Framing Convergence with the Global Legal Order

The EU and the World

Elaine Fahey

• Publisher: Hart Publishing
• Year: 2020
• Print ISBN: 9781509944613
• eBook ISBN: 9781509934386
• Edition: 1
• Topic: Law
• Subtopic: International Law
• Index: Law

This interdisciplinary book explores the concept of convergence of the EU with the global legal order. It captures the actions, law-making and practice of the EU as a cutting-edge actor in the world promoting convergence 'against the grain'. In a dynamic 'twist' the book uses methodology to reflect upon some of the most dramatically changing dimensions of current global affairs. Questions explored include: who and what are the subjects and objects of convergence as to the EU and the world? How do 'court-centric' and less 'court-centric' approaches differ? Can we use political science and international relations as 'service tools'? Four key themes are probed: - framing EU convergence;
- global trade against convergence;
- the EU as the exceptional internationalist; and
- positioning convergence through methodology.

part i

Framing EU Global Convergence

1

The EU’s Free Trade and Investment Agreements: European Convergence with World Trade Law?

FRANK HOFFMEISTER^*

I.Introduction

Accounting for 15 per cent in the world share of global exports and imports (as of July 2019), the European Union (EU) is one of the world’s major trading powers.¹ It thus holds considerable influence in the World Trade Organisation (WTO) and brings a lot of negotiating power to the table when it engages in bilateral free trade agreements.² Since 2006, when Commissioner Mandelson announced the ‘Global Europe’ strategy,³ it has indeed concluded numerous new ‘Deep and Comprehensive Free Trade Agreements’ (DCFTAs) with partners such as Korea,⁴ Canada⁵ and Singapore.⁶ Moreover, between 2013 and 2017 it attempted to bring about a Transatlantic Trade and Investment Partnership (TTIP) with the United States.⁷ With the election of President Trump in November 2017, however, this project came to an end.

Primarily, the EU’s DCFTAs embody the joint will of the parties to liberalise trade between them. They ease tariffs, promise tariff-quotas or tackle non-tariff barriers on goods and services. At the same time, they also contain substantive rules, ranging from public procurement over competition to non-economic issues such as sustainable development. A particularly rule-intensive chapter is the one on investment since it stipulates general standards of behaviour for States, which may potentially catch legal and administrative investment barriers from all policy fields.

Against that background, the question whether the EU’s practice sets global standards is very pertinent.⁸ Are the EU’s DCFTA’s the most progressive ones, which other nations would like to imitate? Could they serve as global standards that inspire new multilateral conventions? Or are they more a symbol of European exceptionalism that mainly serve European interests and cannot be regarded as a global blueprint?⁹ In order to reply to these questions, five distinctive means and ways of the EU’s FTA will be analysed: Does the EU reaffirm or build on existing WTO standards, indicating a high level of global convergence, or does it reform or even contract out of international practices, pointing to the opposite direction? In the alternative: Does Europe bring up new topics into the world trade debate, thereby tipping off a new wave of convergence?

Out of the recent DCFTAs, the EU-Canada Comprehensive Economic and Trade Agreement (CETA) is the most advanced text.¹⁰ CETA has been heralded as ‘the gold standard for future trade deals’,¹¹ with especially high expectations for its investment chapter.¹² It is therefore appropriate to use CETA as a reference point for the usual EU approach in DCFTAs. The EU and its Member States on the one hand and Canada on the other hand signed CETA as a mixed agreement on 30 October 2016.¹³ The European Parliament gave its consent on 15 February 2017, and the Canadian Parliament ratified it on 16 May 2017.¹⁴ Lacking full ratification by all EU Member States, the EU parts of CETA are provisionally applied since 21 September 2017.¹⁵

II.EU Standards on Trade in Goods

A.General Provisions (Chapter 1)

Chapter 1 of CETA contains, next to the usual introductory definitions, a couple of interesting general provisions. Under Article 1.4 CETA, the parties establish a free trade area ‘in conformity with Article XXIV of GATT 1994 and Article V of GATS’. This is a reminder of the EU’s approach that agreements need to cover at least 90 per cent of all goods and services between the parties to qualify as ‘substantially all trade’ under these WTO conditions. CETA meets this requirement, as it liberalises 97 per cent of all EU-Canadian trade.¹⁶ For other trading partners, a high threshold may be less relevant. For example, the idea to negotiate an EUUS ‘auto-deal’,¹⁷ which would only cover the reduction of tariffs for cars between these two blocs, would fly in the face of Article XXIV of the General Agreement on Tariffs and Trade (GATT) 1994, and could thus undermine the WTO. Former EU Trade Commissioner Cecilia Malmström further demonstrated the EU’s adherence to the ‘substantially all trade’ requirement in declining to strike a ‘mini trade deal’ with the US on lobsters and chemicals. In November 2019, she wrote that ‘given the WTO agreement on bilateral preferences, [such a trade deal] should be as part of a wider agreement to liberalise tariffs bilaterally for industrial products, including fisheries’.¹⁸

Against that background, Article 1.5 CETA is equally important. Under this provision, the parties ‘affirm their rights and obligations with respect to each other under the WTO Agreement and other agreements to which they are party’. This means that CETA cannot serve as a shield against WTO litigation, eg by arguing that it would constitute a lex specialis or a lex posterior between the parties.¹⁹ Rather, under Article 1.5 CETA, parties maintain the possibility to bring WTO cases against each other. It also follows that the subsequent CETA provisions should be regarded as ‘WTO plus’ and not ‘WTO minus’. An example is Article 1.8 (2) CETA, according to which ‘each Party shall ensure that all necessary measures are taken in order to give effect to the provisions of this Agreement, including their observance at all levels of government’. This formulation is much stricter than Article XXIV (12) of the GATT. Here, the central government only promises to ‘take such reasonable measures as may be available to it’ to ensure the observance of WTO commitments by regional and local authorities (emphasis added).

B.National Treatment and Market Access for Goods (Chapter 2)

The cornerstone of Chapter 2 is the national treatment provision in Article 2.3 CETA. To this effect, Article III of GATT 1994 is formally ‘incorporated into and made part of the Agreement’. This means that separate tax treatment between domestic and imported goods is forbidden and that the regulatory discrimination affecting imported goods may fall under scrutiny. Furthermore, Article 2.4 CETA organises the progressive abolition or reduction of customs duties in line with the relevant annexes. Another important WTO plus obligation can be found in Article 2.5 CETA. This provision prohibits duty drawback, duty suspension or duty referral programmes made contingent on the export of a good. Such programmes are allowed under WTO law, but can be countervailed (Annex III to the WTO Agreement on Subsidies and Countervailing Measures). Similarly, the liberal regime on export duties and charges under Article XI of GATT 1994 is tightened by Article 2.6 CETA. The EU and Canada promise not to

adopt or maintain any duties, taxes or other fees and charges imposed on, or in connection with, the export of a good to the other Party, or any internal taxes or fees and charges on a good exported to the other Party, that is in excess of those that would be imposed on those goods when destined for internal sale.

This will reduce the policy space to enact export taxes or restrictions with the purpose of maintaining certain raw materials within a country to suppress the input prices for domestic industry. Hence, it fits well into the EU’s longstanding policy to secure an equal playing field for the access to raw materials around the world by bringing WTO cases²⁰ or adopting trade defence measures.²¹ On import restrictions, Article 2.9 (1) CETA incorporates the standards of Article XI of GATT 1994. Interestingly, the third paragraph of this provision stipulates a new duty to consult the other party when import restrictions on third countries may affect European-Canadian trade.

C.Trade Remedies (Chapter 3)

The trade remedies chapter reaffirms the established rules in the WTO Anti-Dumping Agreement (ADA) and the WTO Agreement on Subsidies and Countervailing Measures (SCM) Agreement. The only WTO plus element can be found in Article 3.3.

Under the first paragraph, the parties promise to ‘consider’ applying a public interest test. The background for this provision is the strict Union interest test provided in Article 21 of the EU’s basic Anti-Dumping Regulation (ADR) and Article 31 of the basic Anti-Subsidy Regulation (ASR).²² Under those norms, the Commission shall only adopt trade defence measures if it is convinced that other interests (users, consumers) are not negatively affected in a clearly disproportionate way. This balancing test is a compromise between the more protectionist Member States, which favour strong trade defence action to protect domestic industry and the more liberal Member States, which stress the need not to interrupt established trade flows and keep foreign competition alive.

The second paragraph of Article 3.3 deals with the lesser duty rule. The ‘Party’s authorities may consider whether the amount of the anti-dumping or countervailing duty to be imposed shall be the full margin of dumping or amount of subsidy or a lesser amount, in accordance with the Party’s law’. Again, this provision is inspired by an EU rule laid down in Article 7 (4) of the ADR. The background for this norm is the idea that the purpose of a trade remedy is not to sanction the exporting producers with the full amount of the dumping margin, but to cap the duty at the level of the ‘injury margin’, ie the level that is sufficient to re-establish a level playing field. While the EU managed to bring this idea into the text of CETA, it does not translate into a hard and binding obligation for Canada. Rather, the Canadian trade defence authorities will only ‘consider’ the application of the lesser duty rule in accordance with domestic statutes. Moreover, in the meantime, the EU itself has become less adamant about it. In the latest modernisation of the EU’s trade defence instruments,²³ the lesser duty rule was abolished for anti-subsidy cases and restricted in anti-dumping cases in the event of significant distortions on raw materials (Articles 7 (2)(a)–(d) of the ADR).

Article 3.4 reaffirms the rights and obligations of the parties under Article XIX of the GATT and the WTO Safeguards Agreement to impose global safeguards. The EU and Canada add to this WTO standard a transparency obligation and a soft exhortation to consider the impact of such safeguards on the trade flows with each other (Articles 3.5–3.6). At first sight, the ‘reaffirmation’ of the relevant WTO standards is not breathtaking. However, in particular in times where the United S...

Table of contents

• Cover
• Title Page
• Foreword by Anu Bradford
• Contents
• List of Contributors
• Introduction: On Framing Convergence of the EU with the Global Legal Order
• PART I: FRAMING EU GLOBAL CONVERGENCE
• PART II: A GLOBAL LEGAL ORDER AGAINST CONVERGENCE?
• PART III: WHEN IS EU LAW AND POLICY MORE ‘INSIDE-OUT’ THAN ‘OUTSIDE-IN’?
• Index
• Copyright Page