Opinion of the Economic and Social Committee on 'The global challenge of international trade: A market access strategy for the European Union` (97/C 56/10)

On 31 October 1996 the Economic and Social Committee, acting under the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on 'The global challenge of international trade: A market access strategy for the European Union`.

The Section for External Relations, Trade and Development Policy, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 17 October 1996. The Rapporteur was Mr van Dijk.

At its 339th Plenary Session (meeting of 31 October 1996) the Economic and Social Committee adopted the following Opinion by 49 votes in favour, one vote against and one abstention.

1. Introduction

1.1. At the end of the GATT-Uruguay Round a decision was taken to establish the World Trade Organization (WTO). The founding meeting took place in Marrakech. This organization has to control the implementation of the results of the Uruguay Round. The first ministerial meeting will take place in December 1996 in Singapore.

1.2. In order to sustain the momentum for an open multilateral trading system and to achieve the broadest possible support for continuing efforts for market opening at global level, the European Commission has published a Communication, setting a new strategy to improve market access in third countries and the European Union's objectives for the Singapore Ministerial meeting and the future agenda for the World Trade Organization, and, by doing so, contributing to consensus building on the new trade agenda.

1.3. Short overview of the contents of the Commission paper

The prosperity of the European Union depends in large part on foreign trade and investment. The Union has an open economy in which many jobs are dependent on exports, thus making the common trade policy a keystone of the EC Treaty.

The economy's openness to international competition offers many advantages to firms and individuals. However, European firms encounter a multitude of obstacles abroad. The Community must therefore seek to improve market access to third countries while continuing to progressively open its own market.

Accordingly, the Commission sets out a number of proposals for implementing this strategy in its Communication of 14 February 1996 entitled 'The Global Challenge of International Trade: A Market Access Strategy for the European Union`.

The proposals take the form of explicit goals: the Community's trading partners must adhere to and comply with obligations under the WTO agreements, while the Community should respect its own obligations under these agreements. In trade policy, existing market-opening instruments should be exploited to the full. The Community must also take action to eliminate or reduce all barriers to economic flows. Finally, firms must be informed of the resources available, including trade policy instruments, for protecting the Community against unfair trading practices.

The Community has two main groups of instruments for achieving these objectives: instruments at the multilateral level (implementation and consolidation of the results of the Uruguay Round, various steps to open up markets and to identify new areas of liberalization) and the bilateral level (bilateral negotiations of a general or sector-specific character and effective implementation of agreements providing for market access or for free trade with third countries individually or with regional blocs). These two sets of instruments can be complemented with back-up policies, i.e. action enhancing export opportunities for European firms (mutual recognition, industrial cooperation, specific export promotion activities).

In this first analysis, which the Commission hopes to subsequently refine and develop, the focus is on improved access to markets worldwide as one of the Community's prime objectives. While lending the WTO its full support, the Commission stresses that the next round of WTO negotiations should give priority to tackling problems whose resolution would create new opportunities for European firms.

2. General comments

2.1. The Economic and Social Committee wants to express its support for the initiative of the Commission and supports the strategy to achieve better access to third country markets, in order to promote European exports and thereby create more jobs in Europe. The Committee wants to ask the attention of the WTO for the complete application of the results of the GATT-Uruguay round and the agreements reached in Marrakech. The WTO should play an important role in monitoring this procedure.

2.2. The Opinion of the Economic and Social Committee is that the ultimate goal of the Union trade policy is to achieve a fair and equitable rules-based multilateral trading system, not mere trade liberalization. In this context, the Economic and Social Committee reiterates its view that free global trade is not an end in itself, but a means to achieve lasting economic growth and social welfare for all participants in the multilateral system. Therefore, a global set of rules on fair competition should be established by the WTO, in a way that a level playing field will be created.

2.3. This principle will be worked out in the following chapters, concerning competition, investment, social context and environment.

2.4. The Committee calls on the Commission to actively encourage the accession of China and Russia to the WTO. This would magnify the impact of agreements reached in the WTO.

3. Trade and Competition Policies

3.1. Among the issues on the 'new trade agenda` for the WTO, the Economic and Social Committee puts a particular emphasis on the future debate on trade and competition policy. The objective of competition policy is to maintain competition in domestic markets and at the level of the European Union in order to promote economic efficiency and consumer welfare. It encompasses traditional competition or anti-trust legislation dealing with private sector restraints on competition, but also government regulations which directly or indirectly affect the behaviour of enterprises and the structure of industry. The objective of a rules-based multilateral trading system is to increase global economic and social welfare by facilitating global trade and investment flows. The priority for WTO negotiations in this field should be to strengthen the world trading system and enhance competition through the establishment of a multilateral policy framework which aims at avoiding potential conflicts between trade and competition policy objectives.

3.2. Multilateral competition agreements exist in the EU, the North Atlantic Free Trade Agreement (NAFTA) and the Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA). Of these, the EU provides the only example of a supranational competition authority. Both UNCTAD and the OECD have previously attempted to develop rules for the conduct of multinational enterprises. These rules are embodied in the 1980 UNCTAD Restrictive Business Practices Code and the 1976 OECD Guidelines for Multinational Enterprises and are supported by the international business community and the trade unions. However, they are voluntary in nature and to date competition policies lack transparent multilateral institutions and procedures for enforcement and dispute settlement. This is of particular concern in countries outside the EU, where obstacles to market access are greater than in EU Member States. Hence, this makes it necessary to involve these countries in a process of regulatory reform for international agreements on trade and competition, ensuring that further steps to be taken are non-discriminatory in both directions.

3.3. An agenda for negotiations at WTO level for reform could include:

- setting standards for strengthened domestic competition laws, including an enlargement of their scope, and taking account of transparency, enforcement and dispute-settlement procedures, bearing in mind that international effects of competition policies depend first and foremost on the relative strength of national competition regimes;

- increasing the scope of international competition agreements and fostering convergence of competition principles and increased anti-trust cooperation with a view to further international harmonization of anti-trust legislation, bearing in mind that increasing trade liberalization carries the risk of oligopolization at international level;

- improving conditions for market access, both domestically and internationally, notably in the service sector, and covering rules for import and export cartels, specific business arrangements and practices, local content requirements and other trade-related investment measures and merger controls.

4. Trade and Investment

4.1. Achieving multilateral rules for investment will be of particular importance for substantial progress being made in market access. The Economic and Social Committee notes that negotiations on a Multilateral Agreement on Investment (MAI) are well advanced in the framework of the OECD. The aim is to complete an agreement with high standards of investment liberalization and protection and effective dispute-settlement procedures by May 1997, which will be open to all OECD members and the European Union, and to accession by non-OECD countries. All OECD members and the European Commission are taking part in the negotiations. Issues related to the accession by non-OECD members are discussed in an active programme of seminars and informal consultations between the Negotiating Group and interested non-member countries. A progress report by the MAI Negotiating Group was endorsed by the OECD Ministerial Council in May 1996 ().

4.2. The Economic and Social Committee in its Opinion on the global harmonization of direct investment regulations () of 28/29 February 1996 (Rapporteur: Mr Cal) has already expressed its view on the MAI in a comprehensive way. It is therefore not repeated here in extenso. The Opinion stressed the growing importance of foreign direct investment in the process of globalization and in relations between national and/or regional economies. In accordance with its prior statement, the Economic and Social Committee welcomes the efforts being made to achieve a broad definition of investment, and emphasizes the need for a regional economic integration clause (REIC) so as to avoid the jeopardy of MFN clauses, and effective dispute-settlement procedures by making them compatible with procedures created in the WTO and with existing instruments for resolving disputes between investors and states. Sub-federal and local bodies in the contracting parties should be included in the scope of the agreements so as to remove current uncertainties to this connection. It was further the Committee's view that the principle of national treatment should be respected but exceptions and reservations should be known; likewise, inverse discrimination against a country's own national firms should not be allowed as is frequently the case with 'export processing zones`. Attempts to attract Foreign Direct Investment (FDI) on the basis of low labour standards should be restricted and the principles of existing instruments, such as the OECD Guidelines for Multinational Enterprises, incorporated in the MAI, thus making a positive contribution to future negotiations on trade and investment at WTO level after the Singapore Ministerial Conference.

5. Trade and social context

5.1. As stated earlier international trade will benefit everybody if a level playing field is created. This is only possible if rules are established and accepted by all the Member States at the WTO. This applies not only to rules concerning investment and competition, but also to labour standards and environment.

5.2. Concerning labour standards, the Economic and Social Committee has expressed itself in several Opinions in favour of social clauses in international trade agreements. The Economic and Social Committee stated in its opinion on the effects of Uruguay Round Agreements 'that the working programme of the World Trade Organization should include a "social clause"` ().

5.3. In this Opinion, the Economic and Social Committee wants to go into more detail on this subject. In the first place, it wants to clarify which labour standards should be included in international labour agreements. At the moment there is a wide agreement on five labour standards:

- non-discrimination (ILO Convention 111);

- the prohibition of forced labour (ILO Conventions 29 and 105);

- the prohibition of child labour (ILO Convention 138);

- the right to organize (ILO Convention 87);

- the right for collective action (ILO Convention 98).

All these ILO Conventions have been ratified by a large majority of countries, so these conventions might be seen as internationally accepted standards ().

The recent OECD report on trade and labour standards has shown that their implementation can support economic development in providing a closer link between markets and social development. The OECD has also found that concerns expressed by certain developing countries that these five core standards would negatively affect their economic performance are unfounded (). The Committee considers that the list of basic labour standards should not be expanded for the moment. It would also call on those countries urging the incorporation of labour standards in international trade agreements to ratify these agreements themselves.

The G7 Heads of State and Government at their Summit meeting held in Lyon in June expressed the view that the respect for these internationally recognized labour standards were part of the fundamental objective for sustainable development which would enable all developing countries, whatever their stage of development, to share and participate in the benefits of globalization ().

5.4. When a country has ratified an ILO Convention, negotiations take place between the government of that country and the ILO on bringing national legislation into line with the provisions of the ILO convention. The ILO ensures that the national legislation is consistent with the ILO convention. Subsequently the ILO ascertains whether the convention's provisions are actually being complied with. Social partners and the government are invited to send in their reports, which are the basis for this monitoring system. If a country does not fulfil all the provisions of the convention, the ILO will report. The ultimate penalty is to publish the violation of these standards of a certain country by the ILO. Besides a publicity campaign, the ILO does not have at its disposal sanctions which can be used to compel a country to comply with the conventions.

5.5. Up until now labour standards are included in the US Trade and Tariff Act, the European Scheme for Generalized Tariff Preferences and in an appendix to the NAFTA agreement. All these arrangements have a bilateral character, which might be more sensitive to protectionist pressure than multilateral agreements. The inclusion of labour standards in the work of international trade foras will give the international Community the instrument to encourage countries to respect widely accepted labour standards. For that reason, the Economic and Social Committee prefers basic labour standards to be dealt with also in the WTO. Their inclusion is viewed by the ESC as a means not only of boosting social rights throughout the world but of strengthening the principle of free trade. It fears that the continued flouting of social rights in many countries could have the effect of undermining support for the principle of free trade.

5.6. In the first instance, a moral appeal should be launched, for instance through discussion and dialogue, to persuade the government to respect the labour standards. If this policy is without any result, a stimulus policy can be applied. This is already common practice in the GSP-regulation. A country can earn extra trade preferences on the condition that it respects labour standards. At the same time industrialised countries should develop, in close cooperation with the countries concerned, flanking policies. The aim of this policy is for countries to respect human values. If these instruments also do not influence the attitude of the country's government, more forceful measures, to be agreed upon, could be proposed.

5.7. As the ILO has a lot of experience in this field, it should monitor the fulfilment of the basic labour standards. As stated in point 5.4, the ILO has its own role to play in this monitoring. If the instruments deployed by the ILO have been without result, it could be agreed to pass on the dossier to the WTO which has both the resources and power to participate in efforts to strengthen labour standards in member countries.

5.8. The Committee welcomes the approach the Commission has chosen in its Communication to the Council concerning the trading system and internationally recognized labour standards. In this Communication the Commission proposed setting up a working party during the WTO conference in Singapore to examine the relationship between international trade and labour standards.

6. Trade and environment

6.1. The primary cause of environmental problems is not liberalized trade but the failure of markets and governments to price the environment appropriately. It is of the utmost importance that the OECD should update its Polluter Pays Principle (PPP) and continue its activities in this area. The PPP offers excellent possibilities for internalizing environmental costs.

6.2. The Commission states that it is possible to use international trade as an engine for achieving sustainable development if the proper environmental policy measures are taken at national and international level. The ESC shares this view, but at the same time is aware of the negative environmental effects that world trade can have. It is recognized that more analytical work is needed in order to achieve a better understanding of the 'potential effects of trade liberalization` and that there is a need to conduct environmental reviews of trade instruments and agreements. From the OECD report on the implementation of the procedural guidelines on trade and environment it seems that these guidelines have proved their worth. The ESC therefore urges the Commission to encourage all OECD countries to implement these guidelines scrupulously.

6.3. The ESC notes the conclusion drawn in the Communication from the report of the OECD Council of Ministers in May 1995 that no systematic relationship can be found between environmental policies and competitiveness impact. This also bears out the view expressed in the report that the advantages of stricter environmental standards on average outweigh the disadvantages, so that 'win-win` situations are possible. It is difficult to assess to what extent the fear of possible competitive disadvantages for firms or the prospects of the efforts which would have to be made to overcome the short-term disadvantages referred to earlier will discourage governments from taking the necessary environmental measures.

6.4. The ESC can agree with the need to develop an adequate framework within GATT/WTO for trade measures taken pursuant to an MEA. The ESC feels that this would guarantee the integrity of the open trading system and ensure that Community objectives are achieved. What the Commission's proposal says in short is that for measures which are taken pursuant to MEA there will be a 'lighter` WTO regime than for other measures. The ESC finds that these proposals strike a proper balance between the two interests and considers that trade measures may be taken in MEAs to prevent the so-called 'free-rider` problem from occurring. It is also important that more clarity be provided about the operational significance of major provisions from WTO Treaties for the formulation of trade measures in MEAs.

6.5. Finally, the ESC is convinced of the need for the existence of a generally recognized and authoritative international environmental organization which, as it were, can act as the natural counterpart to the WTO. An 'autonomous` body seems to be most suited for this role. However, the ESC feels that it would be undesirable to set up yet another new organization for this purpose. An existing organization, such as the UNEP, may be more suitable.

7. Specific remarks

7.1. In the Communication, the Commission touches on the issue of bilateral agreements with third countries. As has been stated earlier in this document, the Economic and Social Committee strives for fair and equitable international trade, which must be guaranteed by multilateral agreements. The Committee does, however, take the view that bilateral agreements between the EU and third countries or regional associations of third countries can make an important contribution to building up a multilateral framework, particularly since such agreements provide the basis for creating a critical mass of countries which are better orientated towards including the social and environmental dimensions in international trade. The actions the Community undertakes to improve market access on the bilateral level should always be in parallel and in coordination with its multilateral trade policy. In order to effectively achieve the objective of further liberalization in third country markets the Community should use all available trade policy instruments. The possibilities of consultation and dispute settlements in bilateral treaties should be exploited where necessary to more effectively tackle market access problems. At the same time, the Committee wonders if all the bilateral agreements will fit in the rules of the WTO.

7.2. Coordination between Commission and Member States and within the Commission will be of crucial importance for a comprehensive and successful implementation of the European Union's market access strategy. The Economic and Social Committee welcomes the establishment of a database with information on tariff and non-tariff barriers to European exports, to which the Commission itself, business, labour and commercial attachés of Member States in third countries will contribute. A better information system will help to ensure transparency in the global economy, creating new business opportunities and providing information resources, which inter alia small and medium sized enterprises find difficult to accede by their own means and ensure an efficient monitoring process. The success of the market access strategy depends to a large extent on the successful cooperation of enterprises and industrial associations with the Commission. Exchange of information between private business, Commission and Member States is necessary to achieve a better and coherent market access strategy. Special concern should be given to the involvement of the SMEs which should, in particular, benefit from improve information.

Brussels, 31 October 1996.

The President of the Economic and Social Committee

Tom JENKINS

() OECD(1996), Multilateral Agreement on Investment. Progress Report by the MAI Negotiating Group, OECD/GD(96)78.

() OJ No C 153, 28. 5. 1996, p. 16.

() Opinion on the effects of the Uruguay Round Agreements, OJ No C 393, 31. 12. 1994.

() ILO Convention 138 on child labour is an exception in this respect. For several reasons many countries have not ratified this convention. Nevertheless, nearly all the UN Member States have signed the UN Treaty on Child Rights, in which all the provisions of the ILO Convention 138 are included. So, also the issue of child labour is widely accepted at international level.

() OECD (1996), Joint Report on Trade, Employment and Labour Standards, OECD/GD(96). The complete Study of Core Workers' Rights and International Trade will be published in September.

() Lyon Summit Economic Communiqué, Making a Success of Globalization for the Benefit of All, Lyon, 28. 6. 1996, paragraph 34.