14th Trade Policy Review of the European Union, 2nd day Statement by Ambassador João Aguiar Machado – 20 February 2020

Thank you, Mr. Chairman. I would like start by thanking all the 62 Members for the active participation and great interest taken in this 14th Trade Policy Review of the EU. I also thank Ambassador Alexandre Guido LOPES PAROLA of Brazil for his insightful remarks as the Discussant for this review, as well as our Chair, Ambassador Manuel A.J. TEEHANKEE of the Philippines for his efficient management of the long meeting on the 1st day as well as for the concluding remarks he is about to deliver today at the end of this meeting.

The Members’ interest expressed in the 62 statements on Tuesday and today covered not only our trade policy in the narrow sense of the word, but a vast array of economic policies and measures of the EU that are relevant to our trade partners. This kind of heightened interest is understandable and taken seriously, given our role as main trading partner to most of the Members here.

We heard numerous expressions of appreciation to the existing Free Trade Agreements or Economic Partnership Agreements with the EU and their benefits to the economies of our partners, as well as positive references to the EU’s economic growth. Also, we took note of the positive remarks with regard to the EU’s SMEs policy, sustainable development and environmental policy objectives and measures, initiatives on women’s participation in the international trade, our Aid for Trade strategy, the EU’s active role in the Joint Statement Initiatives and fisheries subsidies negotiations, as well as our GSP+ policy and Everything But Arms initiative. Furthermore, we were glad to hear the acknowledgement from most of you in this room of the continued commitment of the EU to open markets, despite of the current global challenges. Many of you expressed hope for the EU leadership in a run-up to a successful outcome at MC12, to which we remain firmly dedicated. But, we cannot achieve this alone.

It was very reassuring to hear from the Discussant as well as numerous Members the wide recognition of EU’s commitment to the multilateral trading system and to this organisation. We were heartened to hear so many of you supporting the EU in its effort to lead the reform of the WTO. The EU can confirm that we will be at the forefront of the defence of the rules-based multilateral trading system, including by continuing to table concrete proposals to revive the Organisation across all its three functions: negotiating, monitoring and dispute settlement.

Let me take a moment to talk about this Organisation, the crisis it finds itself in and the incredible value it offers to its Members and how they conduct their trading relationships.

The EU is both the second biggest exporter and the second biggest importer in the world. Our trade relations are not a simple calculation of how many goods we import versus how many goods we export. Looking at this metric in isolation does not reflect the fundamental accounting identity in economics: savings minus consumption and investments equals exports minus imports. One needs to look at consumer behaviour and government spending. One needs to look at the various ways our operators now choose to conduct their business in order to maximise their potential – by investing abroad, by locating production facilities worldwide, by sourcing inputs from all over the globe. So one needs to look beyond a crude metric of imports versus exports of goods. One also needs to look at activities resulting from sales by entities established in each other’s markets. One has to look at services. The same Member who laments a goods deficit of USD 178 billion should also recall a trade surplus of USD 55 billion in services. One has to look at “related party trade”, where affiliates import from or export to their headquarters, where the affiliates of that Member in the EU sell $400bn in goods and services more than EU affiliates sales in that Member.

The way trade is conducted today, through global value chains, through entities with world-wide operations, has allowed for great gains in growth. And what has been necessary for it to thrive has been openness and legal certainty, the fundamentals that the WTO provides. These fundamentals are now in peril, because the rules have not kept up with the pace of change in how trade is conducted. We see increasing recourse to unilateralism, to managed trade, to protectionism. We see a tilting of the playing field, through a slew of market- distorting policies and practices that prevent our operators from competing on fair terms.

The only way to restore the fundamentals – non-discrimination, transparency, openness, legal certainty – is to reform this organisation, to revitalise its negotiations, restore its enforcement capabilities and ensure a robust peer review.

Let me now turn to the specific areas of interest and concern raised by Members on the 1st day and today. I also invite Members to carefully review our written replies for further details and the replies to outstanding questions (received late after the deadline and/or additional and follow-up questions) we will provide during the next month.

A lot of Members commented on the EU’s SPS measures and agricultural policies which seem to be the areas of biggest interest and concern.  The EU is the second biggest importer of agricultural products in the world and our import of these commodities continues to grow. Our legislative regime is transparent, predictable, based on international standards and the best available science. All the EU SPS measures are notified according to our international obligations. Every comment received is systematically reviewed and discussed with the EU Member States within the framework of our regulatory process. The EU always provides a reply to all the comments received and explains in detail the planned measure and the rationale behind it.

The EU fully supports the activities of the relevant international standard setting bodies and works with them to help reach a comprehensive set of standards at international level.

EU measures on MRLs are regularly and systematically aligned with Codex MRLs, provided that they ensure the appropriate level of protection chosen by the EU. For example, the alignment level of the EU to the Codex MRLs was more than 70% in the last 7 years. According to the information available to us, this is one of the highest levels of alignment anywhere.

Our MRLs are systematically reviewed by the European Food Safety Authority (EFSA) and the outcomes of these risk assessments as well as a calendar of upcoming meetings is publicly available on their website. In accordance with article 3.3 of the SPS Agreement, the EU can deviate from international standards if a health concern is raised by the risk assessment body. The transition periods provided are in line with the SPS Agreement which stipulates 6 months. In practice, recent concrete cases show that at least two years elapse between our first notification and the application of the measure.

All the legislation is applicable equally to domestic and imported products but where there is no risk to health, we provide for the granting of import tolerances for substances, which are not authorised for use in the EU.

We also listen. We are aware of the problems that some measures may pose for operators in developing countries and we are proactively working to help address their concerns. As many speakers noted, the EU provides financial and technical assistance to support them. During 2017-2018, the EU provided SPS-related technical assistance for more than 80 countries, groups of countries, regional organisations, and international organisations within the framework of over 500 projects.

Over the review period, the Common Agricultural Policy continued on the path of further market orientation and away from trade-distorting support measures, with the abolition of sugar quotas in 2017 being a prime example. This is in stark contrast to other major Members whose trade-distorting support levels in both absolute and relative terms are far in excess of those of the EU and are growing. The EU not only respects its WTO commitments in full, but is indeed the leader among the membership in having reformed its policy towards non-trade distorting Green Box measures which now constitute the vast bulk of the Common Agricultural Policy.

In the post-2020 Common Agricultural Policy review proposal, the total maximum percentage of coupled support would be further reduced compared to the 2015-2020 period. In general, decoupling has been a key element of CAP reforms over the last few decades. The EU has gradually worked towards the present very high share (approximately 90 %) of decoupled aid within all direct payments.

Concerning the need to ensure transparency in Domestic Support notifications, the EU is one of the best performers amongst the membership in submitting Domestic Support notifications and hopes to submit the 2017/18 notification soon. The deadline laid down in the 25 year old document G/AG/2 is clearly unrealistic as no member is able to respect it.

Concerning market access, the EU is an open market to agri-food trade. The EU is indeed consistently one of the two biggest importers of agri-food products in the world, worth EUR 138 billion in 2018.

The EU import regime for agricultural products is fully transparent and predictable, as agreed in the Uruguay Round and set out in our WTO schedule. During the review period, the apparent small increase in the EU’s non-ad valorem tariffs is not due to any changes in the schedule or applied tariffs but is in fact due to a change in the nomenclature form HS2012 to HS2017. The change affected specific duties, which are, by the way, just as transparent as ad-valorem tariffs. Naturally, like most Members, the EU does not intent to make unilateral market access concessions and in general its applied tariff is the same as its bound tariff.

The EU seeks the TRQ management method that is most appropriate to ensure smooth trade flows and the lowest administrative burden. Most of the EU’s TRQs are managed on a first-come-first-serve basis. Even so, the EU does not consider that the management system causes low fill rates for any of its TRQs. Fill rates are determined by prevailing economic conditions. The apportionment of TRQs in the light of the United Kingdom leaving the EU is based on the respective import shares of the EU27 and the UK in a given TRQ during a recent representative period. The overall level of market access available to other WTO Members will thus be maintained. The EU has engaged with WTO Members in Geneva and will continue to do so in accordance with the relevant WTO rules.

Addressing some specific issues raised by the Members, the EU notes concerns expressed by some Members about the potential impact of the EU’s new organic farming regulation. To ensure a smooth change-over from the current system, the regulation provides for a transitional period until end-2025 during which the EU will negotiate bilateral agreements on the recognition of organic production systems in other countries.

Finally, the EU endorses statements on the importance of the protection of geographical indications in international trade. Within the EU, GIs are protected under EU legislation and under bilateral agreements in accordance with the TRIPS Agreement.

Chair, EU imports of fruit and vegetables continue to grow. This is to the benefit of EU consumers but also to the benefit of farming communities in exporting countries,  including those partners that expressed concerns about the EU policy on Tuesday. Just a few examples. Since 2008, EU imports of fruit from Brazil have increased by 23 %, from Costa Rica by 40 %, from the Dominican Republic by 93 %, from Jamaica by 54 %, from Peru they have increased 500 % and from the USA by 87 %.

We heard some strong words as regards the EU’s allegedly discriminatory “TBT policies”. Let me address these concerns.

The EU policies in the area of medical devices, chemicals or high tech products are not “TBT policies”. These regulations pursue legitimate policy objectives, such as the protection of human health or safety and the environment.

The European Union adopts technical regulations in full respect of WTO principles: they are not more trade-restrictive than necessary to fulfil their public policy goals. At the same time, the EU takes into account the risks that non-fulfilment would create. In assessing such risks, the EU considers the available scientific evidence and technical information, or intended end-uses of products.

The EU is proud of its internal market system that delivers high levels of protection for our citizens while creating an efficient and predictable regulatory environment for economic operators that fosters international trade.

The EU internal market system is open and flexible. Unlike in the case of many WTO Members, European harmonized standards are voluntary, leaving manufacturers the choice to prove compliance with the applicable legislative requirements through alternative means.

In the area of certification, let me underline that the EU approach is based on a genuine appraisal of risks and relies extensively on self-certification by manufacturers for low and medium risk products, resulting in one of the most open systems in the world and reducing overall compliance costs and time-to-market. Mandatory certification is generally reserved only for high-risk products, in line with the objective of providing high-level of protection to our citizens.

Regarding fisheries subsidies, some Members commented on the ongoing legislative process within the EU in a situation where technical discussions among the EU’s institutions, namely the European Commission, the Council and the European Parliament regarding the European Maritime and Fisheries Fund have not even started yet.

At any rate, it is clear that the next EMFF will be fully in line with the EU’s commitment to implement SDG 14. The EU is proud that a vast majority of fisheries subsidies provided in the EU are positive subsidies that actually improve the sustainability of stocks, such as subsidies to develop and implement science-based conservation measures (notably through the collection of scientific data) and to improve control and enforcement (e.g. through better IT systems, electronic reporting systems). And, fostering investment to ensure that fish stocks and marine ecosystems are sustainably and effectively managed will remain the core of the EU’s future funding under any circumstances. Moreover, the departure from harmful to positive subsidies some 15 years ago considerably improved the state of our stocks. For example, 99 % of all landings from waters that are exclusively managed by the EU (Atlantic and North Sea) come from sustainable fisheries.

And, this positive experience led the EU to submit at the WTO its ambitious proposal on subsidies contributing to overcapacity and overfishing. Indeed, under the proposal all fisheries subsidies would be prohibited apart from those that are clearly positive and those to fishing that is subject to strict and objective fisheries management requirements. The proposal would imply concrete deliverables on the ground: removal of harmful fisheries subsidies, swap from harmful to positive subsidies and implementation of proper fisheries management. Approaches advocated by certain Members would only legitimise increased subsidisation and result in an increase in harmful subsidies to the detriment of the positive ones.

Some WTO Members questioned our new foreign direct investment rules. The EU is welcoming foreign direct investment, which is fundamental for our economic development, technological progress and closer integration into the global economy. However, foreign investment may also undermine essential interests of the Union and its Member States, as witnessed by some investment trends, which emerged recently. Therefore, strengthening awareness and scrutiny over foreign investment likely to affect security or public order in Europe has become our key policy objective, which we want to achieve by establishing a first-ever European framework for screening of investment into the Union. Let us stress that under new rules, the screening of foreign direct investments will be carried out in a transparent and non-discriminatory manner. Indeed, the new rules do not exempt any third country investor from the scope of the Regulation nor favour any non-EU country investor.

Several Members raised their concerns on EU trade defence policy, namely increased number of anti-dumping measures imposed on their countries, changes of the EU anti-dumping legislation: introduction of the new dumping calculation methodology, namely the criteria of “significant market distortions” and including in their assessment compliance with core labour and environmental standards.

The EU does not target any countries in the application of trade defence instruments.  The EU opens trade defence investigations where it receives duly substantiated complaints from industry alleging dumping/subsidization and relating injury. The EU is obliged to initiate an investigation if all the evidence is provided, regardless of the country of export. Only after the completion of a full investigation confirming the allegations are measures finally imposed.

The introduction of the new methodology was necessary due to the new challenges in international trade. The new methodology is country-neutral and is applied equally to all WTO Members. In order to trigger the application of the new methodology the existence of significant distortions in the exporting country must be established. In determining the existence of distortions, several criteria are assessed, such as state policies and influence, the widespread presence of state owned enterprises, discrimination in favour of domestic companies and the lack of independence of the financial sector.

In this context, the recitals to the amending legislation explain that relevant international standards, including core conventions of the International Labour Organisation (ILO) and relevant multilateral environmental conventions, should be taken into account, where appropriate.

To respond to the concerns on EU’s safeguard measures on the import of steel, we would like to stress that the EU is far from being a regular user of safeguards. The EU steel safeguard measures were nevertheless justified given the exceptional events causing trade diversion, and threatening to seriously injure the EU steel industry. These measures, and their subsequent review in September 2019, were taken in full conformity with our WTO obligations. They are balanced and proportionate as they ensure a duty-free continuation of traditional trade flow. Safeguard measures are only introduced beyond specific thresholds.

Some Members have expressed concerns related to the EU’s position on the Digital Services Tax. We can confirm that the EU is fully committed to advancing the work which is taking place in the OECD/G20 to reach a consensus-based global solution by the end of 2020.

Other Members mentioned some Intellectual Property Rights (IPR) issues. IPRs are among the principal means through which companies, creators and inventors generate returns on their investment in innovation and creativity. The EU is therefore committed to providing for an efficient, well-designed and balanced IPR system. Ensuring such an IPR system in the EU is the main objective of the recently concluded and ongoing reforms, such as the unitary patent package and the amendment of the regulation on the supplementary protection certificates.

The EU has a specific focus on IPR enforcement, considering the threat posed by IPR infringements not only to innovation and creativity, but to society at large – lost revenues and jobs, risks to consumer health and safety as well as the environment. Efficient customs action is key in this respect as one of the main ways to reduce the availability of counterfeit goods.

We also received comments on the EU Audiovisual Media Services Directive, which has been revised in 2018 and is a key element of the EU modernised regulatory framework for audiovisual media, which aims to promote cultural diversity and bring more opportunities for creators.

The Member States of the European Union have established a dense network of co-production agreements with a large number of third countries. Works produced in the framework of those agreements are considered as European works if they comply with the conditions set out in the Audiovisual Media Services directive (AVMSD). Furthermore, the quality of European works is recognised also to works co-produced under agreements related to audiovisual sector concluded between the EU and third countries fulfilling the conditions defined in those agreements.

Many Members referred to the European Green Deal. The EU’s trade policy will continue to support the EU’s sustainable green transition, which at the same time, is a strategy for growth. The European Green Deal is an integral part of the EU strategy to implement the UN 2030 Agenda on Sustainable Development. Challenges are complex and interlinked. This year’s UN Climate Change Conference (COP26) in Glasgow in November will be an important political moment where countries will reflect on the adequacy of ambition.

A Carbon Border Adjustment mechanism, raised by some WTO Members, is not designed to protect European industry from open competition but rather to ensure the environmental integrity and effectiveness of EU climate policies as they apply to its trade-exposed industries. The internal market of the EU will stay open to foreign competition under applicable rules. Any measures that he EU takes will be in compliance with its international obligations, including the rules of the World Trade Organization and our trade agreements, in particular.

We will not address, for obvious reasons, Indonesia’s question concerning the amendments to the EU renewable energy Directive in this framework in view of the ongoing consultations between the EU and the Indonesian government.

A Member also enquired about the state of play of the EU Single Window. At the end of 2019, the EU Single Window environment for customs core platform was used by 9 EU Member States in pilot mode. The EU targets early 2022 for the entry into force of the legislation on the EU Single Window environment for customs. We envisage gradual implementation over the next decade with the objective of making the use of Single Window mandatory in all EU Member States.

Cambodia mentioned indica rice measures. The EU scheme of generalised tariff preferences, which foster the sustainable economic, social and environmental development of developing countries, contains a safeguard clause by which preferences can be temporary suspended. Following a detailed investigation based on a strict application of the relevant rules, the EU concluded that indica rice imports from Cambodia caused difficulties to the EU producers and measures were therefore introduced, as of January 2019, for a period of three years.

The EU’s decision to withdraw part of the tariff preferences granted to Cambodia under our Everything But Arms trade scheme is due to violations of human rights principles. In case Cambodia shows significant progress, notably on civil and political rights, the EU may review its decision. We stand ready to engage with Cambodia.

In conclusion and as already expressed by Director-General Sabine Weyand on the first day of the review, the EU has taken very careful note of all the issues of interest as well as all the concerns Members have expressed during this review. The EU sees great value in this exercise of transparency and peer review and very much appreciates the opportunity to hear the honest views of our fellow Members as well as the chance to explain our policies.

Many of you have lauded the EU for its economic openness and transparency as well as its efforts in support of the multilateral system and the rules-based order.  The EU has continuous interest in market openness, which we consider as a basis of our and global economic success and prosperity.