The importance of trade agreements

Trade agreements are a key component of the EU's trade policy. as they are a key driver of economic growth. In 2020 the EU was the world's second biggest exporter of goods (15%) after China (18%) but ahead of the US (10%). It was also the third largest importer (13%) after the US 16%) and China (14%) in 2020. New trade agreements create new business opportunities for European companies, leading to more jobs being created, while consumers can look forward to more choice and lower prices.

There are concerns that trade agreements can lead to job losses in some sectors due to the increased competition, but these deals always create more jobs than they destroy. Another concern is that they could lead to high quality standards for products such as food being watered down. However, as the EU represents such a large market, it is in a good position to impose its standards on foreign companies.

For MEPs, quality standards are always a red line in trade agreements and any attempt to lower them could be a reason for them to reject them. In addition, EU negotiators often include clauses regarding human rights and labour rights in trade agreements to help improve the situation in the country we are trading with.

Types of agreements

The EU has different types of agreements in place with countries. They can focus on reducing or eliminating tariff barriers or establishing a customs union by removing customs duties and establishing a joint customs tariff for foreign imports.

It’s not all about tariffs though. It could also be about investment and how to deal with disputes involving investment. For example, when a company feels a decision by a government is affecting its investment in that country. Non-tariff barriers are also vital such as product standards (for example the EU has banned certain hormones in cattle farming over health fears).

Agreements can also help to protect traditional food products from Europe by getting countries to recognise geographical indications. This means you can’t claim certain descriptions for your product unless they are produced in the region and in the tradition they are associated with. This applies to products such as French Champagne and Greek feta.

Europe

The EU and the UK agreed a trade and cooperation agreement setting out conditions for trade such as zero quotas and tariffs as well as fair competition rules.

North America

The free trade agreement with Canada, known as the Comprehensive Economic Trade Agreement (Ceta) provisionally entered into force on 21 September 2017. It will enter fully into force once all EU countries have ratified the agreement.

Regarding the US, the Council of the EU approved negotiating mandates for an agreement on eliminating tariffs for industrial goods and mutual recognition of conformity assessment with the US. Further steps remain to be decided. In June, the EU and the US launched the EU-US Trade and Technology Council. The idea is to work together on global trade, economic and technology issues as well as deepen trade and economic relations.

Asia

The EU-Japan Economic Partnership came into force on 1 February 2019. An agreement with Vietnam entered into force in 2020.

There are no free trade negotiations ongoing with China, but there are other talks such as negotiations for a comprehensive EU-China investment agreement. In September 2020 the EU and China reached an agreement to protect the geographical indications of 100 European products and 100 Chinese products in each other’s markets. This was approved by Parliament on 11 November 2020. The agreement will be expanded to another 175 European and Chinese products in the next four years.

Oceania

In June 2022 the EU and New Zealand concluded a free trade agreement. It still has to be approved by the Parliament and the Council before it can enter into force.

Negotiations for a comprehensive trade agreement with Australia were launched on 18 June 2018.

Latin America

An agreement in principle with Mercosur countries was reached in June 2019, however this is subject to approval by the Council and European Parliament.

Negotiations with Mexico on modernising the EU-Mexico Global Agreement started in June 2016. A political agreement was found on 21 April 2018. However, it still needs to be approved by the Council and the European Parliament before it can enter into force.

Southern Mediterranean and Middle East

There are various agreements, including association agreements particularly to boost trade in goods. There are also talks on expanding these agreements in areas such as agriculture and industrial standards with individual countries.

Parliament’s role

Since the Lisbon Treaty entered into force in 2009, trade agreements need the Parliament’s approval before they can enter into force. MEPs also need to be regularly updated on progress during negotiations.

Parliament has already shown it will not hesitate to use its veto if there are serious concerns. For example, MEPs rejected the Anti-Counterfeiting Trade Agreement (Acta) in 2012.

Ref.: 20161014STO47381
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