FX International Payments
By Karen Lynch
In September 2017, European Commission President Jean-Claude Juncker formally proposed opening international trade negotiations with Australia and New Zealand, even as the EU's new FTA with Canada was going into effect. More FTA talks are also underway.
In Juncker's State of the Union address to the European Parliament, he also spoke of finalizing pending agreements with Japan, Singapore, and Vietnam, which require the Parliament's approval, by the end of 2018, while pursuing negotiations with Mexico and the Mercosur trade bloc comprising Argentina, Brazil, Paraguay, and Uruguay.5
Negotiations with the U.S., however, remain on hold. Meanwhile, U.S. companies' merchandise trade with Europe is generally subject to the same (often less favorable) EU duties applied to any nation without a trade agreement, under World Trade Organization rules. U.S. exports to the EU are tariffed at an average of 3 percent,6 but duties vary, and an example is the 10 percent duty on cars.7 Streamlined border procedures, regulatory alignment, and other non-tariff concessions are also reserved for nations with EU trade agreements.
The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) offers insight into how the EU is likely to approach FTA negotiations elsewhere. "CETA is a progressive free trade agreement which covers virtually all sectors and aspects of Canada-EU trade in order to eliminate or reduce barriers," Canadian international trade officials have said.8
Officials in Canada underscored the benefits of the agreement to its industries' international competitiveness in goods, services, and other areas. In merchandise trade, EU tariffs on 98 percent of Canadian products were to be removed upon CETA's entry into force; previously, only 25 percent were duty-free, they said.9 "Tariff elimination will provide enhanced export opportunities into the EU market for Canadian producers, processors, and manufacturers, as well as for agricultural and agri-food products, fish and seafood, forestry goods, and the full range of industrial goods," they said.10
Trade in services is also eased, as is the ability for many skilled professionals to work temporarily in the EU, including mutual recognition of professional qualifications. All services sectors are covered by CETA unless explicitly excluded, putting Canadian companies on an equal footing with EU service providers, Canadian officials said. For example, CETA covers financial services, maritime transport, telecommunications, and electronic commerce. Exclusions, from the EU's perspective, "preserve policy space for the EU and its member states to operate monopolies and exclusive rights for public utilities (such as health, education, water, social services) at all levels of government, to keep such services public and subsidize them, or even to reverse the earlier privatization of a service, and to discriminate in favor of local suppliers in critical and sensitive sectors. Furthermore, the audiovisual sector has been entirely excluded from any liberalization commitments and disciplines."11
At the border, CETA will aim to provide advance rulings on such determinations as tariff classifications or the origin of products that may have contents from multiple countries, as it seeks to simplify and automate border procedures. CETA's rules of origin will be relaxed, "respecting real-world sourcing patterns," Canadian officials said.
In an indication of Europe's sense of urgency regarding international trade, the EU paved the way for CETA's provisional implementation in September 2017, subject to later ratification by EU member states, "meaning that most of the agreement already applies."12 "Brussels' new strategy prioritizes transparency and speed, reflecting the EU's desire to overcome pockets of European resistance to free-trade agreements, avoid yearslong negotiations, and bypass ratification challenges that delay or kill its deals," reported the Wall Street Journal.13
The EU has also had a provisional FTA in place with South Korea since 2011; that FTA formally entered force in 2015. It is described as "the first of a new generation of FTAs, characterized by its comprehensive nature and high level of ambition" in a report commissioned by the European Commission.14 Among its impacts: "As of early 2017, applied trade-weighted average tariffs on Korean exports to the EU have been reduced to zero in nearly all relevant industries, reducing the prices of products imported from Korea to the EU, such as cars and electronics," the report said.
Prior to this latest international trade campaign, the EU was already engaging in negotiations for FTAs and other types of agreements with a range of countries (though some are on hold). Fifteen rounds of FTA negotiations have taken place with the U.S. since 2016, but they are now "effectively on hold," the EU said. Negotiations to upgrade Europe's 1985 Trade and Economic Cooperation Agreement with China have been stalled since 2011, the EU said, though the 14th round of separate negotiations on a comprehensive EU-China investment agreement took place in July 2017.15 Negotiations with the U.K. are pending, in the wake of Britain's decision to withdraw from the EU.16
Today, economic growth is gathering pace in Europe. Growth is above 2 percent, "reaching every one of our member states," and surpassing some other major developed economies, Juncker said in his State of the Union address. Depicting Europe as an increasingly attractive place to do business, he added that, "over the last year, partners across the globe are lining up at our door to conclude trade agreements with us."
The EU has embarked on an ambitious campaign to secure free trade agreements and other types of international trade deals across the world. The continent's economy has recently improved, with European officials touting its recovery as an attractive place to do business. Import-export traders could look to the recent FTA implemented with Canada and the more established deal with South Korea for insights into trading scenarios that might unfold.
Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.
1. “European Union,” World Bank; https://data.worldbank.org/region/european-union
2. “EU Population up to Almost 512 Million at 1 January 2017,” Eurostat; http://ec.europa.eu/eurostat/documents/2995521/8102195/3-10072017-AP-EN.pdf/a61ce1ca-1efd-41df-86a2-bb495daabdab
3. “Guide to the Comprehensive Economic and Trade Agreement,” European Commission; http://trade.ec.europa.eu/doclib/docs/2017/september/tradoc_156062.pdf
4. “Euro Area International Trade in Goods Surplus €23.2 Billion,” eurostat; http://ec.europa.eu/eurostat/documents/2995521/8227163/6-15092017-CP-EN.pdf/77403bcb-2e49-4aae-baad-4a4ac38940fb
5. “State of the Union 2017,” European Commission; https://ec.europa.eu/commission/sites/beta-political/files/state-union-2017-brochure_en.pdf
6. “European Union – Import Tariffs,” export.gov; https://www.export.gov/article?id=European-union-Import-Tariffs
7. “Trade in goods and customs duties in TTIP,” European Commission; http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_152998.1%20Trade%20in%20goods%20and%20customs%20tariffs.pdf
8. “CETA: A Progressive Trade Agreement for a Strong Middle Class,” Government of Canada; http://www.international.gc.ca/gac-amc/campaign-campagne/ceta-aecg/index.aspx?lang=eng
9. “Agreement Overview,” Government of Canada; http://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/overview-apercu.aspx?lang=eng
11. “Guide to the Comprehensive Economic and Trade Agreement,” European Commission; http://trade.ec.europa.eu/doclib/docs/2017/september/tradoc_156062.pdf
13. “EU Pushes for Free-Trade Pacts with Countries Snubbed by U.S.,” Wall Street Journal;https://www.wsj.com/articles/eu-pushes-for-free-trade-pacts-with-countries-snubbed-by-u-s-1505384074?shareToken=st97acde3dce1243a099f13b0f3703999d&reflink=article_email_share
14. “Evaluation of the Implementation of the Free Trade Agreement between the EU and its Member States and the Republic of Korea,” European Commission; https://static1.squarespace.com/static/5798bbd2be6594e06f727388/t/5950bcf0e4fcb533d1d45dd7/1498463505732/EU-Korea+FTA+Interim+Technical+Report+Part+1+-+2017-06-19.pdf
15. “Overview of FTA and Other Trade Negotiations,” European Commission; http://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_118238.pdf
“State of the Union 2017,” European Commission; https://ec.europa.eu/commission/sites/beta-political/files/state-union-2017-brochure_en.pdf
16. “Michel Barnier Warns ‘Several Months’ before Brexit Talks Progress,” Sky News; http://news.sky.com/story/michael-barnier-hails-new-dynamic-after-pms-florence-speech-11057279