Defending the EU Trade Interests – New Trade Enforcement Regulation Adopted

 Balazs Horvathy


The Council has adopted the regulation concerning the exercise of the Union’s rights for the application and enforcement of international trade rules (hereinafter: Regulation) in May 2014. The Regulation will introduce a new horizontal framework to enhance the EU’s ability to enforce its interests in the international trading system and to take measures against third countries that violate obligations stemming from international multi- and bilateral trade agreements. Previously the EU was able to react to these restrictive measures of its trade partners only in an ad hoc manner, therefore the new Regulation will fill an existing procedural gap in the Common Commercial Policy. Therefore the draft Regulation in 2012 [COM (2012) 773 final] intended to take into consideration the fact that the EU did not have yet horizontal framework on efficient and swift reactions to the unlawful measures of the trade partner countries. Moreover, the proposal might have been a remedy to the slightly paradoxical situation that the Commission have had to face  after the Treaty of Lisbon entered into force. Namely, the Lisbon amendment generally introduced the ordinary legislative procedure in the field of the Common Commercial Policy, consequently, in terms of Article 207 TFEU, the Council and the European Parliament are already acting as co-legislators in relation to the measures on implementation of the trade policy as well. The new procedural framework, on the one hand, was a substantial commitment to the democratic legitimacy of the EU trade policy, but on the other hand, particularly as a consequence of the European Parliament’s participation, the legislative procedures became more complex and significantly slowed down after the treaty reform. Enforcement of trade interests under the trade agreements concluded by the EU, however, requires adopting and implementing measures in rapid procedural frameworks within strict deadlines, to which hardly responds the standard EU law-making methods that can draw out the procedures up to thirty months. Therefore it was appropriate and reasonable to delegate these powers from the European Parliament and Council to the European Commission as typical executive functions and to lay down a predictable framework for the adoption of acts that serve the enforcement of EU trade interest vis-à-vis third countries. The proposal [2012/0359/COD] was adopted by the Parliament with amendments on 2 April, 2014, then by the Council on 8 May 2014 [not yet published in the OJ, the final text version adopted by the Council is available here].

The main objective of the adopted Regulation is to address the effective and timely exercise of the Union’s rights to suspend or withdraw concessions or other obligations arising from international trade agreements, including both multilateral and bilateral agreements to which the EU is a party. The above objectives can be achieved within the scope of the Regulation, which is limited to the following three subjects:

1) Retaliatory actions against third countries following dispute settlement mechanisms under the WTO Dispute Settlement Understanding (DSU), as well as under other international trade agreements, including regional or bilateral agreements

The Regulation provides a procedural tool for making decisions, when the EU has been authorised to suspend concessions or other obligations following dispute settlement procedures. However, it is important to note that the policy leeway of the EU in these cases is substantially limited by the WTO law, or provisions of other relevant trade agreements. As for the WTO law, e.g. Article 22 of DSU on principles of the compensation and the suspension of concessions lays down a strict order in choosing which concessions or obligations have to be suspended, i.e. the complaining party should first seek to suspend concessions in the same sector as that in which the violation was declared; then as ‘cross-sectoral’ retaliation, it is allowed to suspend concessions in relation to other sectors under the same agreement; and only at third place, in a ‘case of last resort’, the WTO members are entitled to introduce ‘cross-agreement’ retaliation actions (e.g. lifting concessions in the field of GATS in response to violation of GATT). Other regional or bilateral agreements include provisions on the dispute settlement mechanism, but in most cases, if the other parties are also members of the WTO, these specific rules on dispute resolving methods have only subsidiary character, e.g. several regional or bilateral trade agreements exclude the trade defence instruments from the scope of the specific dispute settlement provisions, which, therefore, can be complained only in the WTO dispute settlement procedure.

2) Rebalancing of concessions or other obligations to response of a safeguard measure taken by a third country under the WTO Agreement on Safeguards and under other free trade agreements

When countries are applying the ‘escape clauses’ of trade agreements, specifically the safeguard measure in terms of article XIX of GATT and the WTO Agreement on Safeguards (AoS), the European Union, in return, has the right to demand concessions. According to article 8 of AoS, generally the restricting country has to offer trade compensation for the adverse effects of the restrictive safeguard measure. If the parties cannot find compromise on the concessions, the AoS gives the right to the country affected by the safeguard to take rebalancing measures against the restricting country (e.g. introducing additional customs duties etc.). In general, other bilateral and regional free trade agreements include the possibility of rebalancing of trade concessions, therefore the Regulation can apply in those context as well.

3) Modification of concessions by a WTO member under Article XXVIII of the GATT, where no compensatory adjustments have been agreed

Principally, article XXVIII of the GATT gives members the right to propose the modifications of their contracted concessions within consultations with the other parties. If the countries involved cannot come to an agreement, the contracting party that initiated the negotiations has the right to modify its concessions unilaterally; however, rebalancing measures can be taken by the countries that are entitled by the article XVIII of the GATT (e.g. countries having substantial interest or principal supplying interest etc.). Even though the EU has not yet withdrawn concessions under Article XXVIII of the GATT, the possibility can arise and in that case the regulation will facilitate an effective procedural background to decide on withdrawal or modification of certain concessions, which have to occur within short deadlines.

If action is necessary to safeguard the Union’s trade interest, the European Commission has to adopt implementing acts determining the appropriate commercial policy measures. The Regulation lays down the conditions, which the implementing acts must follow [Article 4 of the Regulation]. These requirements refer partly to the relevant legal provisions and limitations of the retaliatory action introduced by the European Union; and specify general concerns, which determine the commercial policy measure to be chosen (e.g. effectiveness, potential of the measures to provide relief to EU economic operators, avoidance of disproportionate administrative complexity and costs in the application of the measures etc.). The possible commercial policy measures include customs duties (suspension of tariff concessions, imposition of new customs duties etc.), quantitative and other administrative restrictions (quotas, import or export licences etc.), and suspension of concessions regarding goods, services or suppliers in the area of public procurement. The Regulation sets down a reasonable institutional method, seeing that the adoption of the commercial policy measures will be carried out within the standard comitology procedure established by the Regulation (EU) No 182/2011, and the Commission shall be assisted by the committee established by the so called Trade Barriers Regulation . In other terms, neither new nor parallel institutions have to be set up following the Regulation.

As the above short overview shows, the Trade Enforcement Regulation will allow the European Union to implement trade retaliatory actions within a clear and efficient horizontal procedural framework, when the EU trade interests are at stake. Moreover, the Regulation can effectively encourage the countries adopting trade restrictions to comply with the international trade law obligations and remove illicit trade measures, therefore the very purpose of the new Regulation is to provide more compliance and not at all to place a protectionist tool in the hands of the Commission. From the point of view of the European companies and other business operators the impressive features of the new regulation are that on the one hand, it simplifies the procedures under which the EU can take countermeasures, resulting in shorter and less complex comitology procedures. On the other hand, it is also important that the Regulation will have impact not only on the trade in goods, but it includes also the suspension of concession in the field of services. Therefore, the potential of the Regulation has been extended to a wide range of business actors that all will be able to make advantages of the swift and compact procedure governed by the Regulation, when facing barriers in international trade. 


 The views expressed above belong to the author and do not in any way represent the views of the HAS Centre for Social Sciences.