Some thoughts on Brexit and EPA

Tanzania seems to be more or less backing out of the EAC EPA with the EU over the Brexit vote among other economic reasons. The UK as a state is a signatory to the EPA agreement in addition to the European community and other EU member states. Hence the EPA agreement is of a bilateral character in relation to the UK. However EPAs are also  mixed agreements concluded ‘of the one part’ by the EU and its Member States and, ‘of the other part’, the ACP signatory. In this regard the rolling over of EU FTA arrangements so that they continue to apply to the UK and the ACP signatory only after Brexit shouldn't be difficult for ACP signatories to negotiate with the UK. Some call it negotiating for EPA equivalence with the UK. This kind of “rolling over” of treaty obligations is a familiar process in international law and shouldn't be a bottleneck for Tanzania or the ACP Member States in the short to medium term. However it may involve and allow for renegotiation of at least some of the EPA provisions.

See previous EPA post below.

Renegotiation of NAFTA, TPP and future of US EU Trade Negotiations

Some of you may recall that President Obama's campaign called for the renegotiation of NAFTA particularly on labor and environmental issues. That was done and apparently the 12 member Trans-Pacific Partnership (TPP) represents a renegotiation of NAFTA by holding Mexico to fully enforceable labor provisions. In addition Mexico is also developing parallel labor reforms, including to better protect collective bargaining and reform its system for administering labor justice. TPP has been a signature economic objective of Democratic President Barack Obama.

However President elect Donald Trump has also called for the renegotiation of NAFTA including the scrapping of the (TPP) agreement and imposition of tariffs on China, blaming all for taking away U.S. jobs.  Some have asked ask why not renegotiate the TPP instead of NAFTA? 

Meanwhile Canadian Prime Minister Justin Trudeau has said that he is willing to reopen NAFTA while Mexico has indicated that discussion of NAFTA is OK but not renegotiation.  NAFTA was concluded in 1994 and is a well established agreement that requires member states to give 6 months notice to withdraw. If President elect Donald Trump is to keep his word, Trump’s administration will invoke the president’s unilateral trade retaliation authority as leverage to resolve problems created through negotiated settlements.

Another trade deal likely to take a backseat is the Trans Atlantic Trade and Investment Partnership between the U.S and European Union. Admittedly, negotiations are slow and were made more complicated after the UK this past summer voted to leave the EU. Given Trump’s criticism of free trade agreements, at a minimum there is likely to be a long pause for reflection before the new Administration decides to endorse negotiation of this mega-deal.

For more on Donald Trump's trade views see here.  His vision is "Negotiate fair trade deals that create American jobs, increase American wages, and reduce America's trade deficit.|"

Tanzanian MPs Vote Against the EAC EPA and Suit Filed at EACJ

Tanzanian MPs have voted against the country signing the EAC Economic Partnership Agreement. Tanzania’s reluctance to endorse the EPA, after 10 years of negotiations, is based on three issues — chinese driven industrialization policy and revenue losses in the 2016/17 national budget.  Tanzania is also concerned by Britain’s decision to quit the EU, saying Britain is its main trading partner and it makes no sense to enter into a deal with the European bloc without London. 

Apparently President Magufuli could still ignore the MPs’ advice and push for the signing of the EPA. Will see what happens.

Meanwhile a Tanzanian national has filed a civil suit with the East African Court of Justice (EACJ) to stop the EAC and remaining members  states of the EAC Burundi, Ugandan and South Sudan from signing the EPA. (Rwanda and Kenya have already signed). The EACJ's major responsibility is to ensure the adherence to law in the interpretation and application of and compliance with the EAC Treaty. Article 30 of the EAC Treaty allows the court to have reference to civil suits by natural and legal persons. The suit filed in October 2017 says that further signature will allow ratification and regional application of the agreement, which will most likely undermine industrialization policies and tariff regimes and displace EAC products from the market.

See more here.

EU-US Transatlantic Trade Negotiations

Last month, President of the US Barack Obama, European Commission President José Manuel Barroso and European Council President Herman Van Rompuy announced they were each starting the internal procedures necessary to launch negotiations on the much awaited trade agreement between the EU and the US. The negotiations will be based on the work of the EU-US High Level Working Group on Jobs and Growth co-chaired by Commissioner De Gucht and United States Trade Representative Ron Kirk.

Background

The EU and the US make up 40% of global economic output and their bilateral economic relationship is already the world’s largest. The aim of the high-standard Transatlantic Trade and Investment Partnership is to liberalise trade and investment between the two blocs. According to a report released today by the European Commission (Reducing Transatlantic Barriers to Trade and Investment), the final agreement could see EU exports to the US rise by 28%, earning its exporters of goods and services an extra €187bn every year. Consumers will benefit too: on average, the agreement will offer an extra €545 in disposable income each year for a family of four living in the EU.

The European Union and the United States will have their eyes on more than just removing tariffs. Tariffs between them are already low (on average only 4%) so the main hurdles to trade lie 'behind the border' in regulations, non-tariff barriers and red tape. Estimates show that 80% of the overall potential wealth gains of a trade deal will come from cutting costs imposed by bureaucracy and regulations, as well as from liberalising trade in services and public procurement.

That's why the two trading giants will reinforce their regulatory cooperation, so to create similar regulations rather than have to try to adapt them at a later stage. The aim is to build a more integrated transatlantic marketplace, while respecting each side's right to regulate in a way that ensures the protection of health, safety and the environment at a level it considers appropriate. Both sides hope that by aligning their domestic standards, they will be able to set the benchmark for developing global rules. Such a move would be clearly beneficial to both EU and US exporters, but it would also strengthen the multilateral trading system.

Additional Information can be obtained here:

Independent Study Outlines Benefits of EU-US Trade Agreement

New Database On Global Value Supply Chains

The European Union has launched the new "World Input-Output Database" which allows trade analysts to assess the global value chains created by world trade. These added-value chains have become an essential feature of economic reality as trade is becoming increasingly globalised as today's traded products are not produced in a single location but rather are the end result of a series of steps carried out in many countries around the world. Instead of counting the gross value of goods and services exchanged, the new database reveals the value added embodied in these goods and services as they are traded internationally. The findings are significant as they change the perception of the competitiveness of certain sectors in some countries. 

In addition, policy makers and societies at large are facing increasingly pressing trade-offs between socio-economic and environmental developments. Increases in production induce growth in the use of non-renewable resources such as fossil fuels, materials, land and water. Furthermore, they generate higher levels of waste and emissions of environmental pollutants. Simultaneously, increasing global integration through international trade and technological developments creates a tension. In this regard, the database considers satellite accounts with environmental and socio-economic indicators, from which industry-level data can provide the necessary input to several types of models used to evaluate policies aimed at striking a suitable balance between growth, environmental degradation and inequality across the world.

Karel De Gucht, the EU commissioner for trade has said that the change in statistical accounting for trade applied in the database has been developed to determine the consequences of the fragmentation of supply chains. For example a third of world trade happens within firms while two thirds of European imports are not of final products but of intermediate goods and raw materials, to which EU firms add one or more layers of value before they are finally sold, often for export.  The EU trade commissioner gave the example of a Nokia smartphone, "it is listed as being made in China, but in reality 54% of its value comes from tasks that are carried out in Europe. Key components are produced in other parts of Asia and only the assembly itself actually happens in China.  Today, we measure trade by counting the total price of the good that is being exported or imported, but because we do this both for components and for final products we get a distorted picture of what is really happening.  Hence according to the database, when we look at trade in value as opposed to traditional statistics, EU trade deficit with China is reduced by 36%. In 2011, the trade deficit between the EU and China stood at EUR155.9 billion however using this new method China-EU deficit starts to look like less of a problem."

On services, interestingly when looking at trade in supply chain terms,  the classic distinction in trade policy between goods and services is increasingly artificial. This is because services represents almost 60% of the value European firms add to the products exported from Europe. 

The database covers 27 EU countries and 13 other major countries in the world for the period from 1995 to 2009. It is notable that not a single African country is included in the database which possibly says something about Africa's non-participation or rather minuscule contribution to global supply chains. In addition, all BRICS economies are included in the database with the notable exception of South Africa.  One wonders why the EU wants African countries to eliminate export taxes (under the EPAs) when in essence the contribution of African exports to global trade and supply chains is too insignificant to be in included in the database.

African countries generally export largely raw materials (e.g fuels, metals) and some agricultural products to the EU and generally lack capacity to add value domestically especially for manufactured products. Other supply capacity barriers to Africa's participation in global value chains include limited foreign ownership and lack of global networks which are a significant factor in characterizing the intensity of global exports but not necessarily for regional exports. The lack of technological advancement is also a significant barrier especially in global exports. Public infrastructure constraints, such as inferior power services and customs delays, seem to have more immediate impacts on regional exports as does customs efficiency and poor trade facilitation which is also hampers the competitive participation of African producers in global supply chain industries. 

In a related article, we saw that China overcame similar challenges by exploiting joint ventures.  China allowed foreign firms access to the domestic market in exchange for technology transfer through joint production or joint ventures. In fact, 100% foreign owned firms were a rarity among the leading players in the industry in China, unlike Export Processing Zones in Africa. China’s openness to foreign investment and its willingness to create Special Economic Zones (SEZs) where foreign producers could operate with good infrastructure and with minimum hassles must therefore receive considerable credit. However if China  welcomed foreign companies, she always did so with the objective of fostering domestic capabilities.

Bilateral Investment Treaties Entered Into by EAC States

EAC Partner States have entered into various Bilateral Investment Treaties (BITs) some of which are in force. This information is based on the UNCTAD Investment Database and it is noted that some of the BITs may no longer be in force. Hence for most current updates it is best to contact the Partner States themselves.  

Burundi has 5 BITs, Kenya 3 BITs (all EU), Rwanda 3 BITs, Tanzania 9 BITs (all European Economic Area (EEA) while Uganda has the most at 13 of which 8 are with EEA countries.  

As indicated most of the BITs are with EU countries notably Germany, UK, Belgium and the Netherlands.  Of the 34 BITs identified, 25 are with the EU region (almost 75%). Rwanda is the only country with a BIT with the US. Uganda has BITs  with other African countries e.g. Mozambique, Egypt, Sudan and Eritrea and is the only country with a BIT with China.  Burundi is indicated as having BITs with Mauritius and Comoros.

Below is an overall compilation of the BITs and the Parties. 

Burundi: Belgium, Germany, Mauritius, UK, Comoros and Netherlands
Kenya: Germany, UK, Netherlands
Rwanda: Belgium, Germany, US
Tanzania: Denmark, Switzerland, UK, Belgium, Finland, Germany, Italy, Netherlands, Sweden
Uganda: Denmark, Egypt, France, Netherlands, Switzerland, UK, Sweden, Germany, Belgium, Mozambique, Sudan, Eritrea, China

On global trends, its useful to note that the US and Germany are the top home sources of outflows of FDI while the US and China are the top host destinations for inflows of FDI (2010 data). Meanwhile the EAC and the US have concluded a Trade and Investment Framework Agreement which is a cooperative agreement. However, as a region, the EU is the world's leading host of FDI as well as the world's biggest source of FDI outside the EU. Consequently, the EU Member States together account for almost half of the investment agreements currently in force around the world (almost 1300).  See previous related post here on the new EU approach to investment and the EPA investment negotiations.

While international investment agreements have traditionally been negotiated by the relevant government ministry, there is now an emerging trend of inter-ministerial or inter-agency coordination. This process is particularly prominent at the European level and in EU member States. To the extent that countries are reviewing their BITs or that BITs need to undergo domestic ratification processes, the call for increasing transparency and inclusiveness of BIT-related decision-making is gaining additional traction.  Sectoral investment agreements are also a viable option where there is compelling justification to consider a BIT however using a more targeted and conservative approach.

A Look at Turkey's Trade Policy and FTA with Mauritius

Turkey concluded an FTA with the first Sub Saharan African country, Mauritius, on September 9th 2011 and is expected to initiate negotiations with other EPA and EC FTA signatories.  This is because the customs union between Turkey and the EU, which entered into force on 1 January 1996, has been the main factor shaping Turkey's foreign trade policy.  In addition, the EU opened accession negotiations with Turkey in October 2005 and guidance on reform priorities is provided through the Accession Partnership, adopted in February 2008.

In the EU-Turkey customs union, the EU unilaterally eliminated all customs duties and equivalent measures for industrial products and processed agricultural products when the trade-related provisions of the Interim Agreement of the Protocol entered into force in September 1971, whereas Turkey as a developing country was accorded a transition period of 22 years.  

The EC-Turkey customs union also provides for a common external tariff for the products covered, and foresees that Turkey will align its trade-related legislation with the EU acquis in several areas essential for market access, e.g. with respect to product standards.  The customs union covers all industrial products as well as the industrial component of processed agricultural goods, TRIPS, and competition policy, but does not extend to agricultural commodities, services, or government procurement.  The EU however offers Turkey a preferential regime on imports of certain agricultural products. Negotiations on services and government procurement were launched in 2000, but are now part of Turkey's accession process. 

The customs union also provides provision for:

• free movement (elimination of customs duties and quantitative restrictions) 
• alignment of Turkey on the EC common external tariff, including preferential arrangements (even GSP), and harmonisation of commercial policy measures;
• approximation of customs law, and
• approximation of other laws (intellectual property, competition, taxation, etc.)
• the adoption by Turkey of measures equivalent to the EU's common commercial policy

The European Union remains Turkey's most important trading partner and investor.  For instance, the EU accounted for nearly 70% of total FDI inflows into Turkey during 2005-10.  Nearly 40% of its imports come from the EU, and just over 50% of exports go to the EU. Machinery and transport equipment dominate EU imports from Turkey followed by manufactured articles which account for 24.3%. Main EU exports to Turkey are machinery and transport material (45.1%), chemical products (17.1%) and manufactured goods (15.1%).Globally,  Turkey ranks 7th in the EU's top import list and 5th as an export market.  However, the dominance of the EU in Turkey's foreign trade has declined markedly over the last five years, reflecting a notable shift in Turkish exports towards growth markets in its neighbourhood, in North Africa, certain CIS countries, and in Asia. 

Other main Turkish export markets in 2010 were Iraq (5.3%), Russia (4.1 %), USA (3.4%), United Arab Emirates (2.9%) and Iran (2.7%). Imports into Turkey came from other key markets include: Russia (11.7%), China (9.4%), USA (6.7%), Iran (4.2%) and South Korea (2.6%). 

Turkey currently has about 17 FTAs in force which include one with the EFTA countries, Israel, Macedonia (FYR), Croatia, Bosnia-Herzegovina, Palestinian Authority, Tunisia, Morocco Syria, Egypt, Albania, Montenegro, Serbia, Georgia, Chile, Jordan, Lebanon and Mauritius.

The Mauritius-Turkey FTA provides enhanced duty free access on most industrial products.  All Mauritian industrial products will enter Turkey duty free with the exception of some 70 lines related to textiles which will be phased on four years.  Mauritius in return will offer duty free access to more than 80% of its tariff lines to Turkish industrial products.  In any case Mauritius is a duty free island with over 80% of applied tariffs at zero. 

Why the exclusion of agricultural products? Turkey, even though a member of the G-33 , ranks amongst the largest agricultural producers in the world and the main crop is wheat of which the country is over 90% self-sufficient. With corn, Turkey is about 80% self-sufficient and is a net-exporter of barley. Other major crops include fruit and vegetables, nuts, tobacco, cotton, and sugar. Turkey is also one of the major milk producers in the world, predominantly for domestic consumption of cheese and yoghurt.  While Turkey has specialized feed lots and dairy farms, and large-scale commercial poultry farms, livestock production is mainly extensive and small-scale.  

Useful to note that Turkish agricultural policy was adopted with a view to aligning it more closely with the EU Common Agricultural Policy.  Turkey's main policy objectives are food security and food safety, and raising the self-sufficiency level for selected net-imported products;  improving productivity and competitiveness;  ensuring sustainable farm incomes;  rural development;  and improving institutional capacity.

For comparison, by the end of 2007, the 6 ESA EPA States: Comoros, Madagascar, Mauritius, Seychelles, Zambia and Zimbabwe agreed an interim EPA with the EU. Mauritius in that agreement submitted an individual schedule which is annexed to the interim EPA and liberalises 96% of EU imports into Mauritius compared to a liberalisation of 80% with Turkey, possibly due to the inclusion of some agricultural products in the EPA.

What appears unfortunate in the Mauritius-Turkey FTA is that Turkey seems to have offered market access predominately in industrial goods, where Turkey is competitive. However few SSA African countries are neither productive nor competitive in industrial manufacturing. With Turkey being an emerging industrial exporter, the loss of revenue on the import side for African countries could be an area of concern. In agriculture, Turkey provides subsidized support which is equivalent to the EU Common Agricultural Policy.  

The EU Single Market Services Directive

The Directive on Services in the Internal Market (the Services Directive 2006/123/EC) was adopted in December 2006. The Directive liberalises the internal EC services market in that it requires Member States to abolish discriminatory requirements, such as nationality or residence requirements, and particularly restrictive requirements, such as “economic needs” tests (requiring businesses to prove to the authorities that there is a demand for their services). It also requires the review of other burdensome requirements which may not always be justified (such as territorial restrictions or minimum number of employees).

The EU member States were provided a three-year transitional period to transpose the Directive into national legislation. However, several member States missed the end-2009 deadline, and work to implement the Directive continued throughout 2010. The Directive requires the Member States to simplify procedures and formalities that service providers need to comply with. In particular, it requires Member States to remove unjustified and disproportionate burdens and to substantially facilitate: the establishment of a business, i.e. cases in which a natural or legal person wants to set up a permanent establishment in a Member State, and the cross-border provision of services, i.e. cases in which a business wants to supply services across borders in another Member State, without setting up an establishment there. 

During 2010, the Commission was monitoring the implementation by the member States, of both the new legal frameworks adopted in order to implement the Services Directive as well as their efforts to establish operational "Points of Single Contact" (PSCs), notably the online portals providing businesses with information about the requirements and procedures to be complied with, and the "Internal Market Information Systems" facilitating administrative cooperation between the authorities of the member States. The PSCs are certainly the most visible benefit of the Services Directive for businesses. They are meant to become fully fledged e-government portals allowing future entrepreneurs and existing businesses to easily obtain online all relevant information relating to their activities (applicable regulations, procedures to be completed, deadlines, etc.) with the ability to apply online and across borders. 

Although the vast majority of the member States have chosen to implement the general principles and obligations of the Directive through a single act, implementation of the general principles has been carried out through several acts in France and Germany. In addition, all member States have had to amend or abrogate existing legislation to ensure conformity with the provisions of the Directive.

The Services Directive does not harmonize national legislation applicable to the services sector, but obliges member States to screen their authorization schemes to ensure that they are maintained only if non-discriminatory, justified by an overriding reason relating to public interest, and proportionate.

The Services Directive applies to the provision of a wide range of services – to private individuals and businesses – barring a few specific exceptions. For example, it covers: 

distributive trades (including retail and wholesale of goods and services) 

the activities of most regulated professions (such as legal and tax advisers, architects, engineers, accountants, surveyors) 

construction services and crafts 

business-related services (such as office maintenance, management consultancy, event organisation, debt recovery, advertising and recruitment services) 

tourism services (e.g. travel agents) 

leisure services (e.g. sports centres and amusement parks) 

installation and maintenance of equipment 

information society services (e.g. publishing – print and web, news agencies, computer programming) 

accommodation and food services (hotels, restaurants and caterers) 

training and education services 

rentals and leasing services (including car rental) 

real estate services 

household support services (e.g. cleaning, gardening and private nannies). 

The Services Directive does not apply to the following services, which are explicitly excluded:

financial services 

electronic communications services with respect to matters covered by other community instruments 

transport services falling into Title V of the EC Treaty 

healthcare services provided by health professionals to patients to assess, maintain or restore their state of health where those activities are reserved to a regulated health profession 

temporary work agencies' services 

private security services 

audiovisual services 

gambling 

certain social services provided by the State, by providers mandated by the State or by charities recognised as such by the State 

services provided by notaries and bailiffs (appointed by an official act of government). 

The Commission has not drawn up concrete plans to cover the other excluded services. Services activities are in any event always subject to the EC Treaty provisions, notably the fundamental freedoms of establishment (Article 43) and free movement of services (Article 49). The Services Directive applies only to EU (EEA) citizens and legal entities established in the EU (EEA), and does not oblige member States to consider changes applicable to non-EU services suppliers. 

Legal constraints on the EU’s ability to withdraw EPA preferences

Dr Lorand Bartels provides useful and timely advice on the legal constraints behind the EU's ability to withdraw EPA preferences from ACP States and he identifies various problems with the EC Commission’s proposal.   These include steps taken towards ratification i.e. progress to date and the mechanism of provisional application. 

He concludes by stating that EC Council Regulation 1528/2007 can only be terminated in accordance with Article 25(2) of the Vienna Convention on On the Law of Treaties. This provision lists three ways in which this can be done: by agreement between the parties; according to the treaty itself; and when the party seeking to terminate notifies the other party or parties that it does not intend to become a party to the treaty. Where these conditions are not satisfied, the provisions of the treaty being provisionally applied are treated as applicable for that party.

While the EU can still remove ACP countries from the list of beneficiaries, if it wishes to do this, it must notify them of its intention not to become a party to the respective agreements. What it cannot do is remove beneficiaries from Annex I of the Regulation as the Commission is proposing to do - not, at least, without violating Article 25(2) of the Vienna Convention on the Law of Treaties, and thereby also EU law itself.

Assess full article here and see previous EPA posts here.

EPA Negotiations

The European Commission (EC) finally announced today that countries that have concluded an Economic Partnership Agreement (EPA) but not taken the necessary steps to ratify and implement it would no longer benefit from the EPA market access to Europe as from 1st January 2014.

The EC Market Access Regulation (MAR) 1528 of 1st January 2008 provides duty free quota free market access for African Caribbean and Pacific countries that have concluded an EPA. The Regulation requires countries to sign, ratify and implement the Agreement within a “reasonable period of time”. At it currently stands, the MAR is a temporary, unilateral instrument of the EU to ensure that, pending the implementation of the agreement by ACP countries, there would be no trade disruption.

A quick glance at it reveals the following facts: Only 18 island countries from the 36 ACP countries that had initialled or signed an arrangement have concluded the agreement. The other remaining countries are yet to complete the contract, with the risk of seeing their marriage cancelled.

The announcement of this proposal is no surprise: Trade Commissioner De Grucht and other representatives of the European Commission have constantly been warning that this situation was not sustainable and would therefore have to end at some point in time.

The proposal will come into effect on 1st January 2014, after approval by the Council. It is worth mentioning here that MAR 1528 in 2008, was adopted prior to the Lisbon Treaty, and therefore the Parliament will not have to give its assent to it. The timing is also not surprising: 1st January 2014 is also the time when the new Generalised System of Preferences (GSP) Regulation should come into effect. It is also the date when the countries that have signed and ratified an EPA will have to start implementing their respective trade liberalisation commitments (remember some countries had a 5 year moratorium before starting liberalisation).

The message is therefore clear: if countries want to continue to benefit from EPA market access, either they have to sign and start implementing their existing EPA or conclude a new regional EPA. For others, either they will fall under one of the schemes of the new GSP (i.e. Everything but Arms, Standard GSP or GSP Plus) or they will have no preferences (as might be the case for Botswana and Namibia).

What does this imply?

This coming year will be a political litmus test for the relationship between the EU and its African and Pacific partners. If from a legal and a “coherence” perspective the Proposal of the EU is well understood, there are also good reasons why, four years down the road, since the MAR in 2008, nothing has happened. First, some compromise on many issues, including on the accompanying development measures, are yet to be agreed. Moreover, most countries are also engaged in building their regional integration agenda: many are either consolidating their existing customs union or setting it up. And Europe is well placed to know that regional integration takes time. So while a deadline by 1st January 2014 might seem a reasonable time for the EU, it is in fact very short for the proper sequencing of regional agenda with trade negotiations with third countries. Finally, some might have simply lost interest in the process.

So, like in 2007, expect some tensions in the coming months: some countries might be pressured to sign, ratify and implement the EPA that might not fulfil their ambitions and interests in terms of content, timing and geographical configuration by fear of market disruption, in particular if they risk loosing preferential access to the EU. Others might simply walk out. If no common position can be found at the regional level, the EPAs could seriously disrupt any regional integration effort.

But 2014 is not 2007. The world has changed and this time the response might be different. The financial crisis invited itself to the dance, Africa has gained a lot more confidence in its economic prospects and the increasing importance of “emerging” partners has brought in a new geopolitical dynamism, de facto reducing the leverage of the EU.

Finally, it takes two to tango. African and Pacific countries now have to reveal their strategies, interests and preferences regarding their relationship with the EU. It is a question of political will in many cases and for those interested in an EPA, it will require some effort to reach a compromise. At the same time, while one might understand the European logic to put an end to an instrument that has remained “temporary” for too long and is not compatible with rules of the WTO, there are still some “contentious issues” that remain unresolved. The EU has also to reveal its cards on how far it would be willing to accommodate some genuine concerns that are blocking the negotiations. Setting a deadline is therefore not sufficient, the EU should come up with concrete proposals on how to move the negotiations forward.

Just putting a deadline could open the way for a new impetus to the current negotiations towards the conclusion of regional EPAs. But it could well turn out to be a guillotine if no flexibility is provided to advance the negotiations.

By San Bilal and Isabelle Ramdoo. 

For a another report on this see here.

EU Member States Sign Ambitious FTA with South Korea

In 2009, The EC concluded an FTA with South Korea- a deal which has now been signed by all EU Member States ahead of pending Parliamentary procedures, ratification by all EU Member States according to their own laws and procedures and subsequent provisional application in July 2011. 

The first interesting observation from the EU-South Korea deal is that the EU’s FTAs are increasingly “americanized” as they resemble templates applied by the US based on NAFTA. In addition, the agreement will make major advances in areas such as intellectual property, government procurement, competition policy and trade and sustainable development.

South Korea was designated a priority FTA partner by the EC in the Global Europe trade policy strategy of 2006, given that South Korea’s economy (the 14th largest in the world) was the EU's fourth most important trading partner behind the US, Japan and China. It is therefore not surprising that the EC-South Korea FTA is the most comprehensive FTA the EU has concluded which is expected to open several billion euros worth of new opportunities for EU companies especially in the services sectors. 

The Agreement eliminates almost all tariffs in goods trade while in services, the FTA will offer the EU commitments on services on a par with those offered by South Korea in the draft FTA with the US. However the EU-South Korea deal also goes beyond commitments South Korea undertook with the US in those sectors of specific EU interest. The United States and the Republic of Korea signed the United States-Korea Free Trade Agreement (KORUS FTA) on June 30, 2007, however the Agreement is still pending Congressional approval. If approved, the Agreement would be the United States' most commercially significant free trade agreement in more than 16 years.

In practical terms, the FTA between South Korea and the EU will eliminate 98.7% of duties in trade value for both industrial and agricultural products within 5 years from the entry into force of the FTA. By the end of the transitional periods, duties will be eliminated on almost all products, with a few exceptions in the agricultural sector.

In comparison with the ACP, EC offer was that as of 1st January 2008, all goods originating from an ACP country or region that negotiated an interim EPA, would enjoy duty free quota free access to EU markets, except for rice and sugar where access to EU markets will be duty free from 2010 and 2015 respectively.

In services, the EC-South Korea FTA will be by far the most ambitious services FTA ever concluded by the EU, which significantly improves South Korea’s current WTO-GATS commitments including its offer in the ongoing DDA negotiations. The agreement additionally covers the liberalization of investment, both in services and most non-services sectors.  In practical terms, EU broadcasters (telephone and TV) will be able to operate directly cross-border into South Korea, thus avoiding the obligation to liaise with a Korean operator. The FTA also allows: 100% indirect ownership in the Korean telecommunication sector; full market access for EU's shipping firms and the right of establishment in South Korea; substantial access to Korean market to all EU financial firms, with ability to freely transfer data from their branches and affiliates to their headquarters;  access for EU providers of international express delivery services to the Korean market and allows European lawyers to open offices in South Korea to advise foreign investors or Korean clients on non-Korean law. 

What is interesting to note in the EU-South Korea services, investment and e-commerce chapter is that, the text is generally similar to the ambitious EC Template presented to Sub Saharan African economies in the context of the EPA negotiations. This is despite the fact that the services trade output of all SSA economies combined cannot be compared to that of South Korea alone.

The full text of the Agreement can be obtained here.

New EU-Wide Investment Policy

As a region, the EU is the most significant global investment player. It is the world's leading host of Foreign Direct Investment (FDI) as well as the world's biggest source of FDI outside the EU. By 2008 outward stocks of the EU FDI amounted to € 3.3 trillion while EU inward stocks accounted for € 2.4 trillion. 


According to a recent press statement, the EC has now formulated a comprehensive investment policy which will seek to integrate investment liberalisation and investment protection.  Under the Lisbon Treaty, investment is one of the areas covered by the EU common commercial policy which is developed and managed at the European level giving the EU a strengthened negotiating leverage. However, there are 1200 Bilateral Investment Treaties (BITs) concluded by individual EU Member States and other countries. In addition, the European Commission (EC) as a legal entity is also negotiating investment agreements, for instance with African countries, as part of the Economic Partnership Agreements (EPAs). 

To address this anomaly, the  EC has released a comprehensive investment package which consists of: 

(1) a policy paper titled "Towards a comprehensive European international investment policy" and 

(2) a draft regulation which sets up transitional arrangements offering guarantees to existing or pending BITs concluded between EU and Non-EU countries prior to the enforcement of the Lisbon Treaty. Here, the Commission has provided legal security for European and foreign investors, without hampering the EU's ability to negotiate new investment treaties at EU level.  

The EU Member States together account for almost half of the investment agreements currently in force around the world. However, not all Member States have concluded such agreements, and not all agreements provide for the same high or equivalent level of standards. According to the EC, this leads to an uneven playing field for EU companies investing abroad, depending on whether they are covered as a "national" (granted national treatment) under a certain Member State BIT or not. 

Another feature of the agreements of individual EU Member States is that they relate to the treatment of investors “post-entry” or “post-establishment” only. This implies that Member States’ BITs provide no specific binding commitments regarding the conditions of entry, neither from third countries regarding outward investment by companies originating in EU Member States, nor vice versa. Here the EC might want to be guaranteed non discriminatory pre-establishment MFN Status.  Gradually, the European Union has begun the process of filling the gap of "entry" or "admission" through both multilateral and bilateral agreements at EU level, covering investment market access and investment liberalization, ensuring the non-discriminatory treatment of investors upon entry to a third country market.

The EC recognizes that a one-size-fits-all model for investment agreements with 3rd countries would be neither feasible nor desirable. Therefore the EC will have to take into account each specific negotiating context. However since actual trade and investment flows are in and of themselves important determinants for defining priorities, the EC indicates that they should go where its investors would like to go, through the liberalisation of investment flows. The policy paper identifies some candidates for a full investment agreement including India, Canada, Mercosur and where possible China and Russia, but also states that should a comprehensive, across-the-board, investment agreement with a country, or a set of countries, prove impossible or inadvisable, sectoral agreements may be an option whose desirability, feasibility and possible impact would have to be further assessed.

On the specifics of the approach, the EC would look beyond FDI and protect all the operations that accompany investment and make it possible in practice e.g. payments, the protection of intangible assets such as Intellectual Property Rights, etc. Enforcement is also addressed and identified as a key issue in the new policy. Currently, the EC has included in all of its recent FTAs, an effective and expedient state-to-state dispute settlement system. In addition, investor-state dispute settlement will be featured since it is a key part of the inheritance that the Union receives from its Member State BITs.  

However there is a uniqueness of investor-state dispute settlement in international economic law which impacts the EC's mandate in this area. For example, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention), is open to signature and ratification by Member States of the World Bank or those party to the Statute of the International Court of Justice. The European Commission does not qualify under either.  This new investment policy paper however proposes that the EC could seek accession to the ICSID, but notes that this would require modification of its convention.


A key outcome of this policy is that the EC may request renegotiation of existing BITs by individual member States. "The Commission will review the existing MS BITs. If it finds clauses that are incompatible with EU law (e.g. transfer clauses that would hamper the implementation of EU financial restrictions against a certain third country), it would ask the Member State to renegotiate such clause. If this proves impossible, the authorisation may be withdrawn as a matter of last resort.  Likewise, authorisations can be withdrawn if the EU negotiates an investment treaty at European level, and recourse to Member State BITs with the same third country is not necessary anymore."

While FDI will be within the full competence of the EC, the expectation is that by following available best practices, they would ensure that no EU investor would be worse off than they would be under Member States' BITs. Member States will however have scope to pursue and implement investment promotion policies that complement and fit well alongside the common international investment policy. In addition, BITs maintained by Member States may require amendments in order to bring them in compliance with EU law. The same framework is intended to be available also for Member States that would like to negotiate and conclude new investment treaties with countries, which are not targeted for EU-wide investment agreements, e.g. for foreign policy purposes.  

Overall, this is an interesting development in the wake of the EPA services and investment negotiations and should be studied carefully in light of the scope of the EC's investment text which covers all economic sectors including services i.e.: A) Agriculture, hunting and forestry; B) Fishing; C) Mining and quarrying; D) Manufacturing; and E) Production, transmission and distribution on own account of electricity, gas, steam and hot water. It is therefore useful to note that sectoral agreements rather than comprehensive investment agreements could be considered a viable option where feasible. 


One should also note that on "policy space" the EC's approach will be to ensure that the EU common investment policy fits in with the way the EU and its Member States regulate economic activity within the Union and across its borders. ...."EU investment policy has to be consistent with the other policies of the Union and its Member States, including policies on the protection of the environment, health and safety at work, consumer protection, cultural diversity, development policy and competition policy." African States negotiating investment chapters in the EPA could opt to also ensure compatibility of proposed EPA investment provisions with their own development policies.