European Union Economic Diplomacy

The Role of the EU in External Economic Relations

Stephen Woolcock

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317139232
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: European Politics
• Index: Politics & International Relations

The European Union is a key player in international economic relations, but its exact role and how it goes about making decisions and negotiating is often poorly understood within and especially outside the EU. When does the EU play a proactive role and when does it follow? When is the EU a distinct actor and when is it just one level in a multi- level process of negotiation in which the member states are the main actors? Does the EU possess normative power in external economic relations? Does the EU have the capability and willingness to use its still significant economic power? European Union Economic Diplomacy provides the first comprehensive analysis of the factors that determine the role of the EU in economic diplomacy. In an up-to-date treatment that includes consideration of the impact of the Treaty of Lisbon, it contains a comprehensive explanation of decision making and negotiating processes in the core areas of trade, financial market regulation, environmental diplomacy and development co-operation. The book is intended for those interested in EU policy making, but also those who simply need to understand how the EU functions in the field of economic diplomacy.

Chapter 1
The European Union in Economic Diplomacy

Introduction

The aim of this volume is to contribute to a better understanding of European Union (EU) economic diplomacy, or decision-making and negotiation in the external economic policies of the EU. It addresses a number of questions. The first is the straightforward, but seldom simple question of how EU economic diplomacy functions. In other words it looks at the internal decision-making processes that determine the EU’s policy preferences and how the EU handles negotiations at the international level. The second question the volume addresses is what role the EU plays in economic diplomacy? When does the EU appear as a distinct actor with common goals pursuing coherent negotiating objectives, and when is the EU’s role more one forum or level in a wider process in which EU member states lead? The book seeks in particular to identify the factors that determine the role the EU plays. The third and most challenging question addressed is what shapes the effectiveness of EU economic diplomacy?

Before discussing how the book approaches these questions it is necessary to set the scene in terms of the general place the EU assumes in economic diplomacy today. The EU’s place in international economic negotiations has emerged progressively over many decades. This was the case for international trade in which the EU’s role has evolved from a limited but active role with the creation of a customs union, through a more important but defensive role in the 1970s, to a more outward-looking and proactive role in the 1980s and 1990s. In the field of international environmental policy the EU has also established a place for itself in the key international negotiations on topics such as climate change. This came later than trade with the EU’s place really only being established in the 1980s. In the field of development policy the EU, counting member state and EU level official development assistance (ODA), remains the largest provider of development aid. In other policy areas central to international economic relations, such as finance, the EU’s place appears to be less well established.

Looking at the EU in international economic negotiations from a broad systemic perspective, the EU has emerged from what was the dominant transatlantic or developed country ‘club’ that shaped international economic relations from the establishment of the Bretton Woods system in the 1940s until perhaps the 1990s. The role of the European Economic Community (EEC) and then the European Community (EC) was initially that of a follower behind the leadership of the United States (US) for much of the period.1 The EC was then part of the Organisation for Economic Cooperation and Development (OECD) Club Model during the 1980s and 1990s. In line with the evolution that saw a greater role for the EC in some policy areas than others, the EC assumed an important role in trade from a fairly early date, with the EU participating in the quad (USA, EC, Canada and Japan) that influenced trade policy during the 1980s and 1990s. As Chapter 3 of this volume shows, even though the EC could be said to have been an actor in trade from a relatively early date in the post-war period and was a member of the quad, the EC’s position on trade was very much shaped in response to US leadership. It was not until the 1990s that the EU emerged as an actor with leadership aspirations in international trade. In some cases international policy has been shaped by more inclusive organisations such as environment policy in the UN. Here, as Chapter 5 will show, the EU has also moved from the shadow of US leadership. In others negotiation and policy-making remains strongly influenced by a dominance of transatlantic links, such as was the case in international financial market regulation, at least until the financial crisis of 2008 and the greater use of the G20.

The dominance of the OECD club in shaping international economic diplomacy has been steadily eroded since the 1990s by the growth of the major emerging markets and challenges by developing countries seeking a greater say. The EU’s place in international economic diplomacy must therefore be seen in terms of these broad structural shifts in relative economic power within the international economic order. Will the EU be able to provide leadership in international negotiations? If it cannot do this alone, will it hold to established links to the US and other like-minded OECD countries or seek to cooperate with the emerging economic powers? If EU member states have been content for the EU to fulfil the role of a forum for negotiation rather than as a distinctive actor when the agenda was shaped by likeminded OECD countries, will they feel equally content when the agenda and negotiations are shaped by a more heterogeneous group of countries? In the more multi-polar international economic order of the twenty-first century, the role the EU assumes will have systemic implications as well as implications for the EU’s international policy aims and the level of integration within Europe.

The contemporary context for the debate on the role of the EU in economic diplomacy is shaped by the treaty changes brought about by the ratification and adoption of the Treaty of Lisbon (Treaty on the Functioning of the European Union, TFEU). These pose challenges and offer opportunities for the EU. The challenges include integrating the European Parliament (EP) with the greater powers it has acquired as a result of the Lisbon Treaty into EU decision-making. Greater democratic accountability could strengthen the EU, but there is also a need to ensure EU economic diplomacy is efficient. The TFEU means increased EU competence in areas such as foreign direct investment (FDI), and thus a greater role for the EU as opposed to the member states. The treaty changes have also disturbed the established practice in decision-making in terms of the balance between the member states in the Council or its working groups and the Commission. A further challenge is how to meet the treaty aims of integrating all the EU’s external policies under the common external action and within the European External Action Service (EEAS). Replacing the three pillar structure of the European Union (European Community, Common Foreign and Security Policy and Justice and Home Affairs) with a single system that brings together trade, environment, development and humanitarian assistance with foreign policy holds the promise of a greater role for the EU in international relations, but it also poses the challenge of ensuring coherence across different policy areas.

How Does EU Economic Diplomacy Function?

The volume’s approach to this question is an unashamedly practical one. It simply aims to explain the processes by which the EU seeks to decide on a common position and how it goes about representing this common position in international negotiations. For many practitioners and stakeholders both within – but more especially outside – the decision-making processes of the EU are often seen as arcane, complex and not infrequently frustrating.

There are a number of reasons for this complexity. The EU is clearly not typical in that its economic diplomacy must reconcile the positions of the 27 member states as well as many sector interests and conflicting aims between different policy areas. It is therefore necessary to understand how the positions of the member states are aggregated to form a common EU position. For this it is in turn necessary to understand the roles of the various EU institutions, primarily the Council, Commission and European Parliament, and how these shape EU economic diplomacy at different stages in the policy-making and negotiating processes. Compared to other national settings, such as the United States, these institutional factors are probably more important, but EU preferences, like those of individual countries are significantly shaped by sector and other interests.2

The picture is further complicated by the issue of competence, or whether it is the EU or the member states that have power to determine policy and engage in negotiations with third parties. Competence also varies between policy areas and is sometimes shared between the EU and member states, so that while the EU may have near full competence to conduct external trade policy this is not the case for financial regulation and or even international environmental policy. The search for coherence across policy areas therefore requires coordination between policies in which the EU has competence and those in which the member states retain significant competence, something that adds a further layer of complication.

As in all policy-making, the formal processes often differ from practice. For example, formal procedures may stipulate qualified majority voting for decision-making, but in practice consensus is nearly always sought.3 Shadow voting may influence decision-making. In other words, in the absence of a formal vote, decisions to proceed with a given policy may be based on what would be the outcome if there were voting. Decision-making and negotiation are also complicated by the fact that de jure competence and de facto practice varies across policy areas. What may be the case in international trade is not the case in development policy so reconciling policies in different policy areas or horizontal policy coherence as it is sometimes referred to, is also more complicated than in the national context. EU economic diplomacy like that of nation states also evolves over time with treaty changes and developments both within and outside the EU.

One of the contributions of this volume is therefore a comparative treatment of EU decision-making in a number of different policy areas; trade and investment, finance (in particular financial market regulation), environment and development in one volume. The book addresses questions such as who really shapes EU policy and how? How is the EU’s negotiating position determined? Who negotiates for the EU and how closely are these negotiators supervised or controlled by the member states or other principals? The volume provides an up-to-date treatment in that it includes an assessment of how the TFEU will affect EU economic diplomacy. As noted above, the TFEU brings external economic relations under one roof with EU foreign policy and – at least on paper – dispenses with the three pillars of the European Union in the shape of the European Community, Common Foreign and Security Policy and Justice and Home Affairs. The adoption of the TFEU, with the creation of the High Representative for Foreign and Security Policy (henceforth HRFSP) and the European External Action Service, has stimulated a great deal of discussion on the EU’s role in foreign policy. But the changes could also have important consequences for EU economic diplomacy. At the time of writing, from late 2010 to early 2011, the full implications of the treaty changes were not fully clear. There remained a number of disputed interpretations that affect in particular the comitology process and the respective roles of the Commission and member states in external environment negotiations. Just how the role of the EP will develop is also something that can only be assessed over time.

What Role Does the European Union Play in Economic Diplomacy?

Addressing this question requires rather more analysis than the task of describing how the EU functions in economic diplomacy. It is possible to identify a number of roles. Perhaps the most important distinction is between the role as a distinctive actor and that as one of a number of forums or levels in international economic negotiations. A simple way of illustrating this point is by reference to two of the cases discussed in the following chapters. In the case of external trade policy, it is only the EU representative, the European Commission, who takes part in international negotiations. In the case of international finance, member states represent themselves, sometimes along side the EU, and issues concerning international finance are discussed simultaneously at both the EU and international levels in forums such as the IMF or the Financial Stability Board. So in the case of trade the EU’s role is that of an actor, whereas in finance it is more that of a forum.4

It is then important to assess what type of an actor the EU is. Does it tend to follow initiatives taken elsewhere, or does it lead or have leadership aspirations? There is the question of whether EU is an instrumental actor that directly influences the positions of third countries in negotiations through the use of market power or bargaining, or more of a normative actor shaping agendas and positions more indirectly as a model for others.5

Given the variation between issues the question here is not so much whether the EU is an actor and what kind, but rather when its role tends towards that of a distinct actor and when that of a forum, and whether it is possible to identify the factors that determine this? Equally, it is not so much whether the EU is an instrumental or normative power, but how these are combined with other sources of power such as market power to shape EU economic diplomacy. The purpose is also not to discuss whether the EU possesses the attributes of an actor in international relations, which has been the focus of much of the international relations literature on EU foreign policy, but to analyse the role of the EU in specific areas of international economic relations.6

The analytical framework developed in Chapter 2 is intended to help assess the role of the EU in different policy areas. This considers a range of factors including relative market power (a source of structural power), the stage of development of the internal acquis communautaire (arguably the main source of normative power) as well as the decision-making procedures within the EU that determine the EU’s ability to exercise instrumental power.

Finally, the role the EU plays in international economic negotiations has evolved over time, in part as a result of the internal integration process and in part how the EU member states have responded to external drivers or global challenges. For example, greater coordination or integration in a policy area may come about as a result of member states’ desire to pool sovereignty in order to have a greater influence in international economic relations. The volume therefore considers the evolution of EU domestic policies and economic diplomacy in each of the four case policy areas chosen the study.

What Determines the Effectiveness of EU Economic Diplomacy?

The third question the volume addresses is the more challenging one: What determines the effectiveness of EU economic diplomacy? While far more difficult to answer conclusively, this is the question that is clearly the most important for practitioners and interesting for observers. Effectiveness is defined in terms of influencing outcomes and is assessed without prejudice to the balance between the EU as actor or forum. In other words, it may well be that even where the EU does not possess all the attributes of an actor, it can still have an important effect on outcomes. Effectiveness of the EU depends on a number of factors. These include ‘domestic’ EU factors, such the cohesion or heterogeneity of member state and sector interests, the stage the acquis communautaire (the agreed set of domestic or internal rules) has reached, as well as the institutional capability of the EU. The effectiveness of the EU will also depend on international, extra EU factors, such as the EU’s relative economic or market power and what its negotiating partners do. The EU can be efficient in defining its preferences and in negotiations but still have no impact if its negotiating partners are not ready to cooperate. This means that effectiveness will vary from policy area to policy area and depend on the specifics of any given negotiation. Interests within the EU will vary as will the international context and relative economic power of the EU’s negotiating partners. Generalisations for all negotiations will be difficult to make. Each of the four case studies therefore includes a more detailed discussion of a particular negotiation or topic to illustrate how effectiveness of the EU could be assessed. These specific cases include some important recent negotiations, so that their coverage has the added advantage of providing some information on the position the EU has taken and why.

Defining effectiveness

Before discussing what determines the effectiveness of EU economic diplomacy, we need to be clear about what is meant by effectiveness and how it might be measured as a dependent variable. First of all we distinguish between efficiency and effectiveness. Efficiency seems best suited to describe the ability of the member states to reach a common position or the capacity of the EU’s decision-making procedures to agree on a set of common negotiating aims.

Effectiveness should then be seen as the capacity of the EU to achieve its negotiating aims. It has to be recognised that the various actors in EU economic diplomacy may have different interests in any given negotiation or may have different utility functions. Member state government utility functions are likely to include both the economic/welfare gains to be had from any negotiated outcome as well as political utility in terms of re-election or the retention of power. As rationalist political economy literature suggests, governments may prefer one outcome over another if it helps retain the support of a key interest group. In the EU context member state governments may also be motivated by a desire to retain sovereignty or control over the policy area concerned, which will lead them to resist pressure for a common EU position in response to external drivers for fear that this could lead to de facto or de jure integration within the EU.

Equally, the various EU institutions will have their own specific interests so that one cannot see them as pure agents. The Commission, as the guardian of the treaties, has an interest in ensuring that negotiations with third countries do not undermine the prospects for EU integration. The Commission will therefore push for common responses to head-off distinct member state responses to external challenges that could make future EU integration difficult. In the 1970s this spurred Commission initiatives in environmental policy. Today the adoption of national levies on banks to pay for future bailouts would pose a threat to common EU schemes and make agreement on cross border supervision of banks difficult. The Commission may also use international negotiations to promote internal reform in the fashion envisaged by two-level game analyses (Putnam, 1998). Equally, the European Parliament (EP) may seek to use any leverage it has to ratify a specific agreement, such as a bilateral free-trade agreement, as a means of gaining ground in the battle for power with the other EU institutions and in particular the Council.

Assessing outcomes

Assessing the effectiveness of EU economic diplomacy means finding some way of measuring outcomes against EU aims and such as assessment inevitably includes some subjectivity. By definition the EU engagement in negotiations is likely to result in some degree of cross issue bargaining of concessions, so that there may be progress in one issue but not in another. Any assessment of whether the EU has achieved its negotiating aims is also made difficult by the fact that the EU’s detailed position will not be public. Although general negotiating aims may be publicly available, these are for the most part drawn fairly broadly so as not to undermine the position of those negotiating on the EU’s behalf. Furthermore, as in all negotiations the neg...