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EU in the World

4. Trade and Economic Issues

External trade is the EU’s largest foreign policy area and therefore its main field of interaction with major world economies. In practice, the Commission speaks for almost 500 million European citizens at bilateral and multilateral levels.

The EU stresses the importance of an effective multilateral system, built around a strong United Nations (UN) and World Trade Organization (WTO). It is working within these institutions to fight protectionism and improve global financial regulations – especially since the economic meltdown.

The USA, Russia and China are key players in EU external relations, not just at bilateral level but also at the WTO. Meanwhile, large emerging economies, like Brazil and India, are growing in importance. The EU aims to extend and deepen all these ties in the medium to long term.

United States of America

• First EU-USA relations: 1953
• EU-USA have the biggest bilateral trade and investment relationship in the world, representing around 40% of world trade and over 60% of world GDP
• Transatlantic trade is worth €1.7 billion per day
• The EU accounts for over 40% of foreign direct investment to the US
• The ‘transatlantic workforce’ comprises around 13 million people
• Governing Instrument(s): 1995 New Transatlantic Agenda

The EU and USA shape the global economy: either one is the largest trade and investment partner for most other countries around the world. As such, they are working to harmonise accounting standards and supply chain security, while fighting the trade in counterfeit goods. Aviation remains a problem though, from the Airbus-Boeing dispute to a likely review of the Open Skies agreement in 2010.

In November 2007, the EU and USA conducted their first joint mission to enforce intellectual property rights. Operation Infrastructure hauled in more than 360,000 fake computer chips and semiconductors bearing some 40 trademarks.

In March 2008, the Open Skies agreement opened up the transatlantic airline market, removing limits on routes, prices, and flight numbers. However, the deal favours the USA in terms of number of destinations offered and the percentage stakes that US and EU companies may own in their counterparts (capped at 49 per cent and 25 per cent respectively). Commissioner Barrot has threatened to roll back the accord if a new and fairer deal is not struck by 2010.

Also in March 2008, the EU and USA adopted a Roadmap toward Mutual Recognition of trade partnership programmes. This aims to improve “the safety and the security of the supply chain,” while “reducing administrative burden and making trade smoother and quicker”.

In 2009, a new US president and an EU ‘pincer movement’ were two reasons to kick start the partnership. In May 2009, the EU opened “comprehensive trade and investment negotiations” with Canada, a watershed and the first of its kind with a developed country. Combined with the EU-Mexico agreement, this sent a strong signal to the US to reject protectionism following the financial crisis.

The moves should breathe new life into the Transatlantic Economic Council, launched in April 2007 to improve economic co-operation and harmonise regulations between the EU and USA. Accounting standards should, for example, be mutually recognised by late 2009.

In September 2009, a WTO panel issued a preliminary ruling on the dispute over alleged subsidies to Airbus. It said that certain European government aid to Airbus was illegal, but top US lawyers now acknowledge that most countries are guilty, especially in the wake of the financial crisis. "We live in a glass house of global subsidies”, said DC lawyer James Bacchus.

See the video (right) for more on EU-US relations with John Bruton, the European Commission Ambassador to the USA.

China

• First EU-China relations: 1975
• China is the EU’s second largest trading partner
• The EU is China’s second largest trade partner
• Governing Instrument(s): 1985 Trade and Co-operation Agreement

“China is the single most important challenge for EU trade policy,” says the Commission: a thinly veiled reference to its tough and complex relationship with China.

Ambassador Song Zhe, head of China’s EU Mission, takes a nuanced approach on global issues. “China was once bullied by foreign powers and therefore knows dearly the humiliation of inequality. China will never bring such agony to others. Nor will it pursue its own development at the expense of others’ interest.”

The EU’s policy goals for China include: developing dialogue on bilateral issues, like trade, energy, science and technology; maintaining dialogue on global issues, including climate change and human rights; expounding the benefits of open societies based on the rule of law and respect for human rights, with a special focus on Tibet and Xinjiang; promoting China’s further integration into the world economy; supporting its process of economic and social reforms.

Beyond regular political and trade meetings, EU and China hold around 25 dialogues on issues like human rights, environment, industry, education, and culture. In 2007, talks opened to upgrade the EU-China Trade and Cooperation Agreement into a fully-fledged Partnership and Cooperation Agreement.

Ahead of the Beijing Olympics in August 2008, Amnesty International questioned the pace and veracity of Chinese reforms on the social and human rights front. As polite dialogue continued between the EU and China, the European Parliament made the political decision to award the 2008 Sakharov Prize to human rights activist Hu Jia. Earlier that year, he had been sentenced to three and a half years in prison for “inciting subversion of state power”, i.e. talking to foreign journalists and posting online articles about China’s lack of freedom of expression.

In May 2009, the financial crisis was the main topic of debate at the EU-China summit in Prague. Mindful of their huge trading relationship, worth over €325 billion in 2008, leaders inked three memoranda of understanding for small and medium size companies, science, and clean energy. Because of the trade-focused nature of talks, little progress was made on human rights or climate change.

Russian Federation

• First EU-Russia relations: 1994
• Russia is the largest economy in the world outside of the WTO
• Russia is the EU’s third largest trading partner
• Governing Instrument(s): 1994 Partnership and Co-operation Agreement (PCA)

Relations currently revolve around the EU-Russia Common Spaces, agreed at the St. Petersburg Summit of May 2003. The four spaces cover: economic issues and the environment; freedom, security and justice; external security, including crisis management and non-proliferation; research, education and culture. At the Moscow Summit of May 2005, leaders agreed a set of “road maps” for achieving the goals of the common spaces. They included a medium-term agenda for EU-Russia cooperation.

The EU-Russia PCA expired in December 2007. Renewal talks opened at the June 2008 Summit in Khanty Mansiysk, but these were shelved at the onset of the Russia/Georgia war in August 2008. In March 2009, the European Parliament said that several points should be raised at the resumption of talks, from shaky energy security to intimidation of human rights workers to Russian belligerence toward its neighbours.

The conflict with Georgia dented Russian aspirations of joining the WTO, but did not derail them. Accession talks resumed on the sidelines of the St. Petersburg Economic Forum in June 2009. EU Trade Commissioner Catherine Ashton agreed that Russia should join by the end of 2009, but US Trade Representative Ron Kirk said this may be "premature”.

Energy security is in the hands of the supplier. Russia treats energy as Elizabeth I treated marriage: a political commodity, perfect for stringing others along. The EU has long tried to co-opt Russia into a European Energy Charter, with a view to ensuring energy cooperation between Europe and countries of the former Soviet bloc.

But in August 2009, Prime Minister Vladimir Putin terminated Russia’s provisional application of the charter. This confirmed what many had long suspected: “The Russians have no intention after all of honouring their existing obligations under that Charter, let alone confirming them by ratifying their signature of it”.

London think-tank Chatham House adds: “Russia and the European Union are compelled by a web of mutual interests to work together, but find it difficult to do so… Russia finds it hard to take the EU seriously when it comes to the harsher politics of interstate relations… And Russia is better than the EU at deciding what it wants.”

India

• First EU-India relations: Early 1960s
• Strategic Partners since 2004
• Governing Instrument(s): 1994 Co-operation Agreement

The EU and India held their first annual summit in 2000. This and following summits paved the way to a Joint Action Plan, signed in 2005 and updated in 2008.

The Joint Action Plan is the main reference point for EU-India cooperation. It is designed to encourage: research and technological innovation; social and cultural exchanges; sustainable development; peace, stability and security.

The Country Strategy Paper for India 2007-2013 (€470 million in total) focuses EU funds on health and education as well as cultural and civil society activities. This aims to improve education levels, while stemming the spread of terrorism. As part of this work, more and more Indian students are coming to Europe for educational exchanges.

The Joint Work Programme on climate change has focused cooperation on research, environment, and energy (with specific projects on fusion research and solar energy). In the summer of 2009, talks were also under way for a wide-reaching Bilateral Trade and Investment Agreement.

Brazil

• First EU-Brazil relations: 1960
• Brazil is the EU’s largest market in Latin America.
• Governing Instrument(s): 1992 EC-Brazil framework co-operation agreement; 1995 EU-Mercosur Framework Co-operation Agreement; 2004 Agreement for scientific and technological co-operation

The EU and Brazil held their first summit in Lisbon in 2007. This sealed their Strategic Partnership and laid the foundations for the Joint Action Plan, signed in Rio de Janeiro at the second annual summit in 2008.

The Joint Action Plan governs the partners’ relations. It is designed to promote: science, technology and innovation; social and cultural exchanges; sustainable development (economic, social and environmental); regional cooperation; peace and security through 'effective multilateralism'.

Some €61 million is earmarked for Brazil in the EU's Country Strategy Paper 2007-2013, which has two focal areas: environment and enhancing bilateral relations. This will be achieved through sectoral dialogues, scholarship programmes, and a European Studies Institute.

With its impressive growth over the last 10 years, Brazil is no longer seen as a beneficiary for aid but as a partner for ‘triangular cooperation projects’. The EU and Brazil have therefore pledged to roll out projects with developing countries (notably in Africa and Latin America); these focus on health, agriculture, education and energy, including sustainable bio-fuels and bio-electricity.

At the 11th EC-Brazil Joint Committee, in Brussels in July 2009, both sides agreed to pursue talks on two major deals. The first would be an EU-Mercosur Association Agreement, the second a Memorandum of Understanding on administrative cooperation on competition matters. Meanwhile, numerous dialogues have been held on financial regulation, macroeconomic policy, education, culture, and human rights.

A third summit takes place in October 2009 in Stockholm.