EU has the world's largest trade network

The European Union's trade network is the largest in the world, according to the European Commission's  annual report on the implementation of trade agreements released on 14 October 2019. The facts speak for themselves: the EU recorded a surplus of €84.6 billion in trade in goods with its trade agreement partners, compared to its overall trade deficit with the rest of the world of about €24.6 billion. Indeed, in 2018 this network covered 31% of Europe's trade exchanges, a figure that is expected to rise significantly (to almost 40%) as the EU signs more trade agreements.

¿How many agreements are in place?

At present, the EU has in place 41 trade agreements covering 72 countries. Types of EU trade agreements include:

• “first generation" agreements, negotiated before 2006, that focus on tariff elimination
• “de segunda generación”, que incluyen nuevas áreas o sectores, como la propiedad industrial e intelectual, los servicios y el desarrollo sostenible (EU-South Korea Free Trade Agreement, EU-Colombia-Peru-Ecuador Trade Agreement, EU-Central America Association Agreement and the Acuerdo Económico y Comercial Global UE-Canadá (“CETA”, por sus siglas en inglés)
• Deep and Comprehensive Free Trade Areas (DCFTA) that create stronger economic links between the EU and its neighbouring countries (Georgia, Moldova and Ukraine)
• Economic Partnership Agreements (EPA) focusing on development needs of African, Caribbean and Pacific regions

¿What are the EU goals? 

The objectives are quite clear: ensuring lower tariffs and legal protection abroad for EU goods and services, including for, among others, artisanal EU products, like by way of example French Champagne and Greek Feta. That is, enjoying preferential deals more than ever before, as pointed out by Commissioner for Trade Cecilia Malmström.

¿Which are the key sectors?

Agri-business

Among all sectors, the strongest performance corresponded to EU agri-food exports. 34% of agri-food exports went to preferential partners.

In 2018, EU agri-food exports grew by 2.2% (+€1 billion), while imports fell slightly (-0.6%). Growth rates were particularly strong with partner countries of second-generation trade agreements (+5%) and Deep and Comprehensive Free Trade Areas (+11%)

Exports includes a variety of food and beverages, such as cereals or meat, and high value products, such as infant formula and other products of the EU food processing sectors.

Performance of specific trade agreements was also good:

• CETA: EU Agri-food exports to Canada (accounting for 9% of total EU exports) rose by 7% (particularly high in citrus fruit, cheese and chocolate). EU producers of premium and industrial cheeses used up their quotas, at 99% and 71%, respectively.
• FTA with South Korea: + 12% growth in EU pig meat exports (South Korea is the EU’s third largest export market for such products).

¿What to pay attention to?

Geographical indications: these are signs used on traditional food and drink products that are protected to promote their unique characteristics linked to their geographical origin. A  2013 study by the EC (currently being updated) found that, at that time, value of EU geographical indication goods were of around €11.5 billion per year.

EU specially protects the geographical indications in all the EU’s new trade agreements. They are recognised as intellectual property.

Since the entry into force of CETA, Canada has established a legal framework for protecting EU food products resulting in 143 names of EU food products are now protected (such as, for instance, Prosciutto di Carpegna). It is possible to get protection following a direct application by the European producers.

Mexico has agreed to protect a shortlist of 340 EU geographical indications.

Singapore has now passed legislation on geographical indications allowing the possibility for EU rights-holders to submit their applications before the entry into force of the agreement.

Non-agricultural products

EU industrial goods exports also increased overall by 2%, with stronger growth among others for chemicals (2.5 %), mineral products (6 %) and base metals (4.4 %).

For some preferential trading partner such as Chile, trade with the EU grew by more than 8%, with a strong 13% growth in EU exports, notably exports of machinery and appliances (+14%) and transport equipment, in particular aircrafts and parts of aircrafts35 (+27%).

Others, such as Turkey (currently the EU’s second-largest preferential trading partner country), has seen trade in non-agricultural products decreased in value due to the recent economic stagnation.

Total merchandise trade between the EU and SADC EPA countries grew by 2.7% in 2018. Growing exports from SADC EPA countries were mostly driven by increased exports of motor vehicles from South Africa and diamonds and precious metals from South Africa and Lesotho.

¿Which are the key players?

CETA:

• The EU-Canada trade in goods grew by 10.3% and the EU's trade surplus with Canada increased by 60%;
• EU goods exports to Canada rose by 15% (or €36 billion in extra export revenue), especially for sectors where import duties were previously high such as pharmaceuticals (up 29%), machinery (up 16%) or organic chemicals (up 77 %); 

Switzerland:

• is the absolute preferential partner with 27% of EU trade and third largest trading partner country overall (capturing 7% of the EU's trade in goods with non-EU countries). EU has a strong trade surplus (€48 billion) with it.
• is the EU’s second most important trading partner country for services
• Foreign direct investment (FDI) takes 13% of the EU's foreign direct investment. The stocks held by Switzerland amounted to €802 billion; EU stocks amounted to €979 billion.
• As a result of pressure, as of 1 January 2020 will eliminate discriminatory cantonal fiscal status of companies.
• Discussions are held about dispute settlement, State aid rules, and modernization of the free trade agreement of 1972 allowing Swiss future participation in the EU’s internal market.

Others:

Among other preferential partners, the EU trades most with Turkey and Norway (each 11%).

¿What about lifting barriers?

Some progress on removing trade barriers has been achieved as well, especially among the agri-business.

• After almost 20 years, producers from Denmark and the Netherlands, for example, will be able to export beef to South Korea.
• Japan has lifted its import restrictions on beef from some EU Member States, now 12 Member States are approved to export beef.
• Peru is gradually improving market access for agri-food products, such as breeding plants from Spain and the Netherlands.
• Chile opened its dairy market for 4 more Member States (bringing the total to 20), 2 more for beef (total: 10 Member States), one additional for pork (total: 12 Member States) and 4 more for meat products (total: 12 Member States).
• Mexico discontinued costly on-the-ground pre-shipment inspections for stone fruit (Spain) and apples and pears (Portugal); and also opened its dairy market for products from Portugal and Sweden.
• South Africa lifted the import ban on poultry meat from Poland and Spain.

¿What role for the Small and medium-sized enterprises (SMEs)?

According to a  survey conducted by EC in 2016, SMEs accounted for an estimated 30% of EU goods exports to the rest of the world and 86% of all EU exporters were SMEs. Likewise, 80% of all imports into the EU from non-EU countries came from SMEs, representing 38% of the overall value of EU imports.

But the fact remains that the cost of entering new markets weighs more heavily on SMEs than on larger firms.

To create a more SME-friendly trade environment, new guidance is being provided by the EC in relation to:

• Rules of origin
• Public tenders
• the protection of intellectual property rights;
• acceptance of international standards;
• recognition of professional qualifications;
• visa facilitation.

Likewise, SME provisions are being included in all new trade agreements, in particular about:

• A database searchable by tariff code, information on tariffs, import requirements, rules of origin, etc.
• A SME Contact Point on each side
• Simplified and similar rules for rules of origin

The EU-Japan Economic Partnership Agreement is the first to include a  dedicated SME Chapter. CETA does not include one, but a specific  'SME recommendation' requires to provide market access information to SME and to set up a SME Contact Point.

Moreover, the EU has a  Market Access Database with dedicated information for SMEs who want to export from the EU, while the  Trade Helpdesk offers information relevant for importers into the EU.

¿Any social and environmental improvement?

Most trade agreements have dedicated ‘Trade and Sustainable Development' (TSD) chapters within them, which have yielded some results.

• Mexico and Vietnam have adopted or ratified collective bargaining rights under ILO Convention 98;
• Vietnam, Japan, Singapore, Mercosur and Mexico have committed to implement the Paris Agreement on Climate Change.

Takeaways:

• EU is a skilled global negotiator. EU companies and entrepreneurs must take advantage of its negotiating agenda and increase business ventures across the world.
• It is harder for SMEs to enter new markets than for larger companies. Make every possible effort to reduce costs.
• Pay attention to picking the right business partner – and the right legal partner too.
• Make sure you are adopting all necessary protective measures, including for products that have geographical indications.
• Look for specialist legal advice about your industry from a trusted law firm.