EU trade agreements

Infographic - The EU’s role in global trade

Illustration: EU's role in global trade See full infographic

What they are

The EU manages trade relations with third countries in the form of trade agreements. They are designed to create better trading opportunities and overcome related barriers.

EU's trade policy is also used as a vehicle for the promotion of European principles and values, from democracy and human rights to environment and social rights.

Classification 

Trade agreements differ depending on their content: 

  • Economic Partnership Agreements (EPAs) - support development of trade partners from African, Caribbean and Pacific countries
  • Free Trade Agreements (FTAs) - enable reciprocal market opening with developed countries and emerging economies by granting preferential access to markets
  • Association Agreements (AAs) - bolster broader political agreements

The EU also enters into non-preferential trade agreements, as part of broader deals such as Partnership and Cooperation Agreements (PCAs).

Negotiations of trade agreements are conducted in accordance with the rules set out in Article 218 of the Treaty of the Functioning of the European Union.

Trade agreements

Ongoing trade negotiation processes between EU and third countries include:

  • Japan - a Free Trade Agreement (FTA) which entered into force on 1 February 2019; negotiating directives were adopted in 2012 and deal was ratified end of 2018 
  • Singapore - a Free Trade Agreement (FTA) and an Investment Protection Agreement have been negotiated. The FTA entered into force on 21 November 2019. The investment protection agreement will enter into force after it has been ratified by all EU member states according to their own national procedures.
  • Vietnam - split FTA signed on 30 June 2019; the European Parliament subsequently gave its consent to both Agreements on 12 February 2020 and the Free Trade Agreement was concluded by Council on 30 March 2020. The agreements now need to be ratified by the Vietnamese National Assembly, as well as to by the EU member states in the case of the Investment Protection Agreement.
  • Mexico - an agreement was reached in April 2018; the new agreement, once ratified, will replace the existing EU-Mexico Global Agreement, which entered into force in 2000.
  • MERCOSUR - negotiations concluded on 28 June 2019 for a trade agreement, part of the Association Agreement, with the South American trade bloc of Argentina, Brazil, Paraguay and Uruguay; negotiating directives were adopted in 1999
  • Chile - negotiations to modernise the existing FTA are ongoing; negotiating directives were adopted in 2017
  • Australia and New Zealand - FTA negotiations are ongoing; negotiating directives were adopted in 2018 

Infographic - EU trade map

EU trade map for 2021 See full infographic

New architecture of trade agreements

On 22 May 2018, the Council adopted conclusions addressing the way in which trade agreements are negotiated and concluded. 

This set out the key principles which will underpin the Council's approach towards trade negotiations from now on.

Concretely, the Council focused in particular on two issues:

  • the European Commission's intention to recommend splitting between separate agreements related to investment and other trade provisions
  • and on the Council's role in trade negotiations.

Infographic - EU trade negotiations

EU trade negotiations See full infographic

Role of the Council

The Council plays a crucial role in shaping a new trade agreement. 

In the opening stages, the Council authorises the European Commission to negotiate a new trade agreement on behalf of the EU. This is done through a "negotiating mandate". With the related authorisation, the Council providers negotiating directives which include the objectives, scope and possible time limits of the negotiations.

The Commission then negotiates with the partner country on behalf of the EU, in close cooperation with the Council and the European Parliament.

After agreement on the text of the deal is reached with partners, the Commission submits formal proposals for adoption to the Council. 

Following discussions, the Council adopts a decision for the signature of the agreement on behalf of the EU. It then transmits the signed agreement to the European Parliament for consent. 

In the final stages, after the European Parliament gives its consent, the Council adopts the decision to conclude the agreement.

Trade benefits

  • opening new markets for EU goods and services
  • increasing investment opportunities and protection of investments 
  • making trade cheaper by eliminating customs duties and cutting red tape
  • making trade faster by facilitating transit through customs and setting common rules.

Trading principles

The EU abides by the principles of the World Trade Organisation (WTO).

In June 2018, in the context of growing trade tensions across the world, the European Council stressed the need to preserve and deepen the rules-based multilateral system.  

The EU also expressed its openness to improve, together with like-minded partners, the functioning of the WTO. 

Trade agreements are generally very complex because they are legal texts covering a wide range of activities, from agriculture to intellectual property. But they share a number of fundamental principles.

Anti-discrimination

This WTO trade principle looks at two aspects:

  • Most-favoured nation - countries cannot normally discriminate between their trading partners
  • National treatment - imported and locally-produced goods should be treated equally

Predictability

According to WTO, promising not to raise a trade barrier can be as important as lowering one as if offers businesses predictability. In this way, investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition - choice and lower prices.

Fair competition

Although generally describes as a “free trade” institution, the WTO sometimes allow tariffs and, in limited circumstances, other forms of protection. More concretely, it promotes a system of rules dedicated to open and fair competition.

Trade barriers

  • tariffs - customs duties on imports which give a price advantage to locally-produced goods over similar imported goods
  • technical regulations - different regulations applicable to products and services
  • non-tariff barriers - costly restrictions that result from prohibitions, conditions, or specific market requirements.

The Multilateral Investment Court

The EU is the world's largest exporter and importer of foreign direct investment. This brings jobs and economic growth. And it is why encouraging and retaining investments remains vital.

In order to achieve this strategic goal, the EU is looking to set up a permanent body to decide investment disputes - a Multilateral Investment Court (MIC).

According to the European Commission, MIC would replace the bilateral investment court systems involved in EU trade and investment agreements.