The European Union's Foreign Economic Policies

A Principal-Agent Perspective

Andreas Dür, Manfred Elsig, Andreas Dür, Manfred Elsig

• Editorial: Routledge
• Año: 2014
• ISBN:
  9781317985044
• Edición: 1
• Categoría: Política y relaciones internacionales
• Categoría: Política

The European Union is a key actor in international economic governance. Through its foreign economic policies it plays a central role in the negotiation of international trade agreements, the global regulation of the financial services sector, and the provision of aid to developing countries. This book shows how principal-agent theory can be used to shed new light on this complex of policy areas. In particular, the contributions to this volume analyze delegation, control, and agent strategies in a variety of principal-agent relationships shaping the EU's foreign economic policies: mainly those involving interest groups and governments; governments and the European Commission; and the European Union and international organizations.

The chapters, written by leading experts in the field, offer empirically-rich studies of various areas of the EU's external economic relations including trade, financial regulation, accounting standards and global regulation through the G7/G8. The book is aimed at researchers and advanced students interested in the EU, international economic relations, and principal-agent theory.

This book was published as a special issue of the Journal of European Public Policy.

Principals, agents, and the European Union’s foreign economic policies

Andreas Dür and Manfred Elsig

Abstract In the introduction to this collection on the principal–agent approach and the European Union’s (EU) foreign economic policies we briefly present the EU’s institutional structure for policy-making in trade, monetary, development and international competition and financial policy. We also offer some data on the extent of the EU’s involvement in the international economy. Our discussion of the principal–agent approach and how it can be applied to an analysis of the EU’s foreign economic policies forms the basis of the following contributions. It allows us to formulate three questions that are of particular interest for applications of the principal–agent approach to the EU. Finally, we summarize the various studies included in this collection.

Introduction

Ever since its creation, the European Union’s (EU) economic weight has made it an influential player in the global economy. The EU-27 is the largest exporter and importer of both goods and services (as of 2008), and is one of the largest hosts and sources of foreign direct investments. The euro is second only to the United States (US) dollar as an international currency. Internal co-ordination of foreign economic policies has meant that the EU could at least partially translate this economic weight into influence in global economic relations. In both trade and competition policy, the EU has been able to speak with ‘one voice’ in dealing with third countries since the 1960s. For the last decade, moreover, increased internal co-ordination in the field of monetary policy (in particular owing to the launch of a common currency and the creation of the European Central Bank) has increased the leverage of the EU in the international monetary system.

The aim of this collection is to shed new light on the EU’s role as an actor in international economic governance. In particular, it focuses on selected principal–agent (PA) relationships in shaping this role. While the PA approach is not new to EU studies (see, for example, Kassim and Menon 2003; Pollack 1997), so far, only few attempts have been made to understand the EU’s foreign economic policies through this framework (among the exceptions are Billiet 2009; De Bièvre and Dür 2005; Elsig 2002, 2007; Kerremans 2004; Reichert and Jungblut 2007). The contributions to this collection start filling this gap. In doing so, they address three broad theoretical questions. First, the agents that ultimately carry out the EU’s foreign economic policies (mainly the European Commission, from here on referred to as the Commission) stand at the end of a long chain of delegation, which comprises several hierarchically organized PA relationships (societal interests and voters to decision-makers; legislators to executives; member states to the Commission; the EU to international organizations). What consequences does the existence of such a multi-level system have for delegation and control? Second, what impact (for delegation, principals’ strategies of control and agent autonomy) does the presence of principals with often diverging interests have on the PA relationships that are relevant in the formulation of the EU’s foreign economic policies (be that between societal interests and decision-makers, member states and the Commission, or different entities in delegation to an international organization)? Third, what explains the agents’ choice of strategies under specific circumstances? The explicit application of the PA framework to the literature on the EU’s foreign economic policies thus is the first contribution of the collection.

A second contribution of the volume is the integration of different strands of literature that all address the EU’s foreign economic policies. Extensive research has been carried out on some aspects of the EU’s trade (see, for example, Dür 2010; Dür and Zimmermann 2007; Elsig 2002; Meunier 2005; Smith 2001; Young 2002; Zimmermann 2007), international competition policy (Damro 2006) and development policy (Carbone 2007; Holland 2002). Fewer studies have been written on the EU and international monetary relations (Bini-Smaghi 2004; Cohen 2009; McNamara and Meunier 2002) and international financial policy, that is, policies aimed at the regulation of financial markets (Posner 2009). By bringing together studies from different policy fields that all form part of the EU’s external economic relations, the collection allows for comparisons across policy fields.

In the following, we first sketch the EU’s institutional set-up and importance in different policy areas that form part of the EU’s foreign economic policies. We then discuss the PA approach, with a focus both on the main assumptions of and recent developments in this literature. The third section offers some ideas on how the PA approach may shed light on the particularities of the PA relationships that are relevant in an analysis of EU foreign economic relations. We conclude the introduction with a brief preview of the contributions to this collection.

The EU’s Foreign Economic Policies

For two reasons, the EU stands out as an actor in international economic governance. On the one hand, with a population of 500 million people, a Gross Domestic Product (GDP) at market prices of $16.4 trillion and a GDP per capita of $33,000, the EU is far larger than any other economic entity in the world except the US (GDP data for 2009 from International Monetary Fund 2010). On the other hand, the EU is particular in the sense that it is an international organization making foreign economic policy. Only a few other customs unions (e.g., the Gulf Co-operation Council and Mercosur) and free trade agreements (e.g., the European Free Trade Association) negotiate collectively on trade matters (and those only selectively, as witnessed by Mercosur members negotiating individually in the World Trade Organization [WTO]). Also a few other examples of currency unions exist, such as the CFA franc zone in West and Central Africa and the Eastern Caribbean Currency Union. Nevertheless, among all regional integration schemes currently in existence, the EU is the entity that by far has made most progress in integrating its members’ foreign economic policies. It possesses competences across all policy fields that can be subsumed under the label of foreign economic policies, such as trade, development assistance, exchange rates, competition and international finance.

At the same time, the EU is far from having the same competences as a classic nation state, even one with a federal structure. In most areas, the EU’s foreign economic policies are characterized by partly divided, partly overlapping competences between the EU (until the entry into force of the Treaty of Lisbon, the relevant legal entity was the European Community) and the member states. This results in a situation in which the EU is a member of some international economic organizations (for example, both the EU and the member states are members of the WTO), whereas it is only a participant without member status in other such organizations (for example, in the G-8). In still other organizations, the EU features hardly at all. This is the case for the International Monetary Fund, where the European Central Bank has observer status in board meetings, but individual member states remain the main actors. In fact, three EU member states (France, Germany and the United Kingdom) can appoint a director to the executive board and (as of 2010) five more EU member states are represented in the 24-member strong Executive Board. In the following, we discuss both the institutional framework governing the EU’s foreign economic policies in different policy fields and the role of the EU in these fields.

In trade policy, the EU has had sole competence since the Treaty of Rome (1957). The treaty foresaw that trade policy decisions should be taken by the Council of Ministers (in this case, composed of foreign ministers and known as Foreign Affairs Council since late 2009), using qualified majority voting, based on a proposal from the Commission. The European Parliament used to have little say on trade policy, with its role largely limited to agreements that went beyond commercial policy. Only with the entry into force of the Treaty of Lisbon in late 2009 did the European Parliament receive a more substantial role on matters of commercial policy.

While the institutional set-up of EU trade policy-making seems to be straight-forward, conflicts between the Commission and member states arose because the Treaty of Rome did not contain a (clear) definition of trade policy. This omission became important when international trade negotiations started to encompass an ever growing number of issues. In the early 1990s, in particular, the Commission and some member states disagreed on which legal procedures applied to trade agreements that covered services trade, foreign direct investments and intellectual property rights (Elsig 2002). While the Treaty of Amsterdam (1997) put forward a sort of EU-type fast track which was never used, the Treaty of Nice (2001) resolved most of these disputes in making explicit that the Community had competence with respect to the negotiation and conclusion of agreements relating to trade in most services and the commercial aspects of intellectual property rights. The Treaty of Lisbon also made the trade-related aspects of investment policy a Union competence.

From its start, the EU has been a central actor in international trade governance. In 2008 and excluding intra-EU trade, the EU accounted for about 17 per cent of world merchandise trade (World Trade Organization 2010b). It was both the largest exporter (exporting $1,922 billion worth of goods) and importer of goods (importing $2,302 billion worth of goods). The EU is also the largest trader in services, exporting $746 billion and importing $619 billion worth of services in 2008. Given these numbers, it is no wonder that the EU is both a key player in the Doha Development Agenda (the multilateral trade negotiations that have been taking place in the framework of the WTO since 2001) and a sought-after partner for preferential trade agreements. Illustrative of the latter is that the EU trades under most-favoured-nation (MFN) conditions with only nine WTO members, namely Australia, Canada, Hong Kong, Japan, the Republic of Korea, New Zealand, Singapore, Taiwan and the US. In October 2009, it concluded a free trade agreement with Korea, reducing the number of WTO members with MFN treatment to eight. It is in the process of negotiating trade agreements with the Association of South East Asian Nations (including Singapore) and Canada. Once these agreements enter into force, the EU will trade under MFN rules with only six trading entities. Current important EU preferential trade agreements are those with a series of European countries, the Mediterranean countries, Chile, Mexico and South Africa.

A general feature of the EU’s trade policy has been a significant liberalization of imports over the last few decades (Dür 2010). In 2008, 26.2 per cent of tariff lines (at six digits of the Harmonized Schedule) for non-agricultural products and 29.6 per cent of tariff lines for agricultural products had an applied duty of zero (World Trade Organization 2010a). For non-agricultural tariffs, no line had an applied tariff of more than 25 per cent. According to calculations from the World Trade Organization (2010a), the EU’s average applied tariff rate was 5.6 per cent in 2008. This does not mean that no protectionist features remain. On the one hand, the EU has not implemented all obligations it entered into under WTO agreements, as is illustrated by the fact that between 1995 and mid-2010, 70 cases were brought against the EU under the WTO’s dispute settlement mechanism (this is second only to the US, which was a respondent in 110 cases). On the other hand, the EU continues to use trade remedies to restrict imports of certain goods (a practice that is consistent with WTO law). In 2008, for example, the EC initiated anti-dumping investigations in 18 cases, and imposed duties in 16 cases (World Trade Organization 2009).

With respect to development policy, the EU has had some basic powers since its founding days, even if initially its role was limited to providing assistance to the overseas territories. The EU’s competences in this field were upgraded in the Maastricht Treaty (1992), which contains a chapter on development cooperation. Nevertheless, until now delegation to the EU level is limited, and member states retain significant competencies.¹ The EU’s role is most clear-cut in agreements with third countries that contain provisions on development co-operation. These agreements, such as the Economic Partnership Agreements with African, Caribbean and Pacific countries, are negotiated by the Commission. Moreover, the EU adopts common positions for international conferences that deal with development issues, such as the Doha conference on financing for development in 2008. The Commission, furthermore, writes annual reports on the official development assistance of the community as a whole, which are supposed to ensure coherence between the development policies of the member states and the EU-level. Finally, the Commission is one of the members of the Development Assistance Committee of the Organization for Economic Co-operation and Development, an institution that has been central in shaping the goals of development policy.

The actual distribution of development funds, however, is mainly done by the member states themselves. In 2008, of $70.9 billion that the EU distributed in official development assistance (approximately 50 per cent of the world total), the EU-level institutions only controlled $14.8 billion (21 per cent of the EU’s total) (Organization for Economic Co-operation and Development 2010). The situation becomes even more complex when considering that the Commission only partly manages the European Development Fund (with a budget of €22.7 billion for the period 2008–13), which provides assistance to the African, Caribbean and Pacific countries. This fund, which has been in existence since 1959, is overseen by a special committee (the European Development Fund Committee), which is comprised of representatives of the member states.

In the field of monetary policy and exchange rates, the EU received substantial competences with the introduction of the euro and the creation of the European Central Bank.² The 16 countries (as of 2010) that form part of the euro area have delegated the power to set interest rates to the largely independent European Central Bank. The European Central Bank also intervenes in foreign exchange markets and monitors financial risks. Moreover, it partly represents the euro area in international fora; for example, it has observer status in the International Monetary Fund and participates in meetings of the G-7 and the Financial Stability Forum (since April 2009 known as Financial Stability Board), an institution that promotes international co-operation in financial market supervision.³ The EU, represented by the Council Presidency and the European Central Bank, is also an official member of the G-20.

Nevertheless, similar to trade and development policy, competences are also shared between the EU and national levels in this policy field. In particular, member states largely maintain control over fiscal policy (despite the existence of a Stability and Growth Pact that imposes some constraints on what member states can do in this area), which also influences the euro’s exchange rate as dramatically witnessed in the 2010 debt crises. In international monetary negotiations, moreover, member states have maintained their traditional role. Although the European Central Bank participates in international...