Literature Review

European Union Trade

2.1The European Union and its trade partners

Over the years, the EU has been moving away from the production of labor-
intensive, low-value products in order to specialize in higher-value, branded goods.
With its open economy, trade is essential to the EU. To overcome barriers to trade
and level the playing field for its businesses, the Union is negotiating a number of
free trade agreements (FTAs). The EU is also a founder of and key player in the
World Trade Organization (WTO).
2.2 The EU’s central position

The EU is the world’s largest economy, accounting for over 20% of global gross
domestic product (GDP). Thanks to its GDP of around EUR 14 trillion and the
openness of its market, accounting for EUR 3 142 billion of exports and EUR  2
842 billion of imports in goods and services, the EU has played a central role in
shaping the global trading system, first and foremost by supporting the WTO.
Economic openness has brought, and will keep on bringing, significant advantages
to the EU, given that more than 30 million jobs in the EU depend on external trade
and that 90% of global economic growth in the next 15 years is expected to be
generated outside Europe[1]. New economic players and technological
breakthroughs have significantly changed the structure and patterns of international
trade. In particular, the widespread use of information technologies has made it
possible to trade goods and services that could not previously be traded. Foreign
exchange has grown tremendously during the last 20 years, reaching
unprecedented levels. Today’s global economy is highly integrated, and global
supply chains have largely replaced the traditional trade in finished goods.

2.3 Role of the European Commission and the European Parliament

International trade was one of the first sectors in which Member States agreed to
pool their sovereignty. As a consequence, they mandated the Commission to
handle trade matters, including negotiating international trade agreements, on their
behalf. In other words the EU, acting as a single entity, negotiates, on behalf of all
its Member States, both bilateral and multilateral trade agreements. As is
demonstrated by its record in the WTO dispute settlement system, the EU has
shown a remarkable capacity to defend its own interests in international trade
disputes. The EU has also used international trade tools to promote its own values
and policies and has been trying to extend its own regulatory practices to the rest of
the world. Indeed, the ‘promotion of European values’, among them human rights,
sustainable development, good governance and respect for the environment, is one
of the three pillars of the EU trade strategy ‘Trade for All’.

2.4 Trade policy and orientation

The 2010 communication ‘Trade, Growth and World Affairs’ made international

trade one of the pillars of the Europe 2020 strategy aimed at making the EU
greener and more competitive. Similarly, the ‘Trade for All’ strategy of 2015
reinforces EU trade policy as the main contributor to promoting growth, jobs and
investment. It also calls for the WTO to be revitalized by giving it a central role in
developing and enforcing rules, by adopting a more focused approach, instead of
the current ‘single undertaking’ approach whereby all items on the agenda must be
agreed together, and by creating a ‘two-tier’ mechanism that allows a subset of
WTO members to advance on a specific issue, while enabling other members to
join the group at a later stage.

2.5 Imports and exports

Europe is the world’s largest exporter of manufactured goods and services and is
itself the biggest export market for around 80 countries. The EU’s trade in goods
with the rest of the world was worth EUR 4 067 billion in 2019. Both imports and
exports increased in comparison with 2018. This increase was larger for exports
(EUR 72 billion) than for imports (EUR 27 billion).

2.6 EU foreign direct investment

The EU is the world’s largest investor and a major recipient of others’ foreign
direct investment (FDI). The entry into force of the Treaty of Lisbon in 2009
further extended the EU’s exclusive competences in international trade matters,
which now include FDI. To clarify the exact scope of its competences on
investment, the Commission asked the CJEU for an opinion on the EU-Singapore
FTA. The Court’s opinion of 2017 confirmed that most aspects of FDI fall under
EU competence, with some exceptions, in particular dispute settlement.
2. 7 European Union free trade agreements
The European Union has concluded Free trade agreement (FTAs) and other
agreements with a trade component with many countries worldwide and is
negotiating with many others.
The European Union negotiates free trade deals on behalf of all of its member
states, as the member states have granted the EU has an "exclusive competence" to
conclude trade agreements. Even so, member states' governments control every
step of the process (via the Council of European Union whose members are
national Minister from each national government).
Before negotiations start, member states' governments (via the Council of
Ministers) approve the negotiating mandate.

 During negotiations, member states' governments are regularly briefed on

the progress of negotiations and can update the negotiations mandate or
suspend negotiations.
 Upon conclusion of negotiations, member states' governments decide
whether the agreement should be signed.
 After approval from the European Parliament and (in case the agreement
covers areas other than trade such as investment protection) upon
ratification in each member state parliament, member states' governments
decide whether the agreement should be concluded and enter into effect.

2.8Largest trading partners of the European Union

China is now the EU's biggest trading partner, overtaking the US in 2020.
China bucked a wider trend, as trade with most of Europe's major partners dipped
due to the Covid-19 pandemic.
Trade between China and the EU was worth $709bn (€586bn, £511bn) last year,
compared with $671bn worth of imports and exports from the US.
Although China's economy cratered in the first quarter due to the pandemic, its
economic recovery later in the year fueled demand for EU goods.
China was the only major global economy to see growth in 2020, stoking demand
for European cars and luxury goods.
Meanwhile, China's exports to Europe benefited from strong demand for medical
equipment and electronics.
"In the year 2020, China was the main partner for the EU. This result was due to an
increase of imports (+5.6%) and exports (+2.2%)," according to Eurostat, the EU's
statistical office.
The figures were similar to China's official data published in January, which
showed trade with the EU grew by 5.3% to $696.4bn in 2020.

2.9The European Union and the WTO

So far, the EU has played a central role in developing the international trading
system since World War II. Currently, the EU is exploring the possibility of
modernizing the WTO.

Like the GATT (and later the WTO), the EU was itself originally designed to
remove customs barriers and promote trade between its Member States. The EU
single market was partly inspired by GATT principles and practices. The Union
has always been among the main promoters of effective international trade based
on the rule of law. Such a system helps ensure that its businesses enjoy fair market
access abroad, and thus supports economic growth, both domestically and in third
countries, particularly less developed ones.

2.10 The Parliamentary Conference on the WTO

The Parliamentary Conference on the WTO is jointly organized by the European

Parliament and the Inter-Parliamentary Union (IPU) and is intended to strengthen
democracy internationally by bringing a parliamentary dimension to multilateral
trade cooperation.

The first formal meeting of parliamentarians at the WTO dates back to the
December 1999 WTO Ministerial Conference held in Seattle. In 2001, the
European Parliament and the IPU agreed to pool their efforts and sponsor a
parliamentary meeting during the WTO Conference in Doha. This meeting laid the
foundations of what has become the Parliamentary Conference on the WTO.

2.11 Australia and the European Union (EU)

 Australia ranked as the 19th-largest trade in goods partner of the EU,

while the EU represented Australia's 3rd-largest trading partner in
2018, after China and Japan and before the US. Total trade in goods
account for 47,6 billion € in 2018 (EU surplus of 24.4 bn €), and total
 trade in services add another 33 billion € in 2017 (EU surplus 14 bn
€).
 EU bilateral trade with Australia and New Zealand together is about
roughly the same size as with Mexico or Canada. To be noted that the
EU has a longstanding trade surplus with Australia also for
agricultural and processed agricultural products when taken together
(1,310m € in 2018) so is not in all areas defensive on agricultural
products.
2.5Australia and the European Union (EU)