Thought leadership from our experts

Trade policy in 2015 – delivery time?

Ian S Forrester QC, White & Case, Belgium , White & Case, Belgium

The political relations of the European Union (EU) are reflected in the priorities and challenges of its trade agenda. 25 years ago, the traditional forum for settling trade tensions was the World Trade Organisation (WTO), and trade defence measures were used abundantly. The EU's trade agenda of today is dominated by economic sanctions and by bilateral/plurilateral trade negotiations, since 13 years on the WTO Doha Development Agenda negotiations still have not, and are not expected to, come to early fruition. The world has changed: China, Russia, Japan, the US today present trade questions of a quite different nature to those of the old days.

Within the EU, there is no bold consensus on how to handle these matters. On the one hand, the EU continues to explore expansion on its Eastern border and is looking across the Atlantic to reach a Free Trade Agreement (FTA) with the United States, but there is much uncertainty about the prospect of various FTAs being feasible in the short term. There is also no bold consensus on how to deal with Russia in the Ukraine crisis. Many other trade files are currently stuck in controversy, and it is difficult to predict which fruit will be harvested in 2015.

Trade negotiations seek a middle ground between naive optimism and cynical realism. Economic vulnerability on a general level tends to spur governments towards trade liberalization and open markets, hoping for economic growth through increased international trade in goods and services. But at the same time domestic industries may be more inclined to push their governments for protective measures in specific areas.

At the international level, classical WTO agreements probably should not be expected soon; the painful adoption of the narrow Bali Ministerial Package suggests that there is no prospect of important progress on the overall WTO Doha Development Agenda. So, liberalization efforts through plurilateral and bilateral initiatives will be countries' main focus.

Various plurilateral negotiations on which important progress could be achieved in 2015 are underway among groups of WTO countries, including the new Green Goods Initiative (GGI), the talks on a trade in services agreement (TiSA – negotiated by over 20 WTO members together accounting for 70% of world services trade), and the expansion of the Information Technology Agreement (ITA).

With the ever increasing proliferation of FTA negotiations (plurilateral, block-to-block, regional, bilateral), negotiating teams need to be looking more and more at the other party's position in other FTA talks (for example, the EU, the US and Japan all have an interest in seeing which concessions are (not) offered to the third party). The race to beat each other at reaching their FTA with a particular country first is clearly often an important factor in deciding how far to insist on controversial terms.

The key pending FTA negotiations on the EU side are the EU-US talks on the Transatlantic Trade and Investment Partnership (TTIP) agreement and the EU-Japan FTA. The TTIP window will close in 2015 as the US Presidential election approaches (negotiations become impossible as the US side is unable to deliver on its promises). However, the deal is far from done as a number of highly contentious issues risk delaying, if not derailing, the process. The fundamentally different approaches on food safety and the prospect of an investor-state dispute settlement (ISDS) mechanism are being criticized by a very active civil society. The European Parliament is keen to demonstrate its post-Lisbon Treaty powers. Will the EU find a way to craft an ISDS clause that reassures the sceptics, and will such clause be the global golden standard the EU has been looking for to serve as a precedent, for example, for its pending negotiations with China on an investment agreement?

It is evident that it will be difficult to reconcile with European 'phobias' the American 'laxist' approaches to genetically-modified organisms and hormones in livestock, since the two schools are sometimes diametrically opposed. Similarly, exposing to the oversight of a court or arbitral tribunal controversial 'arbitrary' governmental measures which render an investment nugatory may be 'constitutionally intolerable'.

The EU FTA talks with Japan should also see important progress in 2015, and the EU side has indicated that the end 2015 target date advocated by the Japanese side for conclusion of negotiations is not impossible, but substance will likely prevail over speed here. While EU FTA negotiations with Canada and Singapore were finally concluded in 2014, it remains unclear how smooth the final stages (before actual application) will be in view of a pending European Court opinion on competence in the area of investment.

On the other side of the spectrum from liberalization, there is an important body of trade restrictive measures to punish regimes for actions related to proliferation of weapons of mass destruction or violating the sovereignty of other countries or oppressing their own population, while the number of traditional trade defence measures (based, in theory at least, mostly on unfair practices by companies or unfair subsidies) has decreased. On top of existing economic sanctions regimes (for example, related to Iran and Syria), 2014 saw the arrival of Ukraine-related sanctions imposed by the EU and the US (and others), including sanctions specifically targeting Russia. Compared to other EU Sanctions regimes, the EU Russia Sanctions (and subsequent Russian retaliation measures against EU agricultural products) are causing more pain to more EU businesses because of the close economic/commercial links between the EU and Russia. These measures may change in any direction, reflecting their political genesis. The EU Iran Sanctions, some of which were temporarily relaxed in early 2014 to give international talks with Iran a chance, are of course still in place, and their future will depend on the results of the international talks and Iran's commitments with respect to its nuclear activities. In all likelihood, 2015 will continue to keep sanctions compliance teams very busy.

Various other pending EU 'protectionist' proposals such as the modernization of the EU's basic trade defence instruments, origin labelling, and the international public procurement instrument have been controversial, with successive EU Council Presidencies being unable to unblock the situation. It remains to be seen if 2015 will bring a solution, and if so, there is the possibility that they may be watered down to such an extent that the original proposal is unrecognizable.

In 2015, the EU should also finalise the detailed rules under the new 'Union Customs Code', which as we write this piece, looks like the source of some important changes in the area of customs valuation. While customs classification disputes will always exist, they may become less main stream as tariffs are likely to decrease in light of new FTAs. On the other hand, we see the potential for more origin rule questions with the emergence of new FTAs (each with their particular origin rules) and because many traditional 'developing' countries are gradually losing access to the EU's preference regimes (raising uncertainty on sourcing of materials and reduced cumulation possibilities).

Finally, with a new EU Trade Commissioner, Cecilia Malmström, it will be interesting to see if the dynamics in the various EU FTA dossiers and other trade policy matters will change. Can current deadlocks on legislatives proposals be broken? Increased transparency in trade negotiations (in particular on TTIP) is the first big promise of the new Commissioner aimed at making a 'fresh start' to appease the critics and hopefully lead to conclusion of these talks while the opportunity exists. The same can be said about the new EU High Representative, Federica Mogherini, who may favour a different type of EU sanctions policy. On the US side, the effects of the new reality of a Republican majority in both the Senate and House since the November 2014 mid-term Congressional Elections will also affect US trade policy and negotiating strategy, including with respect to the currently lacking Trade Promotion Authority (TPA). All in all, another interesting year ahead in trade policy.