Blogsite of the Institute for Legal Studies

International trade agreements captured by domestic politics? Lessons learnt from the CETA case

2016. December 05. 0:28
Balázs Horváthy
Viktor Szép
Lendület-HPOPs Research Group
  • Although the Common Commercial Policy is an exclusive competence of the European Union, the comprehensive nature of the new generation of EU trade and investment agreements may require the signature and ratification of the Member States
  • In addition, international trade agreements have become more and more politicized in the European Union
  • The obstinate resistance of Wallonia illustrates well, how the legal, political and social context of trade policy have completely changed in the last decades and it gives the Member States a warning that trade agreements no longer can be concluded behind closed doors.

The Comprehensive Economic and Trade Agreement (CETA) between European Union and Canada was nearly to fail after the Wallonia parliament has made steps to  block its domestic ratification in October this year. The obstinate resistance of Wallonia illustrates well, how the legal, political and social context of trade policy have completely changed in the last decades and it gives the Member States a warning that trade agreements no longer can be concluded behind closed doors. The following analysis considers two aspects of this development. First, the post-Lisbon EU law framework regarding the treaty making powers and their implications on the ratification process are examined; second, the blogpost addresses the question why the trade negotiations have become more and more politicized and what lessons the Member States can learn from that. This learning process may minimize the risks of the ratifications of future trade agreements. 

Despite the Commission’s broad scope for action in the area of the Common Commercial Policy (CCP), most observers agree on the question that international trade agreements are often concluded by both the European Union and its Member States. Article 3 of the Treaty on the Functioning of the European Union declares that the CCP and the conclusion of international agreements fall into the exclusive competence of the Union. However, Member States have greater role in international trade issues than the pure legal reading of the Treaties may suggest it. Politically speaking, Member States still matter.

When ratification by the Member States (and perhaps its regions, depending on the constitutional requirements of the countries) is expected, we refer to these agreements as “mixed agreements”. As a general rule, EU trade agreements cannot be obstructed by a single Member State given that Article 218 of the Treaty on the Functioning of the European Union sets forth that the Council decides by qualified majority (exceptions may include, for example, the negotiation and conclusion of agreements in the fields of trade in services and commercial aspects of intellectual property etc. where the Council shall act unanimously). These latter cases are the so-called “EU-only” agreements where European institutions, especially the Commission take the lead in the negotiation process. However, it can also be decided, based on the nature of the agreement, that the consent of the Member States is required to conclude international agreements meaning that they can block the agreement due to the unanimity requirement in this latter case.

Legally speaking, the underlying reason behind the involvement of the Member States is that agreements may contain elements or parts that do not fall within the exclusive competence of the Union. Free Trade Agreements concluded with third countries used to be simpler in the past. However, these agreements have recently become more and more comprehensive in nature which implies that they have much broader scope. It is true that the Lisbon Treaty widened the scope of the CCP by extending the exclusive competence to, for example, areas of services or foreign direct investment. Nevertheless, it is still – in certain cases – inevitable to involve the Member States, either for legal or political reasons, as the story of CETA demonstrates it.

The Council has had two ways to evade this mixed-nature of decision making: either by limiting the areas covered by the agreement or by adopting a more encompassing reading on exclusive power. However, Member States try to become more engaged  because their real political visibility is at stake: if they cannot participate in the international political and commercial life, their perception can easily fade. Whereas “EU-only” agreements may create tension between institutions and Member States, this mixed-nature provides an opportunity to avoid debate on competence related questions and opens the way for mutual understanding and dialogue, too. To put it even more clear: the Commission has a clear-cut legal way to conclude international agreements but sometimes the involvement of Member States cannot still be avoided.

The recent dynamics of enlargements of the European Union demonstrate, however, that the unanimity requirement becomes more and more obsolete: the more actors are around the table, the more likely that a Member State or a single region of a Member State will use its veto power. In addition, the reluctance of the Member States to agree on trade agreements and the threat to use their veto powers are sometimes used to extract advantages in other, non-trade related issues. Mitigating these adversary effects of a single Member State veto with respect to the conclusion of international agreements, two possible solutions have emerged in these  years: either the European Union prepare an agreement containing only elements which fall under its competences or it may decide to apply provisionally certain parts of the agreement.

Experts argue that international trade agreements have become more-and-more politicized in the last couple of years. European societies are much more sensitive about “supranational decision-making processes” and we have been witnessing a more hostile attitude towards the European Union, too. The Dutch referendum on the Association Agreement between the European Union and Ukraine clearly reflects this trend: the majority of Dutch people expressed their negative feelings on the European Union in a more general way rather than specifically on the details of the Association Agreement. CETA is another example: one of the underlying political reasons why the European Commission decided to reject the “EU-only way” is that there is a general attitude that people of Europe prefer to keep decision-making “under national control”. As Cecilia Malström put it: “From a strict legal standpoint, the Commission considers this agreement to fall under exclusive EU competence. However, the political situation in the Council is clear, and we understand the need for proposing it as a ‘mixed’ agreement”.

What concerns lay behind this ‘more political understanding’? Why does the society become more and more politicized in this issue and why does it want to have a decisive voice on the external trade policy of the European Union? In order to give a prompt answer to these questions, two changes affecting global trade law and policy have to be highlighted.

The first factor considered here is the transformation of focus and scope of the liberalization as a chief objective in the global trade agenda. Originally, the progressive liberalization emerged within the multilateral framework of GATT and it was focused on the custom duties predominantly. Two processes underpinned this objective. First, the parties was engaged in this liberalization process in order to decrease the level of the customs duties in the area of the industrial goods. Second, the GATT legal system required the parties to apply customs duties as the standard and most preferred trade instrument as they were deemed an obvious and comparable measure of the international trade. Thanks to the massive reduction of customs level, the liberalization lost its potential in the later period and as a result, its focus has been moved from the custom duties to the domain of the non-tariff barriers (NTBs). The NTBs cover all obstacles being able to hinder the trade between countries and falling outside the scope of the import and export duties. This umbrella term includes specifically e.g. technical barriers, standards, administrative measures, licensing systems etc., however, the elimination of these instruments might have more complex societal implications and repercussions as compared to those of the simple reduction of the custom duties. Unlike the latter process that affected only indirectly the every-day life, and for that reason they have been less visible to the public, the removal of NTBs is more easily conceivable. From the perspective of NTBsall domestic legislations intended to achieve various legitimate public policy objectives, such as consumer protection laws or social standards, might be considered as potential obstacles to trade and could be condemned as protectionist measures. In other terms the elimination of NTBs are targeting directly domestic regulations that are deeply rooted in the national socio-cultural background of the society. Therefore the trade agenda going far beyond the traditional subjects of liberalization can easily form its own opposition. This factor is well demonstrated by several events from the beginning of the 1990s, including the reaction of social movements on the NAFTA, or the escalation of the anti-globalist ‘Battle of Seattle’, and it can well explain why the CETA and the TTIP are opposed by various social and environmental pressure groups and movements in the both sides of the Atlantic.

The second factor has to be mentioned is the rising importance of the transparency and public participation, which may also be regarded as a reaction to the controversies of international trade policy making. This issue is composed of a complexity of tools from the right to access to documents, or right to be informed to the diverse forms of public participation in the trade decision making procedure. Transparency is broad concept in general and it involves several areas of law, however, its relationship to the international trade law is not as clear as it should be. It is because there are, on the one hand, arguments that might underpin the confidentiality of the trade negotiations and partly the decision making processes (e.g. providing adequate environment for constructive negotiations, protecting trade interests of the negotiating parties etc.), on the other hand, it is incontestable that the transparency can advance the legitimacy and popular support of trade policy making. This ambiguous character is well reflected by the TTIP negotiations that seemed to be a watershed moment for transparency and public participation. Initially the European Commission has published only a short summary of its negotiation mandate and the whole text, which has never been published before, was submitted to the Council and the Parliament as restricted – i.e. confidential – document. Later, as the civil society was harshly demanding more transparency and more rights to have direct access to information, moreover the Commission lost a legal debate before the Court in a similar case, and also the EU Ombudsman announced a consultation on the transparency of trade negotiations. Therefore, the Commission changed its attitude toward the ‘secrecy’ of international trade agenda and published the TTIP negotiating texts in the internet in 2015. This change has been essential, as it provided a certain level of transparency and a much more room for public participation that was able to shape the whole trade policy making mechanism of the European Union.

In line with the above analysis two major lessons can be learnt on the negotiation strategy and management of the future EU trade agreements. On the one hand, as the agreements is becoming more and more complex in general, on the grounds of the political reality the Commission may become more assertive and may turn to the use of mixed agreements requiring Member State ratification as well. In other terms, the political reality may distort the broad scope and pure exclusive competence nature of CCP. On the other hand, this approach may also be able to strengthen the legitimacy of these agreements, in case the concerns raised by the public and the civil society are properly addressed. However, it is feasible only if the public can have sufficient and adequate information regarding the agreement under negotiation or ratification. If transparency and public participation are not embedded in these processes, the future EU trade agreements could be easily captured by the domestic politics.


Source: HAS Centre for Social Sciences Lendület-HPOPs Research Group

http://vg08.met.vgwort.de/na/63beddb596bf4397ae6de0c6df5f039bThe views expressed above belong to the authors and do not in any way represent the views of the HAS Centre for Social Sciences.



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