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Pasi-Heikki Vaaranmaa: Upholding the international trade system

EU2019FIMinistry for Foreign Affairs 30.9.2019 13.23
Column

The multilateral trading system based around the World Trade Organization (WTO) is still in serious trouble. Unilateral trade measures and the rise of protectionism are undermining the organisation. Trade negotiations have not progressed as desired and it has not been possible to reform the WTO’s rulebook.

The most critical question relates to the WTO’s dispute settlement system, whose Appellate Body is very likely to cease operating soon. This is because opposition from the United States means that the body will no longer have the minimum of three members needed to deal with trade disputes. Besides the dispute settlement system, improvements are also needed in the WTO’s regular functioning. So far, the WTO reform process, in which the EU has taken the lead, has not produced results. In the future, the EU will have to consider how to maintain its interests in a situation where compliance with the rules cannot be taken for granted.

Tensions between the EU and the US

Given the significance of the EU-US transatlantic trade and investment relationship, it is important to promote a positive trade agenda with the US. Relations between the EU and the US have, however, been affected by the trade disputes over aircraft subsidies, which are finally coming to an end after years of wrangling. The US will soon be authorised by the WTO to impose additional tariffs on EU products as a penalty for breaking the state aid rules in the manufacture of Airbus aircraft. In turn, the EU will get the green light for introducing extra tariffs against Boeing, though not until next year. Instead of imposing reciprocal tariffs, the EU aims to negotiate a solution.

The threat by the US Administration to impose restrictions or tariffs on EU car imports in the name of 'national security' is also hanging over EU-US relations. We expect to find out more about this later in the autumn.

More attention to implementation of agreements

The EU has free trade agreements with some 70 trading partners, and negotiations for new agreements are under way. In recent years, more attention has been paid to the implementation of agreements – an approach that Finland has wanted to emphasise during its Presidency. It is important that companies and consumers in the EU can get the best out of the agreements. The European Commission will publish a report in October on the progress made in implementing free trade agreements. In addition to the EU benefiting from the agreements, it is important for the EU to ensure that its trading partners fulfil their contractual obligations.

Mercosur will benefit Europe's industrial and service sectors

At the end of June, the EU and the trading bloc of four Latin American countries, Mercosur, reached a political agreement on the main features of the free trade component of the Interregional Association Agreement. This is a considerable achievement. Mercosur is one of the largest economic areas in the world and an important, growing market. Because many trade barriers remain in the Mercosur countries, the trade agreement will bring clear benefits to European industrial and service companies.

According to current information, Mercosur will liberalise about 90% of its trade. Tariff reductions alone are expected to generate annual savings of EUR 4 billion for EU exports. It will be possible to evaluate the agreement in more detail once the Commission has released all the final texts, including customs concessions lists. It is important to have fact-based discussions about the benefits of the Mercosur agreement, because other issues have dominated the debate over the past few months.

The system of international trade is creaking at the joints. Trade disputes are creating challenges. Uncertainty about the future is putting pressure on economic growth. Amid all this, the EU and its Member States are defending rules-based trade and negotiating new agreements to further facilitate trade. It should therefore be no surprise that the EU has no shortage of trade agreement partners. And we will reap the fruits of this cooperation in the coming years.

Pasi-Heikki Vaaranmaa, Head of Unit, Ministry for Foreign Affairs