Bringing coherence to EU’s trade policy

Date: 06/06/1996

THE rate of change in international trade policy over the past 15 years has outstripped the means of day-to-day management of such policies within the European Union.

Early exposure to European tax and customs legislation and to litigation in Washington, DC on trade matters, and wide experience on the ground in Europe, have convinced me that the Union - which, after enlargement, is now the largest trading entity that the world has ever seen - could be well served by following a mid-Atlantic example, drawing on the best of European and North American practices.

In the EU, there is no single forum dedicated to testing trade rules in practice, and negligible rights of appeal and minimal micro-economic analysis in contested issues.

Despite immense political progress and liberal trade policies, the Union's internal market and external trade are still seen by many as being ineffectively administered. As a result, the EU appears less open and coherent than its trading partners, who have the advantage of being single nation states.

Although member states formally accept Union tariff structures, competition, public procurement and internal market policies, local anti-competitive practices and innovatory restrictions maintain protection for years.

Many international businessmen view trade as the prime justification for the EU's - and therefore the European Commission's - very existence, believing that the Union's political objectives will follow from trade liberalisation.

Real or perceived failures by member states to implement agreed policies are often unfairly laid at the door of the Commission. This alienation of the very people who are its natural constituency was particularly widespread during the Uruguay Round of the GATT world trade talks. Issues of competence as between the Commission and member states seem to take priority over the pursuit of solutions. Business interests above all seek real world solutions, well founded economically and applicable across the whole Union.

Anti-dumping measures running for five years without review are but a symptom of wider 'non-real world' deficiencies.

Until the Court of First Instance (CFI) assumed competence for the review of some aspects of anti-dumping in March 1994, the Commission was legislator, judge, jury, policeman, and jailer. Until the 'DRAM' case, where downstream EU production and jobs were driven offshore, the defence was not even entitled to a hearing.

Unfettered control of injury assessment as well as dumping calculations leaves the Commission as a whole open to the charge that it “marks its own homework”. Recent reviews by the GATT panel will help, but safeguards against “own goals” are either in their infancy or are “too little, too late”.

In other areas of 'protection by regulation' such as origin rules, state aids, standards and tariff classification, the means of redress are as remote or as intangible as a mirage - always on the horizon.

The opening of public procurement during the 1980s was a particularly glaring example. It was several years into the regime before some countries listed a single tender.

The game, the playing-field and the players have changed out of all recognition since the original Community of six nations came together, but the tattered rule book has not.

Since the Commission is itself a major league player, it is not seen as a real referee and the politicisation of relatively minor trade issues has become endemic. A profound lack of transparency compounds the situation, undermining confidence in EU trade policy and providing ammunition for the Union's critics.

Although a subsidy has just as much effect in distorting the trade into third country markets as in distorting competition in the internal market, there is no formal link between European trade and competition policy.

Former Competition Commissioner Peter Sutherland agreed with British industrialists that the “sledgehammer” of competition policy needed to be supplemented by “smaller hammers”. Giving complainants adequate means of redress would open EU markets more quickly and in more areas than the Commission, European Court of Justice (ECJ) or even the CFI can be expected to achieve in a lifetime.

Even with the publication after some 30 odd years of a Union customs code, actual customs practices have not kept up with the integration of business operations on an EU-wide or global basis.

As a result, companies trading from a Union base complain of higher operating costs than competitors based outside the EU. Major companies have had binding tariff classifications from one member state rejected by other countries in the Union and differing interpretations have been made of valuation rules, customs reliefs and computerised procedures.

Many customs reliefs are the subject of a protectionist “economic test” which has not itself been tested as to its economic worth.

The inward investor has to deal with every country's customs service and often trade departments, each with their own interpretations. Systems and audit post-importation approved in one country have been ruled illegal in others, making EU-wide standardisation impracticable.

The lack of a fully integrated customs union is still a drag on the progress of the single market, despite the abolition of many internal controls.

In both trade and customs matters, the body of precedents and interpretative notes is limited or even inaccessible. Specialist expertise is scarce and the regulatory framework that will help industry open markets quickly, generate trade and compete in its own internal market is incoherent.

A catalyst for change, independent of Commission and member states, is needed. There are many tribunals and regulatory bodies within Europe which could provide models for an agency specialising in trade matters. But the closest model is the US International Trade Commission, founded as an independent agency by the American Congress as far back as 1916. Its functions are analytical, not policy-making.

The absence of such a body has, in my view, eroded much of the impact of successive GATT rounds and of the internal market. Only a single agency with its own budget and direct access to the enforcement powers of the CFI and ECJ would have sufficient authority and the critical mass to reverse this.

Cases brought by member states, trade associations, individuals or companies could be heard publicly and set precedents for the whole Union. If it assessed injury in anti-dumping cases independently of DGI (the Directorate-General for external relations) and openly provided economic information for all other EU institutions, public perceptions of the Union's trade policies would be transformed and confidence in its institutions enhanced.

An Independent European Trade Agency (IETA) would help combat criticism from the EU's partners and in the World Trade Organisation. International business could be expected to reciprocate by entering new markets. An IETA would be a stimulus to competition and a catalyst for economic growth.

Without action soon, much of the job creating potential of the EU's own liberal trade policies will be lost to economies whose trade policies may be less liberal but better administered.

In a rapidly integrating world economy, “own goals” simply cannot be afforded.

Alex McLoughlin is an international trade consultant based in Richmond, Surrey. He has dealt with trade and customs issues in Brussels, Washington, DC, Geneva and all member states. He was formerly head of trade and regulatory affairs of ICL London and Vice President Trade Relations in Washington, and has led European industry in representations to the European Commission, Parliament, NATO and US administrations.