Document originated:	16 January 1997
Original language:	French
Forwarded to the Council:	27 January 1997
Circulated by the Council in the original language:	19 February 1997
Circulated by the Council in English:	21 February 1997
Deposited in Parliament:	6 May 1997
Department:	Department of Trade and Industry
Basis of consideration:	EM of 20 May 1997
Previous consideration:	None
Committee's assessment:	Politically important
Committee's decision:	Cleared

Background

59.1  In March 1995, the Commission issued a paper giving support to the establishment of Free Trade Areas (FTAs), where they were compatible with the obligations of the World Trade Organisation (WTO).[156] In June 1996, the Florence European Council called for a report on the evolution of trade policies, which would look in particular at the EU's trading agreements granting preferential access to third countries. It had been suggested in the WTO that there had been a proliferation of the number of such agreements, threatening the WTO system.

The Communication

59.2  This Communication provides the Commission's reply to the issues which had been raised. The Commission argues that there has not in fact been a "proliferation" of regional trade agreements, and that in any case such agreements have tended to reinforce the benefits of the multilateral system rather than undermining them. However, it recognises that agreements between the EU and third parties should be consistent with WTO rules, and that it is difficult to be sure of this because the rules are unclear. It says that there are also difficulties in interpreting the requirements of the relevant provisions on free trade areas and customs unions (General Agreement on Tariffs and Trade [GATT], Article XXIV and General Agreement on Trade in Services [GATS], Article V). It places importance on the work of the WTO's Committee on Regional Trade Agreements (CRTA) in clarifying these issues.

59.3  The Communication concludes:

"The Commission's overall conclusion is that the EU has a clear interest in the development of clearer rules. The requirement established by the Council in 1995 that the Commission produce studies on the WTO conformity and impact on common policies for each new preferential agreement proposal provides an added layer of analysis to identify difficulties. Clearer WTO rules would help guarantee conformity with WTO requirements and take an element of subjectivity out of the exercise. None of the foregoing argument replaces the need to assess fully the economic and political merits of individual proposals for FTAs and other agreements. But the conclusions set out above do point to a strategy to make that process clearer and more effective, and to align the EU's defensive interests with its wider market access goals."

The Government's view

59.4  In an Explanatory Memorandum dated 20 March 1997, the former Minister for Trade at the Department of Trade and Industry (Mr Nelson) said:

"The Government believes that the Commission Communication is a useful contribution to an important area of trade policy.

"The Government agrees that the case for clarifying rules that apply to RTAs, in particular Article XXIV of the GATT 1994, and Article V of the GATS, should be examined.

"It fully supports the Community taking an active role in reinforcing the work of the CRTA, in line with its existing mandate. Addressing the backlog of notified agreements is the Committee's first task. It needs to prioritise its work, in particular to ensure appropriate attention is given to those RTAs with the greatest economic scope and likely impact on the world trading system. This will underpin its deliberations on systemic issues and possible strengthening of WTO rules.

"Whilst the Government believes that the EU's own agreements need to be staunchly defended within the CRTA, it believes that our interests are essentially to ensure that others' RTAs conform with WTO rules.

"With regard to future EU RTAs, the Government believes that we should continue with the case-by-case consideration as agreed by the Council of Ministers in 1995. It believes that thought should be given to the drawing up of a general framework of questions against which to consider new proposals. At the very least, such proposals should conform with WTO rules."

No further Explanatory Memorandum has been produced by the new Government, and we are therefore considering the document on the basis of the 20 March EM.

Conclusion

59.5  The arrangements for trade between the EU and third countries undoubtedly raise questions of political importance. However, although this Communication is a useful exploration of the issues, it does not contain specific proposals for action; and a later paper was presented to the Amsterdam European Council. We therefore do not recommend a debate, and we clear this document.