Assessing the EC Trade Policy in Goods

The recent shift in European trade policy to negotiate bilateral agreements with no less than 24 countries is taking Europe into dangerous waters. In contrast to bilaterals envisaged by Chile, Japan, Korea, Singapore and the U.S., the bilaterals considered by the EC are characterized by high tariffs and non-tariff barriers in goods, and by restrictive regulations in services and investment.

Multilateral liberalisation of trade should be the centre of European trade strategy. The EC trade negotiators in industrial goods (NAMA) should aim (or should have aimed) at achieving what the European business community is asking for – namely no single industrial tariff above 15 percent. Such a target makes good economic sense. It would eliminate the tariff peaks that constitute the main obstacle faced by the European exporters, and that generate most of the protection costs imposed on the consumers in the rest of the world. Furthermore, it would increase the certainty of access to emerging markets for European exporters, and should make it easier to negotiate exceptions as simple and as predictable as possible.

Applied to nine major emerging countries, the paper gives a concrete sense of the changes in protection associated with this 15 percent target and to simple and predictable exceptions. The emerging countries would then exhibit average bound tariffs ranging from 6.7 to 14.7 percent, with a maximum bound tariff of 50 percent (but only a tiny proportion of the bound tariffs would be higher than 30 percent). Effective cuts in average applied tariffs are limited to three emerging countries, but the average tariff water would be eliminated or sharply reduced.

The EC position in the WTO agricultural negotiations should be rebalanced by a more extensive cut in the high tariffs and a smaller cut of the low tariffs. This would deliver more economic gains to the European consumers than the current EC proposal, and it would leverage political benefits since a vast majority of EC farm and food producers (all those protected by small and moderate tariffs) would find the rebalancing of the EC tariff proposal favorable to their interests, compared to the current EC offer.

The results of such a rebalanced position would meet the two key criteria set for the Doha Round – namely, “less than full reciprocity in reduction commitments”, and “comparably high level of ambition in market access for Agriculture and NAMA”.

The EC should position itself as a WTO Member with a long term view of the world trade regime. Assuming responsibility for the future relevance of the world trading system is a sign of leadership. Europe implicitly assumes that future rounds of trade negotiations will follow after a successful Doha Round. Those future rounds will address the unfinished business left by (perhaps) a more modest but a “clean” Doha outcome much more easily than if they inherit a Doha package more ambitious for some products, but riddled with more distortive exceptions on many products. In short, the ECs long term strategy should be to promote a series of WTO Rounds of liberalization as a slow but nonetheless perennial “peeling of the protectionist onion”.