The Design of EU Trade Policies: Rationale, Results and Requirements for Reforming Regionalism

Abstract

Since its foundation in 1957, the European Economic Community, later transformed into the European Community and European Union, has been the champion and pace setter of discriminatory regional trade agreements (RTAs). In fact, the WTO has noted that almost 60 percent of the notified RTAs in force at the end of the year 2000 (about 150 agreements) have been concluded among European countries with the EU as the major hub and the partner countries acting mostly as spokes. Moreover, the year 2000 Trade Policy Review Report of the WTO on the EU trade policy also noted that the EU imports on a Most Favored Nation (MFN) basis only from eight WTO members, basically the US, Canada, Japan, and East Asian emerging markets (WTO, 2000: 10). Given the income level and the economic weight of these MFN partners, it is not surprising that the large number of RTAs concluded with the EU strikingly contrasts with the relatively small importance of preferential trade in EU total trade. If trade with MFN partners is added to nondutiable trade (trade under zero tariffs) plus trade which is eligible for preferential treatment but operated under non-preferential conditions, more than 70 percent of EC imports are traded under MFN conditions (Sapir, 1998). Such figures suggest that the fear of those defending the rules of multilateralism that the EU would inject so-called ‘me too’ attitudes of regionalism into the US and the East Asian countries appear unfounded. One could argue that the EU concludes RTAs either only with poorer countries which do not matter in world trade or with potential new member states within different belts around the core EU-15. One could also argue in the same vein that because of further MFN liberalization, preference margins would decline, thus reducing the incentives to conclude further RTAs.