Academic journal article Global Economic Observer

EU's New FTA Strategy: A Response to the Transformation of World Economy and Its Implications

Academic journal article Global Economic Observer

EU's New FTA Strategy: A Response to the Transformation of World Economy and Its Implications

Article excerpt

1. Introduction

Since the EU published the Communication of "Global Europe: Competing in the world" (European Commission, 2006), EU's practice in free trade agreements (FTAs), became a topic for a number of discussions and analyses. Obviously, from the objectives to the content, all new FTAs (concluded or under negotiation) are dramatically different from the old ones; therefore they are called "New Generation of FTAs". In practice, the new FTAs will involve not only the EU's trade preferences, but also they will impact on the developments of international trade rules and international trade order.

2. The change of EU trade policies' objectives

2.1.From free trade to fair trade: the general transformation of trade policy

After the World War II, international trade and investment have played a pivotal role in economic development and growth. In the trade policy area, there has been always a kind of battle between free trade and protectionism, but untill the early 1990s, liberalization has been the major trend (Sally, 2008, p.50), supported by western countries, especially the US, as key promoters of trade liberalization. Although there were some differences in trade policies between the EU/EC and the US, for example the EC concluded many preferential trade agreements with its former colonies, in general, the EU/EC was a supporter of free trade.

Free trade contributed a lot to the world economic growth. According to OECD insights, over the 1950-1973 period, world trade rose by nearly 8% a year, while the world economy registered the fastest growth (Love & Lattimore, 2009, p.13). Various country studies. conducted either by OECD, the National Bureau of Economic Research or the World Bank, suggest that, during the 1970s and the 1980s, countries with more liberal trade policies grew faster than those with more restrictive policies (Sally, 2008, p.55). 1980s and early 1990s saw a wave of fast trade liberalization. But it seems that things have changed since the mid-1990s. On the one hand, many countries have become more cautious about further trade liberalization; on the other hand, the meaning and scope of trade liberalization have altered, and more factors other than custom duties and quantitative restrictions have been taken into account in the design of trade policies and rules. The countries advocating for free trade, like the US and the EU, put more and more emphasis on fair trade rather than free trade. Surely, there are many reasons for this change. The most important reason might be related to their concern regarding the increasing competitiveness of developing countries' exports. Just as it has been pointed out by Shumpeter, trade expansion would bring economic competition, which would produce winners and losers in the marketplace (Hanson, 2010, p.4). Before 1990s, western countries had dominant exporting power and they were winners of trade liberalization and could benefit more than other countries. They had strong motivation to push forward liberalization of world trade. But with the economic advancement, developing countries, especially emerging economies, became powerful economic competitors of developed countries on international markets. To maintain their interests in trade, the western countries have been trying to add more elements in which they have advantages to trade, other than duties and quotas.

2.2. The objectives of EU FTAs before 2006

All these changes also reflected in the EU's trade policies and its FTA strategies.

Traditionally, FTA was a trade policy with low customs duties and high level liberalization of trade and FTAs were applied to urge other countries to reduce customs duties and other trade barriers.

The EU has been one of the main users of FTAs. The EU itself began with the common market based on free trade and customs union. However, before early 1990s the EU used the FTA instrument in a different way from the US, the latter paying more attention to free trade itself, and compared to the EU, using preferential FTAs to pursuit more policy goals . …

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