its liberal trade policy.

However, this was far from being a bad day for Estonian trade policy and for Estonian entrepreneurs and consumers. Almost overnight, we became involved in a much bigger and more global game than had previously been within reach. First, one of the most powerful trade negotiating teams in the world, led by the European Commissioner for Trade and supported by the European Commission’s Directorate-General for Trade (DG Trade), began to work on our behalf. Perhaps only the US administration is capable of conducting several fully fledged bilateral and multilateral trade talks at the same time as does the EU. As a result, the EU has the world’s largest network of bilateral trade agreements (41, covering 72 countries), and also plays a leading role in multilateral trade negotiations in the WTO. On the other hand, Estonia became part of a market of 500 million consumers, embedded in many global supply chains. Figuratively speaking, everyone is trading with us, so nobody can ignore the EU as a trade bloc. This will better serve the aims of the main trade policy: more diversified imports and access to raw materials, better export conditions and the dissemination of our values and standards.

Hence, the question is: what chance does an EU country have to shape a common trade policy? Answer: quite a good one. Understandably, the member states did not simply hand over an important field of policy to the Commission to operate at its own discretion. The Commission cannot open or conclude trade negotiations without the consent of the member states; today, the European Parliament also plays an important role as co-decision-maker. In addition, member states will also guide the Commission during negotiations. Before entering negotiations, the Commission will report to the member states on its plans and tactics, agree a mandate, and later report back on the results. In this way, member states have an overview of the course of the negotiations and the opportunity to influence things in the desired direction, even though the Commission sits alone at the negotiating table on the EU side.

This makes the processes within the EU almost as exciting and intense as negotiating with a trading partner. After all, member states have different economic profiles, which means that there is no overlap between “offensive” (i.e. export) and “defensive” (“import-sensitive” sectors) interests. While the common trade policy allows member states to take decisions by qualified majority and this is used, for example, in anti-dumping measures, it is common practice in negotiations that agreement must be unanimous, even if this is very difficult to achieve. An example of this would be a situation in which one member state needs a third country to lower its tariffs on European passenger cars in order to maintain its industry’s market share in the face of intense international competition. In return, it is ready to allow more imported beef on the EU market, which happens to be the export interest of that trading partner. But another member state, whose car industry is not very interested in this particular market, is categorically opposed to increased meat imports, as its farmers are ready to come out onto the streets for fear of increasing competition.

In such a situation, what could be the common position of the EU when the Commission sits at the negotiating table? Negotiations must be pursued if the EU wants to remain globally competitive, and the member states want trade policy to contribute to economic growth and job creation in the Union. In particular, given that an estimated 90% of future global economic growth will take place outside Europe, trade presents an opportunity for Europe to have a share of this.

This seemingly impossible issue is resolved by the Trade Policy Committee of the Council of the European Union. As this Committee’s mandate derives from the article on the common trade policy in the Treaty on European Union, it was originally known as the Article 113 Committee (it was called the Article 133 Committee during the period between the Maastricht and Lisbon treaties).

However, the substance has been the same for the last 50 years: finding compromises between member states’ approaches to the common trade policy and, on that basis, giving guidance to the Commission. The most controversial issues are dealt with by the member states’ ambassadors in Coreper (Committee of Permanent Representatives) or by trade ministers meeting in the Foreign Affairs Council. The process is time-consuming for the EU, solutions are sometimes complex and, of course, there are different camps among the member states.

In the present case, there is a gap between those in favour of open trade and increased competition and those who put protection of the market first. Estonia, which sits at the EU table equally with other member states, has the opportunity to have a say in all matters. On the one hand, it must therefore deal with issues that would not otherwise be in its interest (for example, whether Italian wine denominations are protected in Australia), while on the other we have the opportunity to gain the full weight of the EU behind Estonia’s own interests (e.g. in trade disputes with Russia).

However, in order to prevent the whole of the EU’s trade policy being reliant on member states’ horse-trading, leaving the long-term view and strategy behind, the European Commission doesn’t perform merely a “follow-my-leader” role in trade negotiations. It sets out its views on the EU’s interest as a whole in its Communications on Trade Policy. The most recent of these, published in the autumn of 2015 under the title “Trade for All”,2 reiterated the cornerstones of the EU’s common trade policy, such as the importance of multilateral trade rules and the significance of open trade to the EU-wide economy, and underlined the growing role of trade in services.

But alongside this, the communication also highlighted changes in trade policy in a context where the scope of modern trade agreements goes far beyond tariffs, ranging from public procurement at city and municipal level to rules on animal health. Of course, as the impact of the agreements on society is wider, public interest has naturally grown (here two keywords are TTIP (Transatlantic Trade and Investment Partnership) and CETA (Comprehensive Economic and Trade Agreement, with Canada)). In so doing, the Commission set itself the goal to consult more closely with civil society and the European Parliament, and to publish more on the subject of trade negotiations. Traditionally, these have been conducted behind closed doors because negotiators want to keep their positions secret in order to get the best possible deal in the game of bid-and-counteroffer while giving away as little as possible of what is actually ready to be put on the table.

While this model worked very well for negotiations on customs tariffs, in the context of broader agreements the public questioned whether, for example, some European safety requirements or health regulations—which the third country considered an unfair non-tariff barrier to accessing the EU market—were being traded. In its communication, the Commission considered that, in addition to numerous assurances that no concessions would be made in these areas, the best way to dispel doubts was to publish as much as possible of what was going on in the negotiations.

Judging from the reactions of the member states, it would have been much harder to agree on this without the impetus of the Commission. A new communication is currently being prepared by DG Trade, which reflects the incoming Commission’s vision for the future of trade policy. For example, while the multilateral trading system, reform of the WTO and expansion of the bilateral trade agreements network are important, the recent European Parliament elections mean that links between trade, environmental policy and fair competition are also covered in the vision .

Estonia has gained a lot from the EU’s common trade policy. While negotiating alone might allow Estonia to be more flexible on some issues and focus solely on its own interests, it would lack comparable weight and reach. Being part of EU agreements, the opportunities for Estonian entrepreneurs and consumers are greater, which is the main goal of trade policy.

However, Estonia’s interest in and contribution to the EU’s common trade policy is greater than just a list of companies’ export requests. Given the openness of the Estonian economy (trade volume is close to 75% of GDP, compared to the EU average of 45%), it is in Estonia’s interest to have liberal trade, and its voice deserves to be heard in the EU’s common trade policy, being primarily aimed at opening up markets and increasing exports and competition on a level playing field. In cooperation with the Ministry of Foreign Affairs, the Ministry of Economic Affairs and Communications, and the Ministry of Rural Affairs, we aim to have influence in the Trade Policy Committee and other formats where member states guide the work of the Commission and shape EU policy.

Here too, Estonia did a very good job during its Presidency of the Council of the European Union when, in addition to finding compromises on trade negotiations, it also played a role in agreeing a new regulation on trade protection measures that is up to date and does not restrict trade unnecessarily.

From now on, however, for a number of reasons, Estonia needs to do more to make its voice heard. First, when the UK—the spokesman for liberal trade—leaves the EU, all like-minded member states will have to make their voices heard more. Second, when we find ourselves in a world in which protectionism and disregard for multilateral trade rules are on the rise, we need to talk more about the benefits of rules-based free trade. Of course, the EU must respond to these threats, both in its own interest and to maintain the multilateral trading system, which is very important to Estonia.

But how to respond to this is a question of choices that member states and the Commission jointly make in shaping the EU’s trade policy. Estonia’s message is that you must not become a monster yourself when fighting a (protectionist) monster!

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1 “Joint Communication to the European Parliament, the European Council and the Council: EU-China – A strategic outlook”. European Commission, High Representative of the Union for Foreign Affairs and Security Policy, Strasbourg, 12 March 2019, JOIN(2019) 5 final. eur-lex.europa.eu/legal-content/EN/TXT/?qid=157426….

2 European Commission, “Trade for All: Towards a more responsible trade and investment policy”. Luxembourg: Publications Office of the European Union, October 2015. trade.ec.europa.eu/doclib/docs/2015/october/tradoc…