Lelo Nxumalo: Research on Trade Agreements

KEY Trade Agreements

China, Republic of Korea, and Japan

Negotiations are under way for a trilateral free trade area among these three parties, which taken together account for 20% of global GDP[1]. The most recent–third round of negotiations– which covered intellectual property and goods and services was held in November 2013 in China. Below is basic information on these economies and the potential gains from the proposed FTA. About 18% of Japan’s exports already go to China as do a quarter of Korea’s. About one third of Korea’s goods exports are destined for China and Japan, and this value will increase with the creation of an FTA. By dollar value, however, China’s exports to Japan are the largest of the trio and Korea’s to Japan the least.

Negotiations on a Japan-Korea bilateral FTA, which stalled in 2004, despite several attempts to revive them, have to contend with unresolved tensions stemming from the Japanese occupation of Korea in the first half of the 20th century and Japanese resistance to lowering tariffs on agricultural imports. Any eventual FTA between China, South Korea and Japan needs to be seen in the context of ongoing economic and political rivalry between China and the USA, as Washington pursues plans to create a new regional free trade and investment agreement by joining the Trans-Pacific Partnership (TPP)[2].

Data source: UN Comtrade, IMF DOTS. Both sources only include total goods trade, not services.

EU-US Transatlantic Trade and Investment Partnership (TTIP)

The Transatlantic Trade and Investment Partnership, TTIP (also known as the Transatlantic Free Trade Area, abbreviated as TAFTA) is a proposed free-trade agreement between the European Union and the United States. Independent research shows that TTIP could boost the EU's economy by €120 billion; the US economy by €90 billion; the rest of the world by €100 billion[3].

On November 15, 2013, the second round of the TTIP negotiations was held in Brussels[4]. Negotiators discussed investment rules, trade in services, energy and raw materials, as well as a range of regulatory issues, including regulatory coherence, technical barriers to trade and sectoral approaches. Talks on public procurement took place before the planned October meeting, cancelled due to the US government shutdown. In addition to the physical meetings in Brussels, video conferences took place covering plant health and hygiene measures, intellectual property rights, competition policy and small and medium enterprises.

Later in the year, a third round of talks was held in Washington DC[5]. The EU’s Chief Negotiator Ignacio Garcia Bercero stressed that any deal would uphold "the highest standards of consumer, environment, health and labour protection." The EU and US teams spent one of their five days together talking to over 50 stakeholders and answering questions from them. Negotiators made progress on the three core parts of the TTIP – market access, regulatory aspects and rules – and these will be the focus for the round of talks expected in March 2014. Below are key facts about the emerging comprehensive trade partnership.

Data source: UN Comtrade, IMF DOTS. Both sources only include total goods trade, not services.

According to the European Commission, the EU and US economies account together for around half the entire world GDP and for nearly a third of world trade flows. Total US investment in the EU is three times higher than in all of Asia. EU investment in the US is around eight times the amount of EU investment in India and China together. Approximately a third of transatlantic trade is estimated to consist of intra-company transfers[6].

TPP

On November 12, 2011, the leaders of the nine Trans-Pacific Partnership countries – Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States – announced the achievement of the broad outlines of an ambitious, 21st-century Trans-Pacific Partnership (TPP) agreement that will enhance trade and investment among the TPP partner countries, promote innovation, economic growth and development, and support the creation and retention of jobs[7]. After 19 rounds, the 12 countries have made significant progress and the negotiations are on an accelerated track toward conclusion of an ambitious, comprehensive agreement in the 2013 time frame envisioned by President Obama and the Leaders of the eleven other TPP countries. According to the USTR website, TPP will have a wide ranging scope:

• The agreement is being negotiated as a single undertaking that covers all key trade and trade-related areas. In addition to updating traditional approaches to issues covered by previous free trade agreements (FTAs), the TPP includes new and emerging trade issues and cross-cutting issues.

• More than twenty negotiating groups have met over nine rounds to develop the legal texts of the agreement and the specific market access commitments the TPP countries will make to open their markets to each other’s goods, services, and government procurement.

• All of the nine countries also have agreed to adopt high standards in order to ensure that the benefits and obligations of the agreement are fully shared. They also have agreed on the need to appropriately address sensitivities and the unique challenges faced by developing country members, including through trade capacity building, technical assistance, and staging of commitments as appropriate.

• A set of new, cross-cutting commitments are intended to reduce costs, enable the development of a more seamless trade flows and trade networks between TPP members, encourage the participation of small- and medium-sized enterprises in international trade, and promote economic growth and higher living standards.

• The negotiating teams have proposed new commitments on cross-cutting issues in traditional chapters and also have made substantial progress toward agreement on separate, stand-alone commitments to address these issues.

Other Key EU Partnerships

EU- Japan

According to the European Commission, four important agreements have so far been finalized between the EU and Japan. (1) The EU-Japan Mutual Recognition Agreement which entered into force on 1 January 2002 allows for conformity assessments in four product areas: telecommunications terminal equipment and radio equipment, electrical products, laboratory practices for chemicals and manufacturing practices for pharmaceutical. (2) An Agreement on Co-operation on Anti-competitive Activities - adopted by the EU Council on 16 June 2003 - aims to facilitate EU-Japan trade and investment by securing a level-playing field between in- and outsiders. (3) A Science and Technology Agreement between the EU and Japan was signed on 30 November 2009. (4) The Agreement on Co-operation and Mutual Administrative Assistance (CCMAA) between the EU and Japan entered into force on 1 February 2008[8].

In May 2011, the EU and Japan agreed to work towards a new framework for the bilateral relations and concurred on the desirability to pursue a Free Trade Agreement. A joint scoping exercise was conducted on the scope and level of ambition of a future Free Trade Agreement. It defines a number of non-tariff barriers that are considered by the EU as obstacles in accessing the Japanese market. Following the successful completion of the scoping exercise, in July 2012 the Commission has approved a recommendation for a Council Decision to launch negotiations for a Free Trade Agreement with Japan. In November 2012, the Council authorised the Commission to start the negotiations. The first round was held in Brussels on 15-19 April 2013.

EU and Japanese officials negotiating a Free Trade Agreement between the two economic powerhouses met during the week of 27-31 January for the fourth round of negotiations. The two teams focused on further discussing and explaining each side’s proposals for the text of the future agreement. Discussions took place in working groups covering a wide range of areas: trade in goods (including market access, general rules, trade defense instruments i.e. anti-dumping, anti-subsidies and bilateral safeguards); technical barriers to trade and non-tariff measures; rules of origin; customs and trade facilitation; animal and plant health and hygiene (so-called sanitary and phytosanitary measures); trade in services; investment; public procurement; intellectual property; competition policy; trade and sustainable development; and dispute settlement. Another group covering 'other issues' discussed general and regulatory cooperation, corporate governance and the business environment, electronic commerce, and animal welfare.

The next round of negotiations will take place in end March 2014.

EU-Korea

The EU-South Korea Free Trade Agreement (FTA) entered into force in July 2011 and is the first completed agreement in a new generation of Free Trade Agreements launched by the EU in 2007. It is also the EU's first trade deal with an Asian country. This new generation of agreements goes further than previous agreements in lifting trade barriers[9]. The Agreement eliminates tariffs for industrial and agricultural goods in a progressive, step-by-step approach. Only a limited number of agricultural products are excluded from tariff elimination. In addition to eliminating duties on nearly all trade in goods, the agreement addresses non-tariff barriers to trade. It also includes provisions on issues ranging from services and investments, competition, government procurement, intellectual property rights, transparency in regulation to sustainable development.

The EU and South Korea are important trading partners. South Korea is the EU's tenth largest trade partner, and the EU is South Korea's fourth export destination (after China, Japan and the US). After slowing down in 2009 due to the financial crisis, trade flows between the EU and South Korea started to increase again in 2010. In 2011 South Korea reached the important benchmark of $ 1 trillion total foreign trade (close to 100% of the Korean GDP). EU exports to South Korea enjoyed an annual average growth rate of 7% between 2007 and 2011. The trade between the EU and South Korea is dominated by power/non-electrical machinery, chemicals, transport equipment, optical and photo equipment and base metals. EU records a significant surplus in trade in services with South Korea. EU provides to South Korea specialized services in such sectors as banking, financial and accounting services. European companies are the largest investors in South Korea.

But the agreement has negative implications for Turkey, which was not at the negotiating table[10]. Because it is in a customs union with the EU (see below), Turkey expects to feel the effects of increased competition from Korean goods as acutely as many EU member states. The most direct effect is on trade between the two countries: the deal opens Turkey's market to Korean exports while Korea's market will remain closed to Turkish goods.

Trade between Turkey and Korea is, however, negligible: Turkey exports very little to South Korea, while close to half of its exports go to the EU. That is where the real problem lies. A related Turkish fear is that Korean goods, once they circulate freely on the EU's internal market, will enter Turkey free of import restrictions or tariffs. There is nothing to prevent Turkey from maintaining import tariffs on Korean goods, but in practice they will be difficult to maintain. Korea and Turkey have now begun free trade talks of their own, but there exists no true economic incentive for Korea to conclude such a deal.

EU-India

Following the EU-India Summit in February 2012 negotiations for an FTA entered an intense phase[11]. Important issues include market access for goods, the overall ambition of the services package and achieving a meaningful chapter on government procurement. Delhi wants Brussels to relax its stringent food safety criteria which penalize Indian farm and fishery exports and to make it easier for Indian professionals to work in the EU[12]. Europe is primarily out to win major openings of India’s services sector and broad liberalisation of foreign investment, while India does not want to discuss allowing European firms to compete in India’s government procurement market.

India is an important trade partner for the EU and an emerging global economic power. The country combines a sizable and growing market of more than 1 billion people. The value of EU-India trade grew from €28.6 billion in 2003 to €79.9 billion in 2011. EU investment in India more than tripled between 2003 and 2010: going from €759million in 2003 to €3 billion in 2010. Trade in commercial services tripled during the same time period, going from €5.2billion in 2002 to €17.9 billion in 2010. Negotiations for a comprehensive FTA were started in June 2007 and are ongoing. This would be one of the most significant trade agreements, touching the lives of 1.7 billion people. India enjoys trade preferences with the EU under the Generalized Scheme of Preferences. Indian social movements, including fisherfolk and labour unions, people living with HIV/AIDS and other health activists have been mobilizing against the FTA. International actions and campaigns have particularly targeted the proposed intellectual property provisions of the agreement, and the impact of the FTA on access to medicines.

EU-Mexico

The EU and Mexico have concluded an Economic Partnership, Political Coordination and Cooperation Agreement (the Global Agreement) in 1997, which included trade provisions that were developed in a comprehensive Free Trade Agreement that entered into force in October 2000 for the part related to trade in goods - and in 2001 for that related to trade in services[13]. The EU is Mexico's second biggest export market after the USA, and Mexico's third largest source of imports after the United States and China. The EU's key imports from Mexico are mineral products, machinery and electric equipment, transport equipment and optic photo precision instruments. Key EU exports to Mexico include machinery and electric equipment, transport equipment, chemical products, and mineral products. In terms of services EU imports from Mexico are dominated by travel, sea transport, air transport and construction services. EU services exports to Mexico consist mainly of travel, sea transport, air transport and computer and information services. The bilateral stock in as well as the flow of investment between the EU and Mexico is significant.

EU-Mexico "trade in services" statistics

Trade in services 2009-2011, € billions
Year	EU imports	EU exports	Balance
2009	2.7	4.4	1.7
2010	3.1	5.5	2.4
2011	3.2	5.8	2.6

EU-South Africa

South Africa's trade relations and development co-operation with the European Union are governed by the Trade, Development and Co-operation Agreement[14] (TDCA). The Trade, Development and Co-operation Agreement has established a free trade area that covers 90% of bilateral trade between the EU and South Africa.

South Africa is the EU's largest trading partner in Africa. A member of the African Caribbean Pacific group of countries, South Africa is by far the strongest of sub-Saharan Africa's economies. South Africa's exports to the EU are growing and the composition of these exports is becoming more diverse. South Africa is gradually moving from mainly commodity-based products to a more diversified export profile that includes manufactured products. South Africa's primary exports to the EU are fuels and mining products, machinery and transport equipment, and other semi-manufactured goods. EU exports to South Africa are dominated by machinery and transport equipment, chemicals and other semi-machinery.

The TDCA's liberalization measures have been fully implemented. A large part of EU-South Africa trade is now subject to preferential rates. Since the signing of the agreement in 2000, trade between the EU and South Africa has improved substantially. Trade in goods between the two partners has increased by more than 120%. But also Foreign Direct Investment has grown five-fold. This goes to show that EU-South Africa trade is more than day-to-day trade and that the trade ties are solid and dynamic.

EU-Turkey

Turkey-EU customs union Turkey is one of only four countries that are in a customs union with the EU (the others are Andorra, Monaco and San Marino)[15]. Turkey has been a candidate country to join the European Union since 1999, and is a member of the Euro-Mediterranean partnership[16]. The customs union took effect on 31 December 1995 and foresees, in principle, that all traded goods circulate free of duty or import restrictions between the two sides.

The agreement does not apply to agricultural goods, services or public procurement, and coal and steel products are subject to a preferential regime set out in a separate agreement. The customs union also provides for the approximation of relevant legislation in Turkey to EU rules. The customs union creates a single external tariff for goods from the outside. That sets it apart from the European Free Trade Association (EFTA), with which Turkey has a free-trade agreement, or the European Economic Area, which links most of EFTA with the EU.

Turkey continues to impose certain restrictions on the free movement of goods, notably a ban on traffic from EU member Cyprus to or through Turkish sea- and airports. While this is economically insignificant, it is a political issue that could yet bring to a standstill Turkey's bid to join the EU. The European Commission points to other commitments that remain only partially fulfilled, including the removal of import licences and the enforcement of intellectual property rights. The Commission has also criticised restrictions placed by Turkey on the import of goods that are manufactured in non-member states and circulate in the EU.

EU-Turkey trade

The EU is Turkey's number one import and export partner while Turkey ranks 7th in the EU's top import and 5th in export markets. Turkey's main exports markets are the EU, Iraq, Russia, USA, United Arab Emirates and Iran. Turkey's exports to the EU are mostly machinery and transport equipment, followed by manufactured goods. Imports into Turkey come from the following key markets: the EU, Russia, China, USA, Iran and South Korea. EU exports to Turkey are dominated by machinery and transport material, chemical products and manufactured goods.

EU-MERCOSUR

The EU is currently negotiating a trade agreement with Mercosur as part of the overall negotiation for a bi-regional Association Agreement, which also cover a political and a cooperation pillar[17].

These negotiations with Mercosur were officially relaunched at the EU-Mercosur summit in Madrid on 17 May 2010. The objective is to negotiate a comprehensive trade agreement, covering not only trade in industrial and agricultural goods but also services, improvement of rules on government procurement, intellectual property, customs and trade facilitation, technical barriers to trade.

Nine negotiation rounds (the last one from 22 to 26 October 2012) have taken place since then.

Until now, rounds have focused on the part of the agreement related to rules and the two regions are still working on the preparation of their market access offers. No date has been set yet for the exchange of market access offers.

Other Key Free Trade Areas

India-Japan

The governments of Japan and India started negotiating a comprehensive Economic Partnership Agreement in January 2007. They concluded the deal in 2011[18]. This Agreement promotes liberalisation of trade in goods and services and facilitation of investment between Japan and India, enhances bilateral economic partnership, as well as strengthens cooperation in various areas including movement of natural persons and intellectual property[19].

India- Korea

Under the Comprehensive Economic Partnership Agreement (CEPA), tariffs will be reduced or eliminated on 93% of Korea’s tariff lines and 85% of India’s tariff lines[20]. The pact will boost bilateral trade by as much as US$3.3 billion annually. The unusual name for the agreement was suggested by India. The CEPA is equivalent to a free trade agreement. The agreement provides better access for the Indian service industry in South Korea. Services include IT, engineering, finance, and the legal field. South Korean car manufactures will see large tariffs cuts to below 1%. The agreement will ease restrictions on foreign direct investments. Companies can own up to 65% of a company in the other country. Both countries avoided issues over agriculture, fisheries, and mining and choose not to decrease tariffs in those areas. This was due to the very sensitive nature of these sections in the respective countries.