EU trade policy
The EU makes laws on trade, and negotiates and concludes international agreements on trade matters with non-EU countries through its trade policy.
What is the EU’s trade policy?
Trade policy is an exclusive EU competence. This means it is the EU that legislates on trade matters and concludes international trade agreements and not the member states.
By acting together with one voice on the global stage, rather than with multiple separate trade strategies, the EU is in a stronger position when it comes to global trade.
The EU manages trade relations with third countries through trade agreements. They are designed to create better trading opportunities and overcome barriers to trade.
Trade in goods and services plays a significant role in increasing sustainable growth and creating jobs. More than 30 million jobs in the EU depend on exports out of the EU. 90% of future global growth is expected to be generated outside Europe’s borders. Hence trade is a vehicle for growth and a key priority for the EU.
The Council is committed to a strong, rules-based multilateral trading system. Responsible EU trade policy is accompanied by a high level of transparency and effective communication with citizens about the benefits and challenges of trade on open markets.
Fair and equitable trade
The European Union wants to ensure fair and equitable trade with third countries.
This is why the EU has been working on a fundamental reform of key trade-related rules in recent years. The main areas covered by this reform are:
- anti-coercion
- foreign direct investments (FDIs)
- bilateral safeguards
- anti-dumping
- trade defence instruments (TDIs)
The EU's legislative initiatives aim to protect Europe's producers and businesses from the potential damage which some foreign trade practices can cause.
Anti-coercion measures
On 23 October 2023, the Council adopted its new anti-coercion instrument. This tool aims to protect the EU and its member states from economic coercion by third countries that use measures affecting trade or investment.
Among the countermeasures that could be applied to third countries as a response to economic coercion are the imposition of trade restrictions, for example in the form of:
- increased customs duties
- import or export licences
- restrictions in the field of services, access to FDI or public procurement
The anti-coercion instrument is designed to de-escalate and induce discontinuation of coercive measures through dialogue. Any countermeasures taken by the EU are applied only as a last resort.
Screening of foreign direct investments
On 5 March 2019, the Council adopted a regulation establishing a framework for the screening of FDIs into the EU. It entered into force in October 2020.
Due to the high degree of integration within the EU, foreign direct investment in one member state could pose risks to security or public order in another member state, or throughout the EU.
The new rules on FDIs allow the EU to identify new challenges and to react accordingly. For that purpose, the new framework:
- creates a cooperation mechanism where member states and the European Commission are able to exchange information and raise concerns related to specific investments
- allows the European Commission to issue opinions when an investment threatens the security or public order of more than one member state
- encourages international cooperation on investment screening, including sharing experience, best practices and information on issues of common concern
- sets certain requirements for member states that wish to maintain or adopt a screening mechanism at national level
In January 2024, the Commission proposed a review of the FDI screening regulation to address existing shortcomings and improve the efficiency of the instrument.
This proposal for a review builds on the experience gained by the Commission and EU member states through reviewing over 1 200 FDI transactions over the last three years under the existing FDI screening regulation.
Horizontal bilateral safeguards
On 28 January 2019, the Council adopted a regulation which enables the application of safeguard measures for trade agreements.
The regulation covers the EU-Japan, EU-Singapore and EU-Vietnam free trade agreements. Further trade agreements could be added to the scope.
Bilateral safeguard measures are linked to trade agreements and allow the temporary withdrawal of tariff preferences.
Prior to this initiative, this mechanism was proposed separately in each trade agreement.
Under this initiative, these measures benefit from a consistent ‘horizontal framework’ which is included in new trade agreements.
Anti-dumping
On 4 December 2017, the Council adopted new EU rules to help protect the European Union against unfair trade practices. They entered into force on 20 December 2017.
The updated EU anti-dumping rules apply to cases where prices of imported products are artificially lowered due to state intervention.
The legal framework removes the former distinction between market and non-market economies for calculating dumping.
Moreover, the European Commission needs to prove the existence of significant ‘market distortions’ between a product's sale price and its production cost.
Trade defence instruments
On 8 June 2018, the new regulation modernising the EU's TDIs entered into force.
The regulation aims to protect EU producers from damage caused by unfair competition, ensuring free and fair trade. It makes trade defence instruments more predictable, transparent and accessible, in particular for small and medium-sized enterprises (SMEs).
The EU's objective is for anti-dumping and anti-subsidy instruments to be more efficient and better suited to protecting EU producers from unfair practices by foreign firms and from any risk of retaliation.
At the same time, importers should enjoy greater predictability in terms of varying duty rates, making their business planning easier. The entire system should be more transparent and user-friendly.