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  The EU approach to the FTA negotiations with Central-America and the Andean Community

January 2007 By Marc Maes*

On 6 December 2006 the EU Commission announced that it had finalised three draft mandates for Free Trade Agreement (FTA) negotiations with ASEAN, Korea and India, together with two draft mandates for Association Agreements annex FTAs with Central America and the Andean Community.

This announcement followed an earlier formal Communication called "Global Europe, Competing in the World" that was released on 4 October. In this paper the Commission proposed a more aggressive EU trade strategy, including a new series of bilateral negotiations.

The drafts finalised by the Commission on 6 December still have to be discussed and approved by the EU Council (of Ministers of the 27 EU member states). These discussions may take weeks.

However, the discussion of the drafts is split in two parts : the purely trade substance will be discussed by the famous C133 committee (consisting of trade representatives of the 27 EU member states) ; the political and cooperation dimensions of the draft Association Agreements will be discussed by AMLAT, which is another working group of the EU Council, consisting of representatives from the foreign policy departments and Latin-America desks of the EU member states. Discussion in AMLAT already started on 19 December 2006 ; discussion in C133 will start on 12 January.

In the drafts the Commission aims for :
- the highest possible degree of trade liberalisation, including far reaching liberalisation of services and investment ;
- a strong focus on the overall regulatory environment, with special emphasis on non-trade barriers, and
- a number of new mechanisms for prior consultation and flexible mediation.

The drafts also have a heading on trade and sustainable development, proposing social and environmental clauses, the liberalisation of environmental goods and services, along with the standard non-compelling sustainable impact assessments.

Putting trade in a broader context

As in past cases like EU-Mexico, EU-Chile and EU-ACP, the EU will negotiate an overall Association Agreement with Central-America and the Andean Community containing provisions on political, economic and development cooperation along with the confirmation of a series of essential principles (democracy, human rights, rule of law, non proliferation, anti-terrorism, etc). The FTA negotiations then come as part of the implementation of the overall agreement and are linked to the essential principles. This means that the non-execution of certain the elements can have consequences for the implementation of other elements, i.e. the no respect for human rights can lead to the suspension of political relations or development cooperation ; or the non-implementation of trade commitments can be sanctioned with the suspension of aid, etc.

The approach to Central America and the Andes region differs form the approach to ASEAN, Korea and India. Here the Commission proposes not to negotiate an overall Association Agreements but to go straight for FTA negotiations. The Commission argues that, partial agreements on political and economic cooperation with these Asian countries already exist or are being negotiated and that they can be completed while negotiating the FTAs. However such partial agreements also exist with the two Latin American regions. The real reason therefore seems to be that the EU is more eager to negotiate FTAs with the Asian countries and that these countries are more reluctant to take on board stringent essential principles or to accept the linkage between these and their trade opportunities. Civil society organisations in Latin America have also been more supportive for human rights, democratic, social and environmental clauses in trade agreements.

Bi-regional negotiations

The approach to Central America and the Andes region also differs form the approach to ASEAN as the Commission is insisting on a strict region-to-region approach for the two Latin American regions, while it leaves several options open for ASEAN (an FTA with all 10 countries ; with only 7 countries excluding the LDCs ; or with a number of ASEAN countries bilaterally).

The strict region-to-region approach implies that the EU insists that the two regions complete their regional integration before the FTA will come into effect. For Central America this implies the establishment of a customs union, the ratification of the Central American Treaty on investment and services and the development of a jurisdictional system to enforce the regional economic disciplines. For the Andes region this implies a single preferential tariff regime for all EU products, a harmonised customs regime, measures facilitating cross border road transport. The Commission also insists on keeping the differentiation of the trade commitments within the regions (between more and less developed countries) strictly to a minimum.

The content of the FTAs

The Commission does not only want to negotiate the maximum possible market access for the trade in goods and services, based on GATT art.24 or GATS art. 5, but aims for comprehensive agreements with all possible trade related issues attached (technical, sanitary and phytosanitary standards, services, investment, competition, government procurement, trade facilitation, anti-dumping, intellectual property rights, capital movements and payments, etc.) The description of the Commission’s proposals below only highlights the most striking features of the draft mandates.

The Commission is proposing to conclude the negotiations in 2 years time. The transition period would be the standard 10 years, with extensions for the liberalisation of sensitive products and services. The Commission will strive for a maximum frontloading of full liberalisation commitments.

The Commission proposes to use the applied "erga omnes" tariffs as the starting line for the tariff elimination. It is not clear why this term is preferred over the standard applied MFN tariffs and whether there is a difference. It is clear however that the EU, does not intend to take the current applied GSP tariffs as a starting line for its tariff elimination and that the two regions will have to make offers to maintain the continuity of these preferential tariffs. The Commission also mentions the introduction of general safeguard measures, but here again these measures will allow the parties to restore to the "erga omnes" tariffs ; which means that the EU will be able to bring its tariffs back to a level which is higher than the current applied preferential GSP tariffs.

The Commission is prepared to allow for Special and Differential Treatment (SDT) to take into account the different levels of development of the Latin American countries. This SDT would mainly come in the form of longer time periods. But the Commission would also be prepared to allow for "asymmetry". Asymmetry means that the EU will open its market more than the developing country partners to arrive at the 90% as average tariff elimination. For instance if the EU would eliminate tariffs on 95% of its trade then the Central American and Andean countries would only need to eliminate tariffs on 85%. It is not clear however, how much asymmetry the Commission would allow.

Non-trade barriers are a priority for the Commission. It proposes that the future EU FTAs will forbid any ban, restriction or other non-tariff barrier to trade, which are not justified by the general exceptions of GATT art.21 and 21 GATT. It is not sure what this actually means : a negative list approach to NTBs ? The Commission however is at the same time also proposing negotiations on product specific and sector specific NTBs, flexible mechanisms to handle any NTB that would occur and preventive measures (based on consultations) to avoid new NTBs. The Commission makes special mention of export tariffs. It wants to see all export tariffs removed (to acquire access to cheap raw materials and inputs) and proposes a negative list approach to deal with these.

Services and investment are two sides of the same coin for the EU Commission. It therefore proposes to treat these two issues together and in the same fashion. The Commission has in fact been working on a template chapter for what it calls services, establishment and e-commerce. It is already using this template in its ongoing FTA negotiations and intends to apply it also to its new FTAs. The template implies a GATS type approach of liberalisation per sector with an emphasis on market access and national treatment. This approach has to do with the fact that the EU member states want to maintain the competence to negotiate their own bilateral investment protection agreements (BITs). The draft mandates therefore do not entail investment protection, expropriation and investor to state dispute settlement ; they do however include pre-establishment rights.

As for the coverage, the EU Commission proposes the prior exclusion of certain sectors : national maritime cabotage (handling of cargo in the ports) ; certain air services, audio-visual and cultural services. Health, education and water, however are not excluded ! The draft mandate also does not mention Mode 4 (but the template for a chapter on services, establishment and e-commerce does contain a paragraph saying that with regard to Mode 4, the EU will not go beyond its WTO commitments).

The Commission will seek parity in investment and services with the treatment granted by the Central American and Andean countries in FTAs with other parties than the EU.

Government procurement is another priority for the EU. The Commission wants a mandate to negotiate both transparency and the liberalisation of government procurement, including for public utilities, like water, energy, (public ?) transport (and for the Andean Community also for information and communication networks.

The proposed approach for Intellectual Property Rights seems to be stricter than the standard practice : the Commission proposes not only that its partners adhere to a series of existing (far-reaching) IPR agreements but also wants to introduce detailed commitments on the protection and enforcement of intellectual property rights. Also with regard to geographical indications the Commission seems to be stricter (or more explicit ?) than usual : it wants the effective recognition and protection of geographical indications and the phasing out of generic denominations.

As mentioned earlier, the draft mandates contain a chapter on sustainable development which focuses on social and environmental standards and the liberalisation of environmental goods and services.

Finally, the drafts conclude with some institutional aspects, including the links with the cooperation agreements, "expedient problem solving and flexible mediation mechanism" and prior consultation with the private sector before introducing new regulations ; procedures to avoid trade conflicts.

* Marc Maes is a trade analyst working with the Belgian non- governmental organization 11.11.11

Enlazando Alternativas | Red Birregional UE - ALC | 2007
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