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Abstract
Recent Free Trade Area (FTA) agreements of the EU are ‘deep and comprehensive’. This can be explained by the various and complex ‘trading costs’ that business encounters when accessing a foreign market and which business is keen to reduce as much as possible. The paper examines what ‘deep and comprehensive’ means more precisely in four EU FTAs: CETA and EU/Korea, and two FTAs that have not yet been completed (TTIP and EU/Japan). It provides a tentative explanation of the nature of these four modern EU FTAs by taking a closer look at the business dimension, in particular transnational value chains in some prominent sectors, the growing importance of services and inter-sectoral linkages.
Notes
1. Quotas (quantitative restrictions of imports) are forbidden in the WTO, but (especially in agro-food products) tariff-rate quotas (TRQs) are not. TRQs limit the volume of imports for which no or a low tariff is imposed; beyond that volume, tariffs are so high that they tend to be prohibitive.
2. Trading costs include all costs incurred before obtaining access to market A as good as local firms. There is a huge empirical economic literature on ‘trading costs’ (see e.g. Anderson and van Wincoop Citation2004 for goods) and recently attempts have been made to find proxies for services in AVEs (ad valorem tariff equivalents expressed as a percentage of the landed price). See Berden and Francois (Citation2015) and Jafari and Tarr (Citation2015). For goods, tariffs are trading costs of course, but also the costs for exporters/importers of overcoming regulatory divergences (TBTs & SPS); in services, restrictions for access often prompt higher costs or force local establishment (which may or may not be allowed or only with minority ownership, etc. ).
3. Technical Barriers to Trade ; Sanitary and Phyto-Sanitary Measures (against animal and plant diseases).
4. In the WTO, Trade-Related Intellectual Property Rights agreement.
5. Geographical Indication of special traditional foods and beverages, protected against name imitation.
6. An advanced attempt at characterising ‘depth’ and ‘coverage’, arriving at seven levels of ‘depth’ of many hundreds of FTAs, is found in Duerr, Baccini, and Elsig (Citation2014).
7. Most information is contained in the regular reports of negotiation rounds (18th round in April 2017).
8. One of the referees insisted, understandably, on more and better empirics of TVCs but this is simply not available. It is good to realise that the TiVA database is already the result of extremely laborious statistical work and (for that reason) is only available for 2011 (an update for 2015 has been promised).
9. Source: COM Staff Working Document (Citation2016a) 162 of 30 June 2016 on the Implementation of Safeguard regulation 511/2011 on KOREU.
10. Note that ‘duty drawbacks’ are allowed under Protocol No. 1 (origin rules) but if, after 5 years, Korean benefits are too big, a 5% limit can be imposed.
11. COM (Citation2016b) 268 of 30 June 2016, Annual report on the implementation of the EU-Korea Free trade Agreement, pp. 4 and 5.
12. There is a puzzling discrepancy between the increase in units (10%) and that in the EURO value of these parts (53%), suggesting a change in Korean pricing strategy. Possibly, Korean cars produced in the EU have been ‘pricing up’ via car parts, the profit of which would largely remain in Korea.
13. Tyres, engines and components. Only the latter two are monitored.
14. See note 9.
15. In chapter 27 of CETA.
16. See for extensive explanation, Pelkmans (Citation2015) for the EP IMCO ctee.
17. In the case of TTIP many proposals by the EU have been published by the Commission. In the case of JAPEU, so far only 2 such proposals had been published by May 2017. Japan and the US prefer not to publish theirs.
18. ECORYS (Citation2016), Trade SIA on TTIP between the EU and the US, draft final report to the Commission, 25 November 2016; www.trade-sia.com/ttip/wp-content-uploads/sites/6/2016/11/TSIA-TTIP-draft-Final-Report.pdf
19. Not in the box, but well-known is the aircraft sector using a very broad range of world suppliers, both for Boeing and Airbus.
20. For detailed empirical work on trade impacts, there is no alternative to CGE modelling. For an explanation of CGE and its considerable drawbacks, see Pelkmans et al. (Citation2014, 9–16), study for the EP.
21. Joint Statement – business groups express their continued support for TTIP negotiations, 5 September 2016, Brussels, see e.g. www.transatlanticbusiness.org and [email protected].
22. But short-term losers would need to be compensated and for those not able to adjust to new employment, migration to a new job ought to be facilitated, whilst retaining a degree of income security for some time.
23. This contribution does not go into political economy questions, which might suggest or inspect whether such a functional approach does not miss out on the (hidden) motivations or strategies of business or other actors. Indeed, now that in particular the regulatory aspects of FTAs are more contested, these functional needs may well be interpreted differently by some political currents or NGOs.
24. The (low) EU average MFN tariff is very misleading as only a dozen countries in the world are actually paying these tariffs when exporting to the EU; the rest pays less or nothing due to various preferences (but to some extent restricted by origin rules).
25. For example, in CETA the BIT of the entire EU is incorporated, whereas e.g. with China the EU negotiates a separate BIT, before it is willing to start FTA talks. In KOREU, market access for ‘establishment’ is in the treaty but investment protection and ISDS is not. Until the Lisbon treaty, only the EU Member States negotiated BITs, resulting in 1300 BITs (often unrelated to any FTA). Besides liberalisation of FDI, BITs are concerned with investment protection and arbitration (ISDS or only state-to-state).
26. Because of ISDS, sustainable development and GI questions.
27. Such as TBTs, SPS, pre-shipping inspection, customs valuation, subsidies, anti-dumping, TRIPs, public procurement (as a plurilateral GPA).
28. When TTIP was about to begin, US and EU negotiators requested business from the two sides to make joint proposals in a meeting in Washington DC in April 2013. 29 of the 160 proposals were indeed commonly made. See http://www.uschamber.com/grc/presentations-us-eu-high-level-regulatory-cooperation-forum.