How is EU Trade Policy Decided?

External trade has been an exclusive EU competence since 1958. As the Union’s common customs area has been harmonised and the measures to create a common market (internal to the EU) have been completed, their impact upon third countries has become increasingly apparent. The regulation of products through health and safety standards, the way in which companies are regulated through competition policy and supports such as the Common Agricultural Policy, which subsidise specific economic sectors can all have a massive impact outside the EU.

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The Common Agricultural Policy and Trade

The Common Agricultural Policy (CAP), which started after the Second World War to ensure that Europe’s farmers would always be able to feed Europe, has had an enormous effect on the trade in agricultural goods worldwide.

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The EU and the ACP Countries

The EU maintains preferential trade relations with many of its former colonies under the APC (Africa Caribbean and Pacific group of nation states) arrangement. This grants preferential trading rights to the members of the ACP, as well as a framework for development and political cooperation.

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Bilateral Trade Relations and Preferences

Multi-lateral trade agreements are agreed under the auspices of the WTO. However despite rules within the WTO to limit possible bilateral agreements because of their potential to undermine the benefits of one agreement for all, key players have been increasingly signing and agreeing bilateral and ever more regional trade agreements. These agreements have several distinct effects on the global trading regime as a whole. Essentially the rise in the number of bilateral trade agreements creates different sets of rules that govern trade between different actors, and so sometimes divides what might be natural allies in negotiating trade agreements. It encourages developing countries to compete so that they can receive preferences from large markets such as the EU and the US. This competition significantly weakens negotiating strength and so makes it more likely that larger concessions will be made in the new trade agreements. In negotiating a bilateral negotiation, the EU normally has a better negotiation power because of the size of its market, [Whilst a small country might send a significant proportion of its exports to the EU, the EU’s interest is likely to be only a small percentage of its overall exports, therefore the third country has muc greater interest in signing the agreement [for many countries around the world the EU is the largest market for their goods] and so the EU is likely to be able to shape the agreement more towards its own interests.

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US and EU Trade Relations

The EU and US are the two largest markets and traders in the world by a large margin. Together they account for approximately 60 per cent of international trade. Their size gives time significant power in negotiations, which allows them to form and shape the rules as they wish. By working in partnership the two heavyweights are much more likely to arrive at the results they want. However the two traders are also each other’s most serious competitor in third markets as well as being by far each other’s largest commercial partners.

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Glossary of Trade Terms

A glossary of trade terms and acronyms.

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