Trade agreement strategy on the line

Date: 24/04/1997

By Mark Turner

EUROPE's claim to be the world's foremost and freest trading bloc will be put to the test next week when EU foreign ministers debate the future of preferential deals.

They will consider French demands for the Union's growing penchant for trade deals to be put on hold until their position under global trading rules is made clearer.

Talks already under way with Mexico, the Mediterranean countries and South Africa will not be threatened, but any new plans being hatched within the European Commission may face stouter resistance.

The debate, which follows a Commission report on preferential deals, comes at a time when the EU is struggling to define its role in a free-trading world, and amid fears that its wide-ranging system of agreements may come under growing attack as the World Trade Organisation dispute settlement system begins to bite.

Critics complain that the proliferation of regional trade agreements is posing a severe threat to global liberalisation, especially preferential accords such as the controversial Lomé Convention with African, Caribbean and Pacific countries. They warn that the EU could face dangerous precedent-setting attacks in the WTO.

France shocked northern Europe last year by suddenly demanding a halt to what it felt was becoming a runaway train. While not explicitly demanding a new era of Union protectionism, Paris is arguing that until the WTO clarifies its rules on regional agreements, Europe should take stock before negotiating any new deals.

The EU's more liberal economies respond that WTO concerns are not a reason to stop future deals, although they accept the need for reform of the General Agreement on Tariffs and Trade (GATT) rules. Officials hope that foreign ministers will agree on a common position next week to allow the Union to present a united front at talks in Geneva.

Of particular concern is Article 24 of the GATT, a notoriously woolly provision on customs unions and free-trade areas which allows any WTO member to set up a regional agreement covering “substantially all trade in products” as long as it does not raise tariffs towards other parties as a result.

But the phraseology is inexact and insufficiently tested for the EU to be confident it would win a full-blown dispute.

Until now, Article 24 has been somewhat overlooked as it tends to cover only deals with developing countries, whose need for more flexible treatment is recognised. But, as more developed regional trade bodies emerge in the post-Cold War era, the need for tighter definitions is widely acknowledged.

The argument goes both ways. The EU also fears that without clearer rules its major competitors might push the boundaries of Article 24 even further than Europe does, putting the Union at a comparative commercial disadvantage.

Commission officials say clarifying Article 24 “would help meet the EU's offensive and defensive interests”.