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The Lisbon Treaty: a revolution for the European trade policy?

February 12, 2018

 

Has the Lisbon Treaty actually equipped the EU with the tools needed to conclude trade agreements coherent with the same EU objectives and principles?

 

The declining importance of the World Trade Organisation (WTO) framework in determining the dynamics of international trade left space to the gradual appearance of a set of new globally accepted negotiating practices, increasingly relying on the conclusion of bilateral – rather than multilateral – agreements. This made crucial for every player on the global stage to prove its ability to operate as a unitary actor.
In response to this – exogenous – tendency and to the – endogenous – pressures for the establishment of a more democratic and comprehensive external action, the various governments of the European Union Member States signed on the 13th of December 2007 the Treaty of Lisbon. Its charter established the Common Commercial Policy (CCP) as exclusive competence of the Union institutions: the text referred to all trade related actions, including trade in services, management of foreign direct investments (FDI), measures aimed at protecting intellectual property rights and provisions regarding environmental and human rights safeguard. At the same time, in order to provide a solution for the democratic gap of the EU institutions, the European Parliament (EP) was made co-legislator together with the – till that moment strongly dominant – Council.
With these provisions, the Union – and its Members – planned to foster the effectiveness of its external action and its role of normative player on the global stage. In fact, the EU actorness is characterised by the peculiarity of conceiving trade not only as a final goal: the CCP is also the tool through which a player with basically no military prominence can pursuit a broader range of political and strategic external objectives. 

Therefore, in order to assess the effectiveness of the innovations introduced with the Treaty of Lisbon both dimensions of delivery – i.e. the efficiency and the effectiveness of the CCP within the framework of the Union’s external action – should be taken into account: is the EU able to conduct a commercial policy which is competitive vis-à-vis global standards? Is the EU managing to efficiently and effectively achieve its foreign policy objectives through it?
In other words: has the Lisbon Treaty actually equipped the EU with the tools needed to conclude trade agreements coherent with the same EU objectives and principles?

 

The changes brought by the Treaty of Lisbon

 

The greater scope of the Common Commercial Policy

 

The common commercial policy shall be based on uniform principles, particularly with regard to […] the conclusion of tariff and trade agreements relating to trade in goods and services, and the commercial aspects of intellectual property, foreign direct investment…

                                                                                                           Article 207(1) of the TFEU

 

As it is clearly stated in Article 207 the Common Commercial Policy – exclusive competence of the EU institutions – is expanded so to embrace subjects till that moment excluded such as trade in services, intellectual property protection and management of FDI.

Furthermore, Article 205 states that “[t]he Union's action on the international scene […] shall be guided by the principles […] laid down in Chapter 1 of Title V of the Treaty on European Union”, that is “democracy, the rule of law, the universality and indivisibility of human rights and fundamental freedoms, respect for human dignity, the principles of equality and solidarity, and respect for the principles of the United Nations Charter and international law” (Article 21 of the TEU).

Finally, Article 47 of the TEU states that “The Union shall have legal personality”.

The rationale behind these reforms can be found by observing the recent trends in global trade practices and dynamics.
First, the multilateral negotiating framework predominant in the General Agreement on Tariffs and Trade (GATT) and then in the World Trade Organisation is proving to be actually inefficient. This is mostly due to its very decision-making procedure, that is unanimity rule. In fact, emerging economies of ever growing importance – if not supremacy – like China, started challenging the system of the Bretton Woods institutions, to whom the WTO belongs, by recognising it as illegitimate and incapable of safeguarding their interests. As a consequence, unanimity rule transformed very quickly in decisional impasse. Therefore, this evolution called for a reconsideration of the Union external action in general and of trade policy in particular toward a more comprehensive attitude and scope: together with the establishment of the Union’s legal personality, the Treaty aimed at affirming the actorness of the EU as a unitary body on a global scene growing more and more fragmented.

 


Second, services started representing an increasingly important share of the world economy and thus also of global trade volume. In fact, as it is shown in Figure 1, the volume of export of services from the EU saw its value triplicated in just fifteen years, passing from 300k Million USD in 2000 to 900k Million USD in 2015, following an always increasing trend only reversed during 2008 crisis. This, of course, naturally pushed for an inclusion of trade in services within the competences falling under Common Commercial Policy: in fact, it was of crucial importance for European services deliverers to have these kinds of provision falling under EU competence.

 

Third, intellectual property protection constitutes a salient issue for EU countries. In fact, Europe is one of the world hub for innovation, research and education. It has grown therefore imperative to protect this set of rights in general and most importantly in the context of trade agreements.

Fourth, the promotion of rule of law and democracy and respect of human rights are guiding principles of any action carried out by the Union: consequently, of its trade policy. However, even in case of considerably favourable conditions for the targeted country such as an everything but arms (EBA) agreement, the achievement of these goals cannot be assured by trade alone. The implementation of specific programs is crucial to properly address this type of issues. In order to guarantee the effectiveness and the safety of the funds outflowing toward the recipient countries, all measures concerning FDI had to follow under the CCP. In fact, they are a fundamental instrument for the Union to achieve its external political objectives.
Finally, the importance of the democratic values had, of course, to be applied also to the process determining the Union’s external agenda itself.

 

The greater importance of the role played by the European Parliament


… the Council shall adopt the decision concluding the agreement:
(a) after obtaining the consent of the European Parliament ...
10. The European Parliament shall be immediately and fully informed at all stages of the procedure

                                                                                                 Article 218(3,a);(10) of the TFEU

 

 

Another concern that the Treaty of Lisbon aimed to address was the – presumed – democratic gap affecting the EU institutional system. Actually, the process of decision making determining the Union’s external action in general and its common commercial policy in particular was often described as – excessively – technocratic. This view relied mostly on the denounce of the secondary role played by the only EU institution popularly elected, i.e. the European Parliament. Indeed, the EP was included in the negotiation process as a merely consultative body: its opinions were facultative and in no case legally binding.
Differently, it can be appreciated how the Treaty of Lisbon tackled this issue by enhancing the EP’s position granting it three ulterior rights: it must express consent or denial toward the negotiated agreements; it must be immediately and fully informed on the developments of the negotiations; it co-implements – together with the Council – the results of the agreement through internal legislation, now falling under the ordinary legislative procedure (OLP) framework.

In fact, as Article 218 clearly states, the Council is now obliged to obtain the consent of the European Parliament before concluding the negotiation of trade agreements.

Furthermore, the EP can also amend the proposals it receives when the OLP applies. Specifically, it expresses its consent and presents its amendments through a simple majority voting system.
On the other hand, as reported in the same Article 218(2) of the TFEU “[t]he Council shall authorise the opening of negotiations, adopt negotiating directives, authorise the signing of agreements and conclude them”. This means that the right of formulating the negotiating mandate of the Commission is still an exclusive right of the Council which thus keeps its predominant position vis-à-vis the Parliament.
Hence, accounting for only these formal provisions, it could be tempting to conclude that the EP – despite undoubtedly playing now a more prominent role – is only a responsive actor, with limited means to actively influence the process of trade negotiations. In fact, this is the very nature of amendment and veto powers.
However, this set of rights only represents the bundle of the EP’s “hard” formal powers, that is those explicitly conferred to it by the Treaty of Lisbon.

Differently, the EP has proved to be capable of acting exploiting a broader range of instruments. Actually, it can indirectly influence both the Council – with respect to the mandate setting process – and the very trade negotiation carried out by the Commission. Specifically, it can do so by undertaking a range of actions such as delivering parliamentary resolutions or opinions, submitting a question to the Commission and establishing committee hearings. These “soft” informal instruments – since not legally binding on the other EU bodies – further expand the toolbox of the European Parliament: in fact, it can this way flag red lines clearly showing both the Council and the Commission what kind of agreement it will approve or reject.
Moreover, it follows that it is in the strategic interest of both the Council and the Commission to internalise the informal preferences of the EP while formulating the negotiation mandate. Differently, the EP could easily reject an agreement which fell apart from its – previously, though indirectly, shown – approval conditions.

As a consequence, the European Parliament can de facto and indirectly shape the Commission’s mandate despite this being out of its de jure competences. It can be easily appreciated how the combination of more information and power resulted in a stronger EP position than what the Treaty of Lisbon – strictly read – envisaged.

Finally, we can conclude that the European Parliament saw its actorness consistently improved: its authority has been fostered by the expansion of its competences; it keeps acting as an independent and unitary body; it receives recognition by the other institutions involved in the decision making process due to the enhanced importance of its informal pronouncements.
The European Parliament has grown a decisive player in the arena of the EU institutions. This decisively changed the dynamics determining the Union’s external action.

 

The Treaty of Lisbon vis-à-vis reality

 

A game theoretical perspective on efficiency


By enhancing the role of the European Parliament, the Treaty of Lisbon altered the whole dynamic determining  the EU external policy and the CCP. In fact, from a game theoretical perspective, the addition of a player can have multiple consequences, all of them not necessarily desirable.
More precisely, if a new player with distinct actorness – which is the case of the EP – is introduced in the game, the final equilibrium can be very different from the one preceding the reform. Explicitly, it is likely that the set of feasible outcome will be considerably narrower. This is not inherently good nor bad: the range of possible agreements could be actually bound more tightly to the most desirable policy; on the contrary, this could also lead the various actors toward a suboptimal equilibrium; in the most extreme case, there could be no possible agreement at all.
Therefore, the problem must be analysed in further detail in order to assess whether making the process more democratic made it more efficient as well.
The efficiency of a given institutional setting can be conceived as the ratio between the number of all possible winning coalitions over all possible coalitions voting on a given policy:

Consequently, it can be appreciated how efficiency is negatively correlated with two features: a stricter threshold to determine what is a winning coalition; a higher number of players, determining a higher number of possible coalitions. This theoretical structure can be transposed over the concrete case of the Union’s CCP.

 

In this specific setting, the relevant actors that concur in the conclusion of a trade agreement are the Commission, the Council, the European Parliament and the authorities of the other negotiating country. In addition, the system is regulated by unanimity rule: all the actors mentioned above must agree on the same proposal made by the European Commission.
In the framework this way constructed, the total possible combinations among the Council, the EP and the contracting non-EU state are 7; the winning coalition, though, is only 1: unanimity. By computing the ratio  we obtain that the decision making procedure introduced by the Treaty of Lisbon has efficiency = 14%. Such a number represents, exclusively from a theoretical and mathematical perspective, the percentage of proposals that can potentially be approved among all those the Commission can come up with. In other words, it does not represent
nor predict the percentage of proposals which are actually approved as a share of the total. This is so because the Commission knows ex
ante the preferences of the other institutions. In fact, the set of possible agreements that the Commission can negotiate is automatically and formally restricted by the mandate it has to receive from the Council. Furthermore, as previously said, this set is further narrowed by the informal influence of the EP. Finally, the Commission directly negotiate with the other country’s authorities. Therefore, as represented in Figure 2, this variable can be interpreted as the Commission’s margin of manoeuvre around the status quo.

 

 

Thanks to this specification, it is now possible to compare the system’s efficiency before and after the Treaty of Lisbon: the framework providing the Commission with a wider margin of action is more efficient. It can be easily deduced that the Treaty theoretically fostered efficiency in the system: in fact, by affirming the nature of the CCP as exclusive competence of the Union and conferring to it legal personality, national parliaments should no longer be involved in the negotiations. In other words, the Treaty reduced the number of players, thus narrowing the set of possible coalitions (the denominator in the ratio), therefore increasing efficiency.

However, this holds true only for agreements in which no disputed or shared competence involved.

In other words, the EU cannot conclude on behalf of its Members any deal involving matters not explicitly conferred to it in the treaties.
In fact, the EU Member States still need to ratify mixed agreements according to their domestic rules. Example of such agreements are treaties including important issues like investor-state dispute settlement (ISDS) provisions or regulations with respect to non-direct investments. Actually, these aspects were not conferred to the Union’s exclusive competences by the Treaty of Lisbon.

In other words, in some cases, the Treaty could have even worsen the Commission’s bargaining position: if national parliaments still have to ratify agreements, the only change brought by the reform would be an ulterior constraint for the Union’s negotiator, i.e. the mandatory approval of the EP.
Therefore, in order to properly assess the effectiveness of the Treaty, nor a legal nor a theoretical analysis is enough: the reform should be confronted vis-à-vis reality. In other words, if the world trade scenario systematically required the negotiation of mixed agreements, the Treaty of Lisbon would prove to be inefficient.

 

The effectiveness of the EU external action after the Treaty of Lisbon

 

The Treaty of Lisbon set the legal basis for a more comprehensive, efficient and democratic CCP. To this purpose, the CCP was brought under the umbrella of the Union’s external action; the figure of the High Representative of the Union for Foreign Affairs and Security Policy was created; the EP’s position was enhanced in order to grant a popular legitimation to the whole process.
However, by exploiting the framework previously laid down, it can be appreciated how none of these objectives has been achieved without potentially harming the others. There still seems to be a certain degree of contrast in principles.

As a result, the Union’s external action and the CCP still are controversial issues. Therefore, a final analysis with respect to three dimensions – i.e. effectiveness, cohesion and democracy – is necessary.

Firstly, as stated in Opinion 2/15 of the European Court of Justice, the Union’s exclusive competences, despite having been expanded, still misses the inclusion of elements such as ISDS provisions and non-direct portfolio investments. On the other hand, the necessity for the inclusion of this kind of measures comes quite straightforward following the attribution of trade in services to the Union’s exclusive competences. In fact, it is hard to imagine how should firms be incentivised to invest abroad with no provision safeguarding their capital; how should they start exporting services with no investment enabling them to do so.
Furthermore, this contrast could severely undermine the effectiveness of agreements aimed at fostering development in other countries. Reducing the volume of – not only direct – investments toward the targeted country may actually prevent the Union from achieving some of its most important stated goals: promotion of democracy, rule of law and respect of human rights.

In response to this, the Commission tried to propose more than once the establishment of a permanent European Court for Investments. However, such a solution, despite being potentially effective in addressing this issue, lacks a legal supportive basis in the EU Law.

Secondly and consequently, a considerable number of important treaties negotiated after 2009 had – or will have – to be approved also by the national parliaments in the various EU Member States. As already said in the previous section, this makes the reforms brought by the Treaty of Lisbon irrelevant – if not detrimental – to the functioning of the negotiation procedures. In fact, the proliferation of stakeholders and veto players on the scene strongly reduce the set of possible agreements under unanimity rule.
Moreover, it is tougher for the Commission to internalise ex ante in the proposal the preferences of all the players involved. As a result, the probability of an unexpected denial by one of the more than 28 parliaments in Europe grows. In addition, this could bind the Commission to a more modest behaviour: it may prefer a “worse but feasible” agreement to a “better but difficult to approve” one.

It follows that the cohesion of the Union’s external action does not end up being strengthened. Rather, the EU appears to be a desirable counterpart in negotiations only by virtue of the volume of its internal market.
The negotiations for the Comprehensive Economic and Trade (mixed) Agreement (CETA) between Canada and the European Union is an emblematic example of these dynamics. When the agreement was expected to be achieved, the subnational parliament of Wallonia – one small region of Belgium – was able to block the signature of the deal and to call for modifications to the original text of the treaty. The incident was resolved only thanks to the friendly diplomatic relationship between the negotiating parties and the considerable economic interests at stake. Moreover, the episode was also depicted as an example of the preponderance of democratic interests over economic ones.

Finally and surprisingly, it could also be argued that democracy had nothing to do with Wallonia’s veto to the CETA. In fact, the interpretation of the episode strictly depends on the one of the term democracy. Explicitly, one could actually argue that endowing such a small region with such a huge blocking power is rather antidemocratic. However, this is in any case matter of opinion, depending on whether it is given more importance to majority rather than deliberative views of democracy. On the other hand, what is sure is that it is actually easier to bribe a small regional parliament rather than the Council of the European Union.
As a result, if the negotiation of mixed agreements persists as the dominant procedure in EU trade relations, this could pave the way for undesirable lobbying behaviours by interest groups.

 

The Lisbon Treaty: a revolution for the European trade policy?

 

During the last decades, the European Union increasingly lacked the cohesion necessary for an actor willing to effectively operate in a more and more fragmented global scenario. In response to this, the Treaty of Lisbon envisaged to equip the European Union with a suitable toolbox in order to effectively engage in bilateral negotiations.
However, as this article tried to argue, the provision of its charter did not achieve the expected results. In fact, the European Common Commercial Policy – and its external action with it – is still a quite weak instrument vis-à-vis the other players in the global trade arena.
More precisely, European trade policy has not notably grown more efficient, more effective nor more democratic: there is no actual sign that 2009’s reform constituted a watershed for the European Union with respect to its commercial policy.

 

 

 

 

 

 

 

 

 

 

 

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