Source: EURLEX
Language: en
Format: md

![european flag](./../../../images/eclogo.jpg)EUROPEAN COMMISSION

Brussels, 18.2.2021

COM(2021) 66 final

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS EMPTY

Trade Policy Review - An Open, Sustainable and Assertive Trade Policy

Trade Policy Review -

An Open, Sustainable and Assertive Trade Policy

1.European Trade Policy at a time of economic transformation and geopolitical instability: Preparing for the world of 2030

Trade is one of the EU’s most powerful tools. It is at the centre of Europe’s economic prosperity and competitiveness, supporting a vibrant internal market and assertive external action. As a result of the openness of our trade regime, the EU is the world’s largest trader of agricultural and manufactured goods and services and ranks first in both inbound and outbound international investments. Thanks to the common commercial policy, the EU speaks with one voice on the global scene. This is a unique lever.

With new internal and external challenges and more particularly a new, more sustainable growth model as defined by the European Green Deal and the European Digital Strategy, the EU needs a new trade policy strategy – one that will support achieving its domestic and external policy objectives and promote greater sustainability in line with its commitment of fully implementing the UN Sustainable Development Goals. Trade policy must play its full role in the recovery from the COVID-19 pandemic and in the green and digital transformations of the economy and towards building a more resilient Europe in the world.

Restrictions imposed in 2017-2019 already affected a higher value of trade than during the 2009-16 period and the IMF regards trade tensions as still posing a serious risk to the global economy, at a time of particular weakness.

IMF Strategy, Policy and Review Department (2020), Developments in Global Trade Policy: Broadening Conflict May Hinder Recovery, October 1, 2020

Making the right policy choices in designing a trade policy for the world of 2030 means taking into account recent political, economic technological, environmental and social shifts and the global trends emerging from them
[1](#footnote2)
.

Global uncertainty is on the rise fuelled by political and geo-economic tensions. Instead of international cooperation and multilateral governance, there is growing unilateralism, with the consequent disruption or bypassing of multilateral institutions. These trends have their roots in several developments.

First, globalisation, technological evolutions and the build-up of global value chains have had a dichotomous impact on economies and societies. On the one hand, they have created massive efficiency gains, fuelling sustained, trade-led economic growth in many parts of the world. This has helped to lift millions of people out of poverty. On the other hand, these developments sometimes have had a strong disruptive effect leading to growing inequalities and leaving some individuals and communities behind. What were expected to be transitory adjustment costs have sometimes turned into permanent losses in living standards, employment opportunities or wages and other working conditions. In many cases, governments are perceived to have been insufficiently responsive to economic adjustments and mitigating their negative impacts
[2](#footnote3)
. This has led to calls for de-globalisation and to the rise of inward-looking and isolationist reactions.

Second, the rapid rise of China, demonstrating global ambitions and pursuing a distinct state-capitalist model, has fundamentally changed the global economic and political order. This poses increasing challenges for the established global economic governance system and affects a level playing field for European companies competing globally and at home.
[3](#footnote4)

Source: IMF WEO

Third, the acceleration of climate change, together with biodiversity loss and environmental degradation, paired with tangible examples of their devastating effects have led to the recognition of the green transition as the defining objective of our time.

The European Green Deal is the EU’s new growth strategy which facilitates resetting our economic policy to better correspond to the challenges of the 21st century. Its overarching objective is the transition towards a climate neutral, environmentally sustainable, resource efficient and resilient economy by 2050, with the ambition to reduce GHG emissions by at least 55% by 2030 as well as the protection, conservation and enhancement of the EU’s natural capital. As such, it will be the driving force behind our competitiveness and will lead to a progressive but profound transformation of our economies, which in turn will have a strong bearing on trade patterns.

The green transition needs to go together with social equity. A serious decent work deficit persists in global supply chains in many parts of the world
[4](#footnote5)
, from serious violations of freedom of association to poor working conditions
[5](#footnote6)
. Depriving workers of their fundamental rights puts downward pressure on social conditions globally and fuels people’s disenchantment with globalisation and open trade.

Fourth, the digital transformation is another key enabler of sustainable development, but also a space of competition and inadequate multilateral governance. As it embarks on its Digital Decade, supporting Europe’s digital transformation is a priority both in internal and external policies including trade policy and instruments. At the same time, the nature of trade will continue to evolve. It will become more innovation-driven, supported by intellectual property (IP) protection, with an increasing role of services trade compared to goods.
[6](#footnote7)
 Services not only contribute directly to the value chain (financial services, telecommunication, IT, transport and logistics) but - often even more importantly - they contribute by being incorporated in manufacturing products. The servicification of the economy and the rise of digital technologies have created well-paid and high quality jobs and have fuelled economic growth. 

The COVID-19 pandemic has accelerated and focused attention on these shifts, while creating challenges of its own. It has highlighted the interconnected nature of economies, which rely on stable and predictable international rules and resilient transportation channels. It has exposed the risk of a breakdown of global cooperation and trust. It has also raised questions regarding the right policy mix in terms of diversification of domestic and external sources of supply and the build-up of strategic production capacities and reserves. It has also shown the importance of expanding production of health products in a crisis situation and the need for cooperation to ensure equitable access for the more vulnerable populations. Moreover, it has led to a significant increase in government support and involvement in the economy, which is necessary to rescue healthy companies and protect jobs, but may not be sustainable in the long-run and may generate tensions.

Finally, the economic outlook across the globe needs to be factored in. The EU will remain a global economic power and a leader on sustainable growth. The latest OECD long-term forecasts indicate that real GDP in the euro area will increase by 1.4% annually (compounded annual growth rate) over the next 10 years
[7](#footnote8)
. Nevertheless, these growth prospects will be eclipsed by developments in other regions, and Europe’s relative position in the international economy will change. Already in 2024, 85% of the world’s GDP growth is expected to come from outside the EU. The continued rise of China will impact heavily on global economic developments over the next 10 years - the OECD predicts Chinese GDP will grow by 4.7% annually.

EU trade policy has to take into account these global trends and challenges to reflect the political ambition of ‘a stronger Europe in the world’
[8](#footnote9)
. It should also respond to the expectations of stakeholders as signalled in discussion with Member States, the resolution adopted by the European Parliament
[9](#footnote10)
 and the views expressed in the public consultation
[10](#footnote11)
.

Source: OECD Real GDP Long Term Forecasts

2.A trade policy that supports the EU’s open strategic autonomy

2.1.Open strategic autonomy

A stronger and more resilient EU requires joined up internal and external action, across multiple policy areas, aligning and using all trade tools in support of EU interests and policy objectives. It requires leveraging our strengths while engaging with partners. “Open strategic autonomy” responds to this need. Open strategic autonomy
[11](#footnote12)
 emphasises the EU’s ability to make its own choices and shape the world around it through leadership and engagement, reflecting its strategic interests and values. It reflects the EU’s fundamental belief that addressing today’s challenges requires more rather than less global cooperation. It further signifies that the EU continues to reap the benefits of international opportunities, while assertively defending its interests, protecting the EU’s economy from unfair trade practices and ensuring a level playing field. Finally, it implies supporting domestic policies to strengthen the EU’s economy and to help position it as a global leader in pursuit of a reformed rules-based system of global trade governance.

Open strategic autonomy is a policy choice, but also a mind-set for decision makers. It builds on the importance of openness, recalling the EU’s commitment to open and fair trade with well-functioning, diversified and sustainable global value chains. It encompasses:

·resilience and competitiveness to strengthen the EU’s economy;

·sustainability and fairness, reflecting the need for responsible and fair EU action;

·assertiveness and rules-based cooperation to showcase the EU’s preference for international cooperation and dialogue, but also its readiness to combat unfair practices and use autonomous tools to pursue its interests where needed. 

2.2.Openness and engagement as a strategic choice

In 2019, the EU exported over EUR €3.1 trillion worth of goods and services and imported EUR €2.8 trillion of goods and services. Taken together, it makes the EU the biggest actor on the world trading scene.

The EU is built on openness, both internally and externally. It is the biggest exporter and importer of goods and services worldwide. Among the large economies, it is the one where trade accounts for the largest share of its economy. EU exports support 35 million jobs in the EU, up from 20 million in 2000
[12](#footnote13)
. The EU economy equally relies on imports, providing access to critical raw materials and other inputs. 60% of EU imports are actually used to produce EU goods and the EU’s increased openness to imports since 1995 has boosted its income by about EUR 550 billion. The EU is also a major destination for exports from low-income countries – in particular from Africa – and from the EU’s neighbours, thus helping to foster development and economic growth worldwide. Just as in the aftermath of the last economic and financial crisis, trade will be critical for the EU’s green recovery from the COVID-19 economic slump.

Source: Eurostat COMEXT

For the EU to strengthen resilience and support the competitiveness of its various economic sectors, we need to ensure open and undistorted access to international markets, including new market access and open trade flows to the benefit of both our industry, workers and citizens. The EU’s industrial ecosystems that encompass all players operating along a value chain, from farmers and manufacturers to service providers, from global multinationals to SMEs and start-ups, play a key role in the internationalisation of the EU’s economy.

The EU is the number one trading partner for 74 countries around the world. It is the number one trading partner for Asia, Africa, the US, the Western Balkans and the EU’s Neighbourhood.

The EU is also the world’s largest provider of Aid for Trade.
[13](#footnote14)
 The COVID-19 pandemic has strengthened the need to implement fully the 2017 EU Joint Aid for Trade Strategy. Indeed, the EU has a strategic interest to support enhanced integration in the world economy of vulnerable developing countries, many of which are in the geographical proximity of Europe.

The EU must fully use the strength provided by its openness and the attractiveness of its Single Market. The EU’s openness and engagement on the international scene make it a credible supporter of international cooperation, multilateralism and the rules-based order, which in turn are critical to the EU’s interests. The EU works with partners to ensure adherence to universal values, notably the promotion and protection of human rights. This includes core labour standards, and social protection in line with the European Pillar of Social Rights, gender equality
[14](#footnote15)
, and the fight against climate change and biodiversity loss.

Tackling climate change and other environmental challenges can only be done through openness, global engagement and cooperation. The EU will not win the fight against climate change by acting alone. In order to succeed, it is important to promote the understanding among our partners that the green transformation is not only a necessity in the medium term, but already constitutes smart economic policy today. The EU needs to leverage its openness and engage its partners, notably the biggest emitters and polluters, so that they contribute their fair share to climate change mitigation. Likewise, the preservation of biodiversity is a global challenge that requires global efforts.

Openness and engagement are a strategic choice that also cater for the European Union’s well-understood self-interest. Openness brings prosperity, competitiveness and dynamism. At the same time, an open economy needs to be combined with decisive action to mitigate and adapt to climate change, protect the environment and strong social and labour policies, responding to the expectations of EU citizens. Only this will allow us to spread the benefits of openness fairly and facilitates adjustment to the transformations of the global economy so that no one is left behind.

2.3.Enhancing resilience and sustainability of value chains

Strengthening the resilience and sustainability of the EU economy, and its supply chains is a pillar of the European Union’s drive towards open strategic autonomy.
[15](#footnote16)
 The COVID-19 pandemic has tested the resilience of economies worldwide. The first lesson to be drawn from the crisis is that most supply chains have shown remarkable resilience. Given the right conditions, companies are able to ramp up global production and distribution, particularly if they can rely on open supply chains, supported by stable, predictable and transparent trading rules.
[16](#footnote17)
 Governments have a special responsibility for creating such an environment, but also supporting fair and equitable distribution of supplies for which demand is greater than available supply. Trust between countries, but also between governments and the private sector is critical in this regard. The EU has thus strongly supported global efforts in the G20, the WTO and bilateral relations, to monitor critical supply chains, keep them open and undisrupted, and ensure fair and equitable access to critical goods. This has been particularly important in the context of the rollout of COVID-19 vaccines, where production in a limited set of countries needs to meet the demand of the entire world. The EU intends to reinforce cooperation with other countries and the private sector to expand production and support equitable access to vaccines. It will ensure that any short-term measures aimed at access to vaccines do not disrupt supplies to vulnerable countries and are implemented in a well-targeted, equitable and transparent manner. Resilient and sustainable transport plays a key role in facilitating international trade and preserving the EU’s supply chains. The development of EU connectivity has the potential to boost resilience for EU trade and to maintain the EU as a global connectivity hub as recognised by the Sustainable and Smart Mobility Strategy.

·When faced with an unprecedented rise in demand, as in the case of facemasks, trade openness was key in expanding the range of alternative sources of supply.

·Transparency is also very important, as it effectively contributed to the resilience of food supply chains where the Agriculture Market Information System (AMIS) may have been useful in assuaging fears on the security of food supply. Crisis preparedness will be particularly important in the agriculture sector.

·The risk of trade-restrictive measures cutting developing countries off from global value chains should not be underestimated.

Given the scale of the COVID-19 crisis and the impact it had on all aspects of economic and social life, including production and mobility, disruptions in certain sectors and products were inevitable. The combination of an exponential increase in demand of certain health related critical products with supply shortages due to lock-down or restrictive measures has exposed some vulnerabilities in the health sector. They need to be analysed carefully and addressed effectively for the future. Solutions can range from crisis preparedness to diversifying production and supply chains, ensuring strategic stockpiling, as well as fostering production and investment including in neighbouring countries and Africa.

The private sector has a central role to play in assessing the risks and balancing ‘just in time’ production with appropriate safeguards. It is a key factor to ensure resilience in the face of supply disruptions or demand shocks, especially where companies depend on a single supplier.

Policy makers also need to deepen their understanding of vulnerabilities, share information and foster cooperation. The Commission’s work on identifying strategic dependencies, particularly in the most sensitive industrial ecosystems such as health, will provide a solid basis for defining the necessary policy responses and for engagement with the industry. This work will support, amongst others, the implementation of the new Pharmaceutical Strategy
[17](#footnote18)
 and the preparation of the updated industrial policy strategy.

Trade policy can contribute to resilience by providing a stable, rules-based trading framework, opening up new markets to diversify sources of supply, and developing cooperative frameworks for fair and equitable access to critical supplies. In this context, the EU is pursuing with partners a trade and health initiative in the WTO.

Enhancing the resilience of supply chains also goes hand-in-hand with the EU’s objective of making supply chains more sustainable, in particular by promoting sustainability standards across global value chains. More sustainable supply chains have generally proven to also be more resilient.
[18](#footnote19)
 Trade policy can also contribute to this objective by promoting responsible business conduct and greater transparency and traceability in supply chains. The forthcoming legislation on sustainable corporate governance as well as deforestation will be important milestones in this regard.

2.4.Trade policy in support of the EU’s geopolitical interests

Close cooperation with partners will be important in supporting multilateralism
[19](#footnote20)
 and the rules-based international order. The existing international economic governance framework is being undermined. If this continues, it will impact economic relations and trade, and also the security and stability that we take as normal. For these reasons support for effective rules-based multilateralism is a key geopolitical EU interest. WTO reform must therefore be seen in a broader context of the EU’s priorities of ensuring that functioning global institutions support global economic recovery, decent jobs, sustainable development and the green transition. The EU should intensify work to develop alliances in support of effective multilateral institutions. In this connection, dialogue will be intensified with the US, the Ottawa Group, African countries, India and China.

The EU will need to operate in a new multipolar global order marked by growing tensions between major players. The EU should promote approaches to reduce tensions and seek solutions based on a modernised rules-based framework. At the same time, the EU needs to equip itself with tools to operate in a more hostile international environment if necessary.

The transatlantic relationship is the biggest and most economically significant partnership in the world. It is deeply rooted in common interests and values.
[20](#footnote21)
 The new US administration provides an opportunity to work together to reform the WTO, including by reinforcing its capacity to tackle competitive distortions and to contribute to sustainable development. It also offers new prospects to cooperate closely on the green and digital transformation of our economies. The EU will therefore give priority to strengthening its partnership with the US.

The EU’s trade and investment relationship with China is important and challenging.
[21](#footnote22)
 The EU’s policy is based on a combination of active engagement, both at bilateral and multilateral level, and of parallel development and implementation of autonomous instruments necessary to protect the EU’s essential interests and values – in full compliance with its international commitments. Building a fairer and rules-based economic relationship with China is a priority. Ensuring that China takes up greater obligations in international trade, and dealing in parallel, with the negative spillovers caused by its state-capitalist economic system will be central to the EU’s efforts to rebalance the bilateral trade relationship. The recent political conclusion of the negotiations on a Comprehensive Agreement on Investment is part of these efforts. The work to ratify it will require a clear engagement towards the effective implementation of the agreement, on market access, level playing field commitments and on sustainable development.

From a broader strategic perspective, it will be important for the EU to reinforce relationships with countries in and around Europe and to deepen engagement with the African continent and African states. There are multiple cultural, economic and political ties between the two continents. Stability and prosperity in Africa is critical for the EU’s stability and prosperity and needs to be supported by closer economic integration of the two continents, driving the green and digital transitions jointly with Africa.

In order to help fulfil its geopolitical ambitions globally, the EU will need to diversify its relations and build alliances with like-minded partners, including through its broad network of trade agreements. This network is essential with each and every current and future agreement forging our relationships with partners. The EU’s free trade agreements (FTAs) are platforms for enhanced cooperation pursuing our values and interests. They are the basis for engagement with important markets and countries around the world, particularly in the Asia-Pacific region, in Latin America and the Caribbean.

3.Medium term direction of trade policy

3.1.Three core objectives of trade policy for the medium term

The EU’s trade policy needs to focus on three core objectives:

First, supporting the recovery and fundamental transformation of the EU economy in line with its green and digital objectives.

In the context of recovery efforts, EU trade policy should continue to perform its core function of facilitating the exchange of goods and services in a manner that creates opportunities and economic welfare. The focus must be on benefits for citizens, workers and business. At the same time, EU trade policy should help transform the EU’s economy in line with the green and digital transitions. It should unequivocally support the Green Deal in all its dimensions, including the ambition to achieve climate neutrality by 2050. At the same time, the EU’s long-term competitiveness, prosperity and global position will depend on its ability to embrace and harness the digital transformation. The green and the digital transitions should therefore be a key priority for multilateral and bilateral trade policy. For the EU to retain and enhance its influence in shaping the rules necessary in this respect, it needs to develop a more strategic approach to international regulatory cooperation. This calls for closer policy integration between trade policies and internal EU policies.

Second, shaping global rules for a more sustainable and fairer globalisation.

Global trade rules are in urgent need of being updated to reflect today’s economic environment and the challenges the global community faces. Making globalisation more sustainable and fairer should be the underlying driver of trade policy, delivering on the expectations of Europeans and other people around the world. EU trade policy should use all the tools at its disposal to support social fairness and environmental sustainability.

Leading efforts to reform the World Trade Organization and improving the effectiveness of the multilateral framework for trade governance should be the key priority for the EU to achieve this objective. Strengthening stability and rules-based trade will be the central pillar of the EU’s actions, as it is only in such an environment that trade can thrive and international cooperation can develop in the interest of a global sustainable future. At the same time, there is a need to ensure that the rules respond to current economic realities and are well equipped to respond to competitive distortions and ensure a level playing field.

Third, increasing the EU’s capacity to pursue its interests and enforce its rights, including autonomously where needed.

Negotiating trade agreements has been an important tool to create economic opportunities and promote sustainability; implementing those agreements and enforcing the rights and obligations contained in them will be much more significant. This will include ensuring that the EU has the right tools at its disposal to protect workers and businesses from unfair practices. It also implies a greater effort to ensure the effective implementation and enforcement of sustainable development chapters in EU trade agreements, to level-up social, labour and environmental standards globally. By strengthening the implementation and enforcement of its agreements, the EU’s trade policy creates the conditions for businesses to develop, grow and innovate; and secure high-quality jobs in Europe and beyond. Supporting multilateralism and being open for cooperation is not in contradiction with the EU being ready to act assertively in defending its interests and enforcing its rights. The EU should strengthen its toolbox as necessary to defend itself against unfair trading practices or other hostile acts while acting in accordance with its international commitments.

3.2.Six areas that are critical to achieving the EU’s objectives in the medium term

To deliver the three objectives outlined above, the Commission will focus on six areas. For each of these areas a number of headline actions to be accomplished during the Commission’s current mandate are specified under the respective points below.

3.2.1. Reform the WTO

The WTO has been of enormous benefit to its members since its establishment in 1995. It has provided a stable and predictable trading environment, allowing for a massive expansion of global trade, whilst providing a framework for settling trade disputes through adjudication. However, it is now facing a crisis where it is failing to provide negotiating outcomes that deal with the challenges of global trade. Its ability to solve trade disputes is not working, and its system of monitoring need to be improved to ensure transparency or prevent trade barriers.

The Commission intends to pursue reform of the WTO across all of its functions.

WTO rules and practices must be updated and improved to reflect today’s trade realities. This should be based on its membership sharing a common sense of purpose: economic recovery and development, environmental and social sustainability. Modernising the rules and improving the WTO’s functioning - including through open plurilateral agreements - is critical in tackling competitive distortions, and providing an agreed framework for digital and sustainable trade.

As the credibility of a rules-based system crucially hinges on an independent and generally accepted system to adjudicate trade disputes, restoring the dispute settlement system is crucial.

Annex I on ‘Reforming the WTO: towards a sustainable and effective multilateral trading system’ sets out the EU’s views on the priorities for WTO reform.

The Commission will also push for multilateral reform in other fora, for example on the creation of a multilateral investment court in the United Nations Commission for International Trade Law.

|  |
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| Headline actions  The Commission will:  1.Seek the adoption of a first set of reforms of the WTO focusing on enhancing the WTO’s contribution to sustainable development, and launch negotiations on reinforced rules to avoid distortions of competition due to state intervention. It will give priority to enhancing transatlantic cooperation on WTO reform.  2.Work to restore a fully-functioning WTO dispute settlement with a reformed Appellate Body. |

3.2.2. Support the green transition and promote responsible and sustainable value chains

As reflected in the European Green Deal, combatting climate change and environmental degradation is the EU’s top priority. All EU policies need to contribute but progress will depend on global partners, on large emitters and polluters, being ready to increase their level of ambition. Trade policy will have an important supporting role.

The Commission’s resolve for the next decade is to ensure that trade tools accompany and support a global transition towards a climate neutral economy, including accelerating investments in clean energy, and promote value chains that are circular, responsible and sustainable. This includes promoting responsible business conduct and the respect of environmental, human rights and labour standards. At the same time, it means creating the conditions and opportunities for sustainable products and services.

Making this vision a reality will require action at all levels – multilaterally, bilaterally and autonomously.

An improved multilateral framework will be needed to underpin the green transition to a climate neutral, environmentally friendly and resilient economy. The EU will engage with like-minded countries to pursue a strong environmental agenda at the WTO. As part of this effort, it will take forward initiatives and actions that promote climate and sustainability considerations throughout the various functions of the WTO, including a trade and climate initiative. These initiatives will include the liberalisation of selected goods and services, transparency, and greening of aid-for-trade. This should also include the progressive development of disciplines on fossil fuel subsidies. It will also promote deliberation in the WTO on how trade can support decent work and social fairness.

The EU’s vast network of bilateral trade agreements facilitates trade in green technologies, goods, services and investments. In addition to providing for ambitious trade and sustainable development chapters, the sustainability dimension will continue to be reflected in many other aspects of the EU’s trade and investment agreements. They support the diffusion of clean and more efficient production methods and technologies and create market access opportunities for green goods and services. They help secure access to third country markets for our renewable energy industry, and ensure undistorted trade and investment in the raw materials and energy goods that are required to secure the necessary supplies to support the transition to climate neutral economies. In addition, they provide an essential platform to engage with our partners on climate change, biodiversity, circular economy, pollution, clean energy technologies including renewable energy and energy efficiency and on the transition to sustainable food systems. And for future trade agreements, the Commission will propose a chapter on sustainable food systems. The EU will propose that the respect of the Paris Agreement be considered an essential element in future trade and investment agreements. In addition, the conclusion of trade and investment agreements with G20 countries should be based on a common ambition to achieve climate neutrality as soon as possible and in line with the recommendations of the Intergovernmental Panel on Climate Change (IPCC). This ambition should also be properly reflected in Nationally Determined Contributions (NDCs) submitted under the Paris Agreement. The EU will also prioritise effective implementation of the Convention on Biological Diversity in trade and investment agreements.

EU trade and investment agreements, as well as the Generalised System of Preferences (GSP) have also played an important role in promoting respect for core human and labour rights, as reflected in the UN fundamental conventions of the International Labour Organization (ILO). Particular priority will be given to the implementation of these commitments, including action against child labour as part of the Commission’s broader action to ensure zero tolerance for child labour. One of the key objectives of the upcoming review of the Generalised System of Preferences (GSP) will be to further increase trading opportunities for developing countries to reduce poverty and to create jobs based on international values and principles, such as labour and human rights.

The Commission will further reinforce the sustainability dimension of existing and future agreements in the implementation of all chapters. It will strengthen the enforcement of trade and sustainable development commitments on the basis of complaints made to the Chief Trade Enforcement Officer (CTEO). Further actions will be considered in the context of an early review in 2021 of the 15-point action plan on the effective implementation and enforcement of Trade and Sustainable Development Chapters (TSDs) in trade agreements. The review will cover all relevant aspects of TSD implementation and enforcement, including the scope of commitments, monitoring mechanisms, the possibility of sanctions for non-compliance, the essential elements clause as well as the institutional set-up and resources required.

In addition, autonomous measures are supporting the objective to ensure that trade is sustainable, responsible and coherent with our overall objectives and values. The Carbon Border Adjustment Mechanism (CBAM) is a case-in-point. The Commission is working on a proposal for a CBAM in order to avoid the effectiveness of its own climate policies being undermined by carbon leakage. Another example is the intention of the Commission to put forward legislation addressing deforestation and forest degradation. An important element in ensuring that supply chains are sustainable and responsible will be the Commission’s proposal on sustainable corporate governance, including mandatory environmental, human and labour rights due diligence. Subject to the impact assessment, this will include effective action and enforcement mechanisms to ensure that forced labour does not find a place in the value chains of EU companies.

The new global human rights sanctions regime will also have a role to play to ensure compliance with human rights. With this regime, the EU equipped itself with a framework that will allow it to target individuals, entities and bodies – including state and non-state actors – responsible for, involved in or associated with serious human rights violations and abuses worldwide
[22](#footnote23)
.

Imports must comply with relevant EU regulation and standards. As the examples above show, under certain circumstances as defined by WTO rules, it is appropriate for the EU to require that imported products comply with certain production requirements. Global trade rules aim at securing a predictable and non-discriminatory framework for trade while safeguarding each country’s right to regulate in line with their societal preferences. The legitimacy of applying production requirements to imports is based on the need to protect the global environment or to respond to ethical concerns. Whenever the EU considers applying such measures to imported products, this will be done in full respect of WTO rules, notably the principle of non-discrimination and proportionality, aiming at avoiding unnecessary disruption of trade.

The Commission will pioneer work on developing standards for sustainable growth and shape international standards in line with the European Green Deal, while engaging with its partners to develop and implement rules that are similarly ambitious.

|  |
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| Headline actions  The Commission will:  3.Take forward initiatives and actions that promote climate and sustainability considerations in the WTO.  4.Seek commitments from G20 partners on climate neutrality, strengthen cooperation on other aspects of the green deal such as biodiversity, sustainable food policy, pollution and the circular economy, and propose to make the respect of the Paris agreement an essential element in all future agreements.  5.Improve the effective implementation and enforcement of sustainable development chapters in trade agreements through the early review in 2021 of the 15-point Action Plan. The outcome of the review will feed into ongoing and future negotiations.  6.Promote sustainable and responsible value chains through a proposal on mandatory due diligence, including effective action and enforcement mechanisms to ensure that forced labour does not find a place in the value chains of EU companies. Bridging the time towards binding provisions, the Commission will provide guidance to assist EU business in taking the appropriate measures already now in line with international due diligence guidelines and principles. |

3.2.3.Support the digital transition and trade in services

EU trade policy must help to create an environment in which EU services providers can innovate and grow. As a priority, the global framework of international rules needs to be updated.

The EU is the world’s largest trader of services\*. Trade in services accounts for 25% of the EU’s GDP, with services exports exceeding €900 billion per year. It also supports 21 million EU jobs directly or indirectly.

Of all the EU foreign direct investment to the rest of the world 60% is in services, as is nearly 90% of the foreign direct investment coming into the EU.

\* https://data.oecd.org/trade/trade-in-services.htm.

The digital sphere will see intense global competition that will reconfigure global economic relations. The EU can only succeed in its digital transformation if it builds its digital agenda in an outward-looking manner, taking full account of a global environment that is increasingly, fiercely competitive and sometimes challenging the EU’s values-based approach to digitalisation. Trade policy will play a vital role in attaining the EU’s objectives linked to the digital transition. European businesses rely on digital services, and this will only increase. Data are the lifeline of many businesses and a critical component of the EU’s supply chains. Digital technologies provide efficiency gains, which are needed to remain competitive
[23](#footnote24)
, but are also transforming traditional industrial sectors where European companies will need to maintain and boost their competitive position. At the same time, the digital transformation and emergence of new technologies have an important security and values dimension for Europe and require a carefully calibrated policy approach internally and externally. The implications of new digital technologies, including artificial intelligence, need to be addressed globally through more ambitious global standards and rules.

Supporting Europe’s digital agenda is a priority for EU trade policy. The objective is to ensure a leading position for the EU in digital trade and in the area of technology, most importantly by promoting innovation. The EU should continue to lead the way in digital standards and regulatory approaches, in particular as regards data protection, where the EU’s General Data Protection Regulation is often seen as a source of inspiration 
[24](#footnote25)
. To achieve this, the WTO needs to set the rules for digital trade and the EU needs to play a central role in creating them. Once they have been agreed, the EU should support further plurilateral WTO negotiations to liberalise trade in services in sectors going beyond e-commerce.

The EU will also need to step up bilateral engagement and explore stronger frameworks for cooperation on trade-related digital issues with like-minded partners. It will seek to deepen its regulatory dialogues with like-minded partners.

The question of data will be essential for the EU’s future. With regard to cross-border data transfers and the prohibition of data localisation requirements, the Commission will follow an open but assertive approach, based on European values and interests. The Commission will work towards ensuring that its businesses can benefit from the international free flow of data in full compliance with EU data protection rules and other public policy objectives, including public security and public order. In particular, the EU will continue to address unjustified obstacles to data flows while preserving its regulatory autonomy in the area of data protection and privacy. 
[25](#footnote26)
 To better assess the size and value of cross-border data flows the Commission will create a European analytical framework for measuring data flows.

|  |
| --- |
| Headline actions  The Commission will:  7.Seek the rapid conclusion of an ambitious and comprehensive WTO agreement on digital trade, including rules on data flows, in full compliance with the EU’s data protection framework, and provisions on enhancing consumer trust ensuring a high level of consumer protection.  8.Explore the possibility of closer regulatory cooperation with like-minded partners on issues of relevance for digital trade. |

3.2.4. Strengthen the EU’s regulatory impact

The ability to influence the development of regulations and standards of global significance is an important competitive advantage.

For decades, the EU has been a leader on this front. It has championed work in international standard-setting bodies such as the International Organization for Standardization (ISO) and sector-specific international fora. These efforts have helped European companies to access global markets, removed trade barriers and supported regulatory convergence. This approach, together with its market size, has given the EU a strong influence on international standardisation, in some cases also leading to a voluntary adoption of its high standards, regulations and policy objectives along global supply chains. European exporters, including SMEs, have derived significant competitive advantage from a strong EU regulatory impact globally.

The EU’s relative weight is shrinking given the emergence of new regulatory powers and rapid technological development, which is often driven from outside the EU.

For the EU to enhance its influence in this area, it needs to develop a more strategic approach to international regulatory cooperation, in particular in relation to the green and digital transitions. The EU needs to adopt a more proactive stance when designing new regulations so as to be better equipped to promote EU regulatory approaches around the world. This will require greater synergies between internal policies and external policies to identify at an early stage those strategic areas on which international regulatory cooperation should focus. It will also require dialogue and cooperation with EU standard setting bodies to identify strategic priorities relating to international standards. The Commission will reinforce its analysis of the external dimension of its regulatory policies in the impact assessments of important regulations and identify priority partners for regulatory cooperation. Trade policy should be ready to support cooperation activities led by regulators and for this purpose make full use of the opportunities provided by trade agreements. Trade policy, together with international partnerships and development cooperation - including through Aid for Trade - should also play a role in supporting the uptake of international standards in developing partner countries and facilitating compliance with new regulatory requirements. The EU will also reinforce its regulatory dialogues with like-minded countries in the Asia Pacific and Latin America.

Cooperation with the United States will be critical to ensuring that new regulations are in line with the values of democratic, open and inclusive societies.

|  |
| --- |
| Headline actions  The Commission will:  9.Enhance regulatory dialogues with like-minded partners in strategic areas for EU competitiveness. This will require early identification of priority areas for regulatory cooperation and closer dialogue with EU and international standard organisations.  10.Develop a closer transatlantic partnership on the green and digital transformation of our economies including through the EU-US Trade and Technology Council. |

3.2.5. Strengthen the EU’s partnerships with neighbouring and enlargement countries and Africa

Our most significant relationships are with those who are geographically closest to us.  Stability and prosperity in the EU’s neighbouring countries and Africa are in the EU’s political and economic interest. The EU intends to do everything it can to support partners in their efforts to recover from the impact of the COVID-19 pandemic and to achieve sustainable development. The EU’s dense network of trade agreements with these countries offer the prospect of closer economic integration and the development of integrated production and services networks. This would be part of a broader strategy to promote sustainable investment and improve the resilience of our economies through diversified value chains and foster the development of trade in sustainable products, including in order to support the climate and energy transformation. It will also contribute to addressing the root causes of irregular migration, as part of trade policy’s broader contribution to comprehensive partnerships, in line with the New Pact on Migration and Asylum
[26](#footnote27)
.

The EU will strengthen its close economic partnerships within the European Economic Area. The EU looks forward to working closely with the United Kingdom to use the full potential of the Trade and Cooperation Agreement. The EU also looks forward to the modernisation of its trade and economic relationship with Switzerland as well as with Turkey, provided the right conditions are met.

Supporting stronger economic integration with the Western Balkans and the Eastern Partnership countries
[27](#footnote28)
 will be of particular importance. For the Western Balkans, the enhanced enlargement methodology and the Economic and Investment Plan
[28](#footnote29)
 present the framework for accelerated EU market integration ahead of accession, while ensuring a level playing field. This increased economic integration builds on the Western Balkans’ own commitments to create a Common Regional Market, based on EU rules and standards. For the Eastern Partnership, in particular DCFTA partners (Ukraine, Georgia and Moldova), the EU supports efforts to align more closely with the EU’s regulatory model, including for the digital and green transitions. For those partners, efforts to incorporate EU regulations could be accompanied by closer dialogue on how to develop and implement them, including by participating in expert groups and being more closely associated with EU standardisation organisations. Consideration should also be given to additional steps to facilitate trade, including through agreements on conformity assessment.

Upgrading the EU’s relations and economic integration with the Southern Neighbourhood
[29](#footnote30)
 will be a strategic necessity for long-term stability. The EU benefits from geographical proximity, cultural and linguistic ties with South Mediterranean countries that facilitate this strategic economic and commercial integration. Trade policy can be a key tool to foster strategic interdependencies between the EU and the Southern neighbourhood and develop win-win integration initiatives, in particular on strategic value chains. Since the early 2000s, the EU has concluded free trade agreements with eight countries of the southern Mediterranean as part of broader association agreements. Deep and Comprehensive Free Trade Area (DCFTA) negotiations with Morocco and Tunisia have been underway for several years. The EU is ready to discuss options with both partners to modernise trade and investment relations, to better adapt them to today’s challenges.

The EU will significantly step up its engagement with African partners to unlock their economic potential, foster economic diversification and inclusive growth. This will further enhance sustainable trade and investment links both between the continents and in Africa itself
[30](#footnote31)
. This is in line with the long-term prospect of a continent-to-continent trade agreement based on the successful implementation of the African Continental Free Trade Area (AfCFTA). It notably builds on Africa’s regional economic communities and the economic partnership agreements with the EU. This stronger relationship with Africa should be fostered at all levels, including through political dialogue with the African Union and its members, through widening and deepening the economic partnership agreements, and through developing bilateral relations with individual countries to promote sustainable investment in agriculture, manufactured goods and services. The Commission will also start a reflection on the potential for facilitating integration in the continent through harmonised rules of origin applicable to their trade with the EU.

The Commission will propose a new sustainable investment initiative to partners or regions in Africa and the Southern Neighbourhood interested in doing so. This could be done in the form of stand-alone investment agreements or as part of the modernisation of existing trade agreements. To maximise their impact and facilitate implementation, these agreements will be designed together with EU development cooperation tools to support investment and, wherever feasible, with a Team Europe approach to ensure synergies with EU Member States, the private sector, civil society, and all relevant actors. The most prominent of those initiatives is the External Investment Plan (EIP) launched in 2017 for Sub-Saharan Africa and the EU Neighbourhood. It also includes the European Fund for Sustainable Development Plus (EFSD+), which is becoming globally applicable in the new multiannual financial framework (MFF) for 2021-2027. The three pillars of the EIP will help support sustainable investment in Africa and the Neighbourhood, while inducing reforms to improve the business environment and investment climate. This will be done with a view to cross-regional integration and closer EU-Africa trade relations as the AfCFTA advances.

|  |
| --- |
| Headline actions  The Commission will:  11.Deepen trade and economic relations with other countries in Europe, including the Western Balkans and countries that have concluded DCFTAs with the EU, focusing in particular on closer regulatory cooperation in support of the green and digital transitions. It will modernise its trade and investment relations with those countries in the Southern Neighbourhood interested in fostering closer integration with the European Union.  12.Reinforce its engagement with African countries by:  a) enhancing political dialogue and cooperation with the African Union and its Members and the smooth implementation of AfCFTA, including engagement with the private sector and promoting common standards in Africa to enhance regional and continental integration.  b) deepening and widening its existing trade agreements with African regional economic communities and strengthen their sustainability dimension.  c) exploring further the possibility of enhancing links and synergies between different trade arrangements with African countries, for example through more harmonised rules of origin in trade with the EU.  d) pursuing sustainable investment agreements with Africa and the Southern Neighbourhood. |

3.2.6. Strengthen the EU’s focus on implementation and enforcement of trade agreements, and ensure a level playing field

Following the wave of new agreements in recent years, the Commission will focus its efforts on unlocking the benefits of the EU’s trade agreements, coupled with assertive enforcement of both its market access and sustainable development commitments. European stakeholders need to be aware of the opportunities EU trade agreements offer and be confident that they can reap the gains that the EU negotiated. The EU has concluded, or is engaged in, negotiations of trade agreements in the Asia-Pacific region and in Latin America, which open significant economic opportunities. It is therefore important to create the conditions for the ratification of agreements with Mercosur and Mexico, and to conclude ongoing negotiations, in particular with Chile, Australia, and New Zealand, which are well on track. In the case of Mercosur, a dialogue is ongoing on enhancing cooperation on the sustainable development dimension of the Agreement, addressing the implementation of the Paris Agreement and deforestation in particular.

This will be a critical element of the EU’s drive toward open strategic autonomy, and facilitate access to markets, particularly for SMEs. It will also help counter protectionist tendencies and distortions affecting EU exports. The centrality of this area of work was confirmed in July 2020 with the appointment of the Chief Trade Enforcement Officer.

This will mean working in the following areas:

·Making full use of the opportunities provided by the implementation of trade agreements. The EU will use all in-built flexibilities in its trade agreements so that they are fit for purpose and respond to the new challenges relating to the green and digital transition The EU will also continue to use its Aid for Trade to help developing countries implement trade agreements and support compliance with rules and standards, in particular in relation to sustainable development.

·Supporting EU stakeholders to make the best of the opportunities EU agreements create. The Commission will build on the success of the Access2Markets portal, integrate further functionalities into it and interlink it with other important information channels
[31](#footnote32)
, especially for SMEs. The Commission will also continue to support the EU agricultural and agrifood sector, composed primarily of SMEs, with a focus on promoting the sustainability and quality of their products, making them a standard-bearer of the EU food sustainability system. 

·Monitoring the proper implementation and enforcement of the EU’s trade agreements and facilitating complaints related to market access barriers and infringements of trade and sustainable development commitments through the Single Entry Point. The Commission will work with EU Member States, the European Parliament and stakeholders to monitor implementation by the EU’s trading partners and ensure a coherent approach. It will propose a specific legislative act necessary for the enforcement of inter alia trade related provisions of the EU-UK Trade and Cooperation Agreement.

·Addressing non-compliance through WTO or bilateral dispute settlement, where other means fail. The updated Enforcement Regulation
[32](#footnote33)
 strengthens the EU’s capacity to act in situations in which dispute settlement, under WTO or bilateral agreements, is blocked.

·The Commission will continue to use Trade Defence Instruments in a firm manner so that European industry is not exposed to unfair trade. This also includes tracking new forms of subsidisation by third countries, for instance, in the area of investment financing, and adequately addressing them with countervailing duty measures.

·In the security field, under the FDI Screening Regulation, the Commission restates its call to all Member States to set up and enforce a fully fledged FDI screening mechanism to address cases where the acquisition or control of a particular business, infrastructure or technology would create a risk to security or public order in the EU.
[33](#footnote34)
 The Commission will continue implementing the cooperation mechanism with Member States’ authorities to protect security and public order from risky foreign direct investments and consider enhancing the cooperation mechanism established by the FDI Screening Regulation.

·The Commission will work with Member States’ authorities to ensure the effective implementation of the modernised Export Control Regulation
[34](#footnote35)
 on sensitive dual-use goods and technologies to support secured value chains, promote international security, protect human rights, and ensure a level-playing field for EU exporters.

Nevertheless, the EU needs to develop its tools to confront new challenges and protect European companies and citizens from unfair trading practices, both internally and externally.

·The Commission will propose a new legal instrument in the area of trade policy, to protect the EU from potential coercive actions of third countries.

·The Commission will propose a legal instrument to address distortions caused by foreign subsidies on the EU’s internal market.

·To enhance reciprocal access for EU operators in public procurement the Commission will seek to advance the International Procurement Instrument and calls on the Council to finalise its work as a matter of urgency.

·Finally, to ensure a better level playing field for EU businesses on third country markets, in which they increasingly have to compete with the financial support foreign competitors receive from their governments, the Commission will explore options for an EU strategy for export credits. This will include an EU export credit facility and enhanced coordination of EU financial tools. In line with the Green Deal objective to phase out fossil fuel subsidies, it will also incentivise climate friendly technology projects and propose to immediately end support for the coal-fired power sector, and to discourage all further investments into fossil fuel-based energy infrastructure projects in third countries, unless they are fully consistent with an ambitious, clearly defined pathway towards climate neutrality in line with the long-term objectives of the Paris Agreement and best available science.

The Commission will further continue working towards the harmonisation of preferential rules of origin in the EU’s trade agreements, taking into account the interests of EU stakeholders, in particular SMEs.

Unlocking the benefits of the EU’s trade agreements for individuals and companies, tackling existing barriers more systematically, and preventing new ones from emerging requires a collective effort of all EU institutions, Member States, as well as civil society and other stakeholders. The Commission will lead these efforts, including through the work of the EU Delegations and the networks, which Member States and business associations have in third countries.

|  |
| --- |
| Headline actions  The Commission will:  13.Seek to consolidate the EU’s partnerships with key growth regions – in the Asia Pacific and Latin America - by creating the conditions to conclude negotiations and ratify outstanding bilateral agreements.  14.Make full use of the Chief Trade Enforcement Officer’s (CTEO) role to maximise benefits of negotiated outcomes for companies, in particular SMEs and farmers, and to eliminate hurdles that impair on the potential of the agreements to deliver, including on sustainable development.  15.Further strengthen the EU’s tools to confront new challenges and to protect European companies and citizens from unfair trading practices, including via the preparation of an anti-coercion instrument. In addition, the Commission will explore options for an EU strategy for export credits.  16.Develop new online tools to support EU businesses, in particular SMEs. |

4.Supporting an informed discussion on trade policy

With its Trade for All Communication
[35](#footnote36)
 the Commission had significantly increased its commitment to ensuring a transparent and inclusive trade policy. The Commission will continue on this path, which has been reflected positively throughout the contributions to the Trade Policy Review
[36](#footnote37)
. The latest Eurobarometer surveys published in 2019 showed that people welcome the efforts made over the past years. Six in ten say that they trust the EU to conduct trade policy in an open and transparent manner.

Given the importance of stakeholder dialogue and to encourage concrete collaboration on key questions, the Commission will deepen its engagement with civil society and social partners, on the basis of the Civil Society Dialogue review study launched in 2020. A particular focus will be given to implementation and enforcement, focusing on ensuring that the EU’s interests are fully met as regards the expected benefits of trade agreements. The focus on WTO reform will be reflected in enhanced exchanges on these matters.

To ensure a sound basis for trade policy development, the Commission will also deepen its analytical and data collection efforts, and will encourage analytical input from stakeholders. The Commission will carry out an ex-post evaluation of the impact of the EU’s agreements on key environmental aspects, including the climate. The Commission will also carry out work to develop a better understanding of the gender equality implications of various parts of trade policy and inform actions for improved gender awareness in trade policy
[37](#footnote38)
, including in Aid for Trade. Further analytical work will be undertaken on the impacts of trade policies on employment and different aspects of social development.

5.Conclusion

The EU’s trade policy has to adapt and reflect the challenges of our times and the expectations of our people. It is our responsibility to ensure that it serves to pursue the EU’s interests, helping it achieve its ambitions and safeguarding its position in the world, today and for future generations. This is why it is so critical to reorient the EU’s trade policy toward the objectives of supporting the fundamental green and digital transformation of the EU economy, building a more sustainable and fairer globalisation based on modernised rules, and stronger enforcement action. Ultimately, it is only by doing so that we can generate in a responsible and sustainable manner the opportunities that EU citizens, workers and businesses expect, and the planet needs.

:   [(1)](#footnoteref2)

    The Commission’s 2020 Strategic Foresight report analyses the impact of the COVID-19 pandemic on the dynamics of some relevant megatrends, COM(2020) 493 final. The Commission’s 2021 Strategic Foresight Report will focus on open strategic autonomy.
:   [(2)](#footnoteref3)

    At the EU level, the European Globalisation Fund aims at making a contribution to deal with such adjustment costs; cf Regulation (EU) No 1309/2013 of the European Parliament and of the Council of 17 December 2013 on the European Globalisation Adjustment Fund (2014-2020) and repealing Regulation (EC) No 1927/2006. A new regulation is being adoped, allowing the Fund to continue supporting workers and self-employed persons whose activity has been lost.
:   [(3)](#footnoteref4)

    This challenge is particularly visible in the area of energy intensive industries and notably the steel sector, where global solutions are needed to address the immense imbalances on the world market negatively affecting European companies and undermining the successful green transition of this ecosystem.
:   [(4)](#footnoteref5)

    According to the International Labour Organization (ILO), an estimated 25 million people remain in forced labour , 152 million are victims of child labour and 2.78 million workers around the world die from work-related accidents or diseases every year; Sources: Global estimates of modern slavery: forced labour and forced marriage, ILO (2017); Global Estimates of Child Labour, ILO (2017) and ILO website.
:   [(5)](#footnoteref6)

    Commission Staff Working Document: Promote decent work worldwide, SWD(2020) 235 final.
:   [(6)](#footnoteref7)

    In 2016, taking both goods and services into account, 80% of EU imports and 82% of EU exports were generated by the IP-intensive industries. IPR-intensive Industries and Economic Performance in the European Union, Industry-Level Analysis Report, joint EPO/EUIPO study, 3nd edition, September 2019.
:   [(7)](#footnoteref8)

    OECD (2020), Real GDP long-term forecast (indicator).
:   [(8)](#footnoteref9)

    Political guidelines for the next European Commission 2019-2024.
:   [(9)](#footnoteref10)

    European Parliament resolution on the EU Trade Policy Review (2020/2761(RSP).
:   [(10)](#footnoteref11)

    https://trade.ec.europa.eu/consultations/index.cfm?consul\_id=266&utm\_source=dlvr.it&utm\_
:   [(11)](#footnoteref12)

    Europe's moment: Repair and Prepare for the Next Generation, COM(2020) 456 final.
:   [(12)](#footnoteref13)

    Internal calculations by DG TRADE based on Arto, I., Rueda-Cantuche, J.M., Cazcarro, I., Amores, A.F., Dietzenbacher, E. Kutlina-Dimitrova, Z. and Román, M. V., EU exports to the World: Effects on Employment, Publications Office of the European Union, Luxembourg, 2018, ISBN 978-92-79-93283-0, doi:10.2760/700435, JRC113071. 
    <https://trade.ec.europa.eu/doclib/docs/2018/november/tradoc_157516.pdf>
:   [(13)](#footnoteref14)

    Aid for Trade aims to support developing countries in using trade as a leverage for poverty reduction. Target 8.a of the Sustainable Development Goals (SDGs) 8.a in the 2030 Agenda for Sustainable Development refers to increasing Aid for Trade, in particular to Least Developed Countries (LDCs). SDG 17 includes, inter alia, efforts to increase exports of developing countries, LDCs in particular.
:   [(14)](#footnoteref15)

    See Gender Equality Strategy 2020-2025 and the Gender Action Plan III.
:   [(15)](#footnoteref16)

    The Commission adopted its first-ever Strategic Foresight Report, which highlights resilience as a new compass for all EU policies under this Commission’s transition-led agenda and as a result of the tragic coronavirus pandemic.
:   [(16)](#footnoteref17)

    OECD analytical work has confirmed that global value chains not only maximize economic efficiency, but that resilient, supply chains are essential in times of crisis to absorb shocks, to offer options to adjust and to speed up recovery. Cf. Shocks, risks and global value chains: insights from the OECD METRO model, June 2020.
:   [(17)](#footnoteref18)

    Pharmaceutical Strategy for Europe, COM(2020) 761 final.
:   [(18)](#footnoteref19)

    See in relation to this OECD paper on Covid 19 and responsible business conduct. 
    <http://www.oecd.org/coronavirus/policy-responses/covid-19-and-responsible-business-conduct-02150b06/>
:   [(19)](#footnoteref20)

    Cf. also the Joint Communication on strengthening the EU’s contribution to rules-based multilateralism.
:   [(20)](#footnoteref21)

    Joint Communication to the European Parliament, the European Council and the Council, “A new EU-US agenda for global change”, JOIN(2020) 22 final.
:   [(21)](#footnoteref22)

    Joint Communication to the European Parliament, the European Council and the Council, “ EU-China – A strategic outlook “, JOIN(2019) 5 final.
:   [(22)](#footnoteref23)

     EU sanctions are a  key instrument used to promote the objectives of the Common Foreign and Security Policy (CFSP) through which the EU can intervene, among others, to prevent conflict or respond to emerging or current crises (Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions - The European economic and financial system: fostering openness, strength and resilience; COM/2021/32 final).
:   [(23)](#footnoteref24)

    Access to data and new developments such as product passports can also unlock further value in products and provide information critical to maximising circular value, but all too often such data is not transmitted along value chains.
:   [(24)](#footnoteref25)

    Proposal for a Regulation of the European Parliament and of the Council on a Single Market For Digital Services (Digital Services Act) and amending Directive 2000/31/EC - COM(2020) 825 final; and Proposal for a Regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector (Digital Markets Act) - COM/2020/842 final, and Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation; GDPR).
:   [(25)](#footnoteref26)

    As reflected in the Digital Trade title of the Trade and Cooperation Agreement concluded with the UK.
:   [(26)](#footnoteref27)

    New Pact on Migration and Asylum COM (2020) 609 final.
:   [(27)](#footnoteref28)

    Reinforcing Resilience - an Eastern Partnership that delivers for all, JOIN (2020) 7 final.
:   [(28)](#footnoteref29)

    An Economic and Investment Plan for the Western Balkans, COM(2020) 641 final.
:   [(29)](#footnoteref30)

    Renewed partnership with the Southern Neighbourhood - A new Agenda for the Mediterranean; JOIN(2021) 2 final.
:   [(30)](#footnoteref31)

    As outlined in the EU-Africa strategy joint communication of March 2020, “Towards a comprehensive Strategy with Africa”, JOIN(2020) 4 final.
:   [(31)](#footnoteref32)

    Synergies could in particular be explored with other sources of information including the Enterprise Europe Network (EEN), the EU Japan Centre for Industrial Cooperation, the EU SME Centre in China, the European Business Organisation Worldwide Network, European Trade Promotion organisations and the SME IPR Helpdesks.
:   [(32)](#footnoteref33)

     
    <https://trade.ec.europa.eu/doclib/press/index.cfm?id=2204>
:   [(33)](#footnoteref34)

    Communication of 25 March 2020 concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, C(2020) 1981 final.
:   [(34)](#footnoteref35)

     
    <https://ec.europa.eu/commission/presscorner/detail/en/IP_20_2045>
:   [(35)](#footnoteref36)

    Trade for All: Towards a more responsible trade and investment policy - COM/2015/0497 final.
:   [(36)](#footnoteref37)

     
    <https://trade.ec.europa.eu/consultations/index.cfm?consul_id=266&utm_source=dlvr.it&utm_>
:   [(37)](#footnoteref38)

    Joint Declaration on Trade and Women’s Economic Empowerment on the Occasion of the WTO Ministerial Conference in Buenos Aires in December 2017.

[Top](#document1)

![european flag](./../../../images/eclogo.jpg)EUROPEAN COMMISSION

Brussels, 18.2.2021

COM(2021) 66 final

ANNEX

to the

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS

Trade Policy Review - An Open, Sustainable and Assertive Trade Policy

ANNEX

REFORMING THE WTO: TOWARDS A SUSTAINABLE AND EFFECTIVE MULTILATERAL TRADING SYSTEM

1.Why does the WTO matter and why is it in crisis?

1.1Why the WTO matters

Since the foundation of the multilateral trading system in 1947
[1](#footnote2)
, world trade has expanded 300-fold, and today makes up more than 60% of global GDP, supporting jobs, growth and investment around the world. This is partly thanks to successive reductions in tariffs negotiated through the multilateral system: in 1947, applied tariffs ranged between 20% and 30%, today, the world's applied tariffs stand at an average of around 9%. But this is also thanks to the stability the system provides. The WTO’s most-favoured nation principle (MFN) limits discrimination between goods and services from different trading partners. It provides a stable floor of economic openness that promotes competition on global markets based on efficiency and innovation. 60% of EU trade is conducted on MFN terms, including our trade with the United States, China, Russia and India. The rules of the WTO protect the interests of all trading nations against discriminatory, behind-the-border action and ensure that contingent trade protection is based on multilaterally agreed disciplines. Furthermore, the binding of tariffs has decreased the likelihood that countries increase tariffs as a response to shocks
[2](#footnote3)
, and the dispute settlement system has ensured compliance with the rules and avoided the escalation of trade conflicts.

Though more needs to be done, the WTO has also contributed to global sustainable development. The economic openness it has guaranteed has helped integrate many developing countries into the world economy, lifting hundreds of millions of people out of poverty and decreasing inequalities between countries
[3](#footnote4)
. 

1.2The reasons for the crisis

Today’s crisis affects all three functions of the WTO: negotiations have failed to modernise the rules, the dispute settlement system has de facto reverted to the days of the GATT where panel reports could be blocked, and the monitoring of trade policies is ineffective. In addition, the trade relationship between the US and China, two of the three largest WTO members, is currently largely managed outside WTO disciplines.

A key driver of the crisis is that China’s accession to the WTO has not led to its transformation into a market economy. The level at which China has opened its markets does not correspond to its weight in the global economy, and the state continues to exert a decisive influence on China’s economic environment with consequent competitive distortions that cannot be sufficiently addressed by current WTO rules. But the WTO has not been able to negotiate new rules to tackle this or other pressing issues (e.g. digital trade or sustainability). Reaching consensus among 164 members against the backdrop of today’s diffuse global balance of power is a huge challenge. Negotiations are also held back by disagreements about flexibilities for developing countries. It is not sustainable that two thirds of the membership - including some of the world's most significant economies - claim special and differential treatment. Further, the WTO's monitoring and deliberative function is seriously challenged by insufficient transparency about members’ trade legislation and practice, and the fact that topics such as environmental degradation, climate change or decent work are considered taboo. Last but certainly not least, the dispute settlement system was effectively paralysed at the end of 2019, due to the blockage of appointments of Appellate Body members by the United States.

1.3The urgent need for reform

A stable trading environment with the WTO at its centre is more essential than ever to address the challenges before us, starting with the economic recovery from the pandemic. The context is challenging in an organisation that seems to have lost its sense of common purpose. But the EU has a fundamental strategic interest in ensuring the effectiveness of the WTO. Not only is trade vital for our economy; promoting rules-based international cooperation is the very essence of the European project. The EU must therefore play a leading role in creating momentum for meaningful WTO reform.

  

2.Restoring trust and a sense of common purpose: the WTO’s contribution to sustainable development

The collapse of the Doha Development Agenda in 2008 exemplified the lack of common purpose of the WTO membership. Despite the success in concluding the Trade Facilitation Agreement at the 9th WTO Ministerial Conference in Bali and the Decision on agricultural export competition at the 10th WTO Ministerial Conference in Nairobi, the WTO membership has become increasingly divided as to what it expects from the WTO. While part of the membership has argued that the ‘centrality of development’ in the WTO means that there should be a focus on exceptions and flexibilities from agreed and future commitments, another part has grown increasingly frustrated at the failure of progress in WTO negotiations and shifted its attention to bilateral trade agreements. Without a sense of common purpose, it has been extremely difficult to find a way forward for any initiative and to ensure that the WTO evolves in line with the changes in global trade.

However, the vast majority of the membership remains committed to the idea of multilateralism, fully cognizant of the benefits of a rules-based system for global trade and development. The instability of the last few years, the climate and environmental crisis, the increased use of unilateral measures and now the COVID-19 pandemic have led to a clear realisation that the WTO is a vital component of healthy global economic governance but that reform is necessary. The G20 Leaders’ statement
[4](#footnote5)
 in Riyadh contains the strongest commitment to reform yet, at the highest political level.

As global challenges proliferate, WTO members should be able to coalesce around the objective of addressing the most pressing problems they face: economic recovery and development, free from competitive distortions, as well as environmental and social sustainability as part of the green transition of economies. Addressing these problems would be in line with the objectives of the UN Sustainable Development Goals (the ‘SDGs’), to which all WTO members have committed. Such a focus could offer the sense of common purpose that the WTO has lacked in recent decades and rebuild trust among the membership. It could generate the confidence needed to modernise the WTO rulebook in a manner that is responsive to the challenges of digitalisation and greening, as well as preventing and defusing conflicts caused by trade-distorting state intervention in the economy.

2.1
   Restoring a sense of common purpose to the WTO: focus on sustainable development

This effort to restore a sense of common purpose must proceed incrementally, starting with short-term confidence-building measures. Concluding the fisheries subsidies negotiations would be an important step towards solidifying the WTO’s contribution to sustainability. This agreement is of importance not only as the first multilateral agreement in years, but also as the first agreement with implementation of an SDG as its core (SDG 14.6). This will not be a straightforward task given the gaps between WTO members’ positions and the challenges of finding consensus in multilateral negotiations (in good part because of the issue of special and differential treatment mentioned above), but the negotiations are at a more advanced stage than they have been in their long history. With sufficient political will, there is scope for an agreement in advance of the 12th WTO Ministerial Conference (‘MC12’).

The EU has presented together with the Ottawa Group
[5](#footnote6)
 a trade and health initiative covering disciplines on export restrictions and a number of trade facilitating measures and steps to facilitate transparency. The EU will continue to work with its partners and the new Director-General to ensure that the trading system is responsive to the challenges raised by the pandemic, including as regards the implementation of flexibilities available under the TRIPS agreement.

Many SDGs relate to protection of the environment. The paramount importance of protecting the environment was already recognised at the time of the WTO’s creation, by the establishment of a Committee on Trade and Environment to foster deliberation and common action. The current need for trade policy to be responsive to climate and environmental challenges is if anything more critical today, something which is supported by many WTO members. Contrary to fears expressed when the WTO was created, no country has been forced to lower its desired level of health or environmental protection because of a ruling of the WTO dispute settlement system. Going forward, the EU will support in international discussions on trade and environment issues an interpretation of relevant WTO provisions that recognise the right of Members to provide effective responses to global environmental challenges, notably climate change and the protection of biodiversity.

The European Union views sustainability as part of the necessary green transition of economies, which will need to be reflected in the WTO’s work across the board. We will soon present an initiative on trade and climate in the WTO. Initial reflections, presented in a non-paper
[6](#footnote7)
 shared with WTO members and stakeholders, centre on a range of building blocks, including the liberalisation of selected goods and services; transparency (including on carbon border adjustment measures), information exchange and analysis as a first step to develop disciplines on fossil fuel subsidies; greening aid for trade; and strengthening the WTO’s institutional framework dealing with trade and environment issues. In addition, the EU is also working with other WTO members in pursuing parallel environmental initiatives relating to the circular economy (including plastics).

The WTO also has a role to play in helping to implement the SDGs on decent work and gender equality, which are of utmost importance both outside the EU but also within the EU. As regards decent work, the WTO should foster analysis and exchange of experiences as to how trade policies can contribute to social development, how stronger protection of workers’ rights benefits growth and development, and how to ensure that – both within and outside the EU - the benefits of trade liberalisation reach all workers and vulnerable communities. This action could be supported through further and more active cooperation between the WTO and the International Labour Organization. The EU should work with partners to further integrate this social dimension of globalisation into the work of the WTO. As regards gender equality, the EU should pursue a leading role in raising awareness of the importance of ensuring that a gender perspective is a mainstream part of trade policy, through initiatives such as the Buenos Aires Declaration on Trade and Women's Economic Empowerment.

2.2
   How trade can contribute to development: the need for a forward-looking approach to special and differential treatment.

One of the founding objectives of the WTO is to ensure that developing countries, and especially the least developed among them, secure a share of the benefits of international trade commensurate with the needs of their economic development. ‘Special and differential treatment’ (SDT) is meant to enable developing countries to make the best use of the opportunities for development that WTO membership offers.

The EU is a strong supporter of SDT but believes its use must be guided by the underlying economic reality that trade is a driver of development, rather than a threat. Those developing economies that have seen the most consistent growth are those that have focused their efforts on integrating into the global economy and progressively opening their markets to greater competition. The great development challenge for the WTO is how the Organization can effectively assist the efforts of those developing countries that are not yet sufficiently integrated into the global economy.

Restoring the credibility of the WTO as a negotiating forum also requires a new approach to SDT. Such an approach should combine a more targeted focus on how to support integration into the trading system, along with greater differentiation between developing countries, based on identified needs. These needs include the capacity constraints of small public administrations. It is only by focusing on how to facilitate the capacity of countries to assume commitments that foster integration in the global economy that the WTO can effectively contribute to development.

In terms of process, an ‘agreement-by-agreement’ approach appears to be the most likely to deliver real progress on SDT. While it would be desirable that all WTO members agreed on crosscutting criteria for SDT, it is more realistic to try to find convergence in specific negotiations. Still, the EU’s approach will be guided by some overall considerations. The EU would strongly support SDT provisions that effectively respond to the capacity constraints of the vast majority of developing countries. At the same time, the EU expects full commitments in ongoing negotiations and future agreements from a) OECD members (including OECD accession candidates); b) countries classified as ‘high income’ by the World Bank; and c) countries that represent a sufficiently high share of global exports in general or in the sectors concerned by a particular negotiation. Due to its weight in the system, China should lead by example and not claim SDT in any ongoing negotiation.

3.Restoring a fully functioning WTO dispute settlement system with a reformed Appellate Body

Binding dispute settlement is not only critical to protect the interests of WTO members against measures that limit market access rights. It also provides the stability for companies to be able to invest and export in the knowledge that rules will be respected and that there are remedies in case of breach. It protects big and small WTO members alike against unilateral actions and prevents trade disputes escalating into political conflicts. While certain aspects of the Appellate Body’s operation and jurisprudence have been criticised, it is also important to recognise that the Appellate Body has greatly enhanced legitimacy and predictability of the dispute settlement system, including through its careful attention to the protection of the right of WTO members to regulate for health, environmental or other legitimate policy objectives.

The most urgent of WTO reforms is finding an agreed basis to restore a functioning dispute settlement system and to proceed to the appointment of the members of the Appellate Body. This task should be addressed as a priority and not be linked to the others aspects of WTO reform. In the absence of a functioning dispute settlement system, it is difficult to see what could be the motivation for countries to modernise and fill gaps in the rules.

The United States has raised a number of valid concerns about certain adjudicative approaches of the Appellate Body as well as about specific rulings in certain cases. The European Union agrees that adjudicators should exercise judicial economy and are not bound by “precedent” but should take into account previous rulings to the extent they find them relevant in the dispute they have before them. In the WTO dispute settlement system, the panels are the triers of fact, and the role of the Appellate Body should be strictly limited to addressing legal issues raised on appeal to the extent this is necessary to resolve a dispute. The independence of panels and of the Appellate Body is essential so that cases are decided exclusively on their merits. This is compatible with a strengthening of accountability to Members as regards the fulfilment of its duties. Mandatory timelines should be strictly respected both at the Panel and Appellate Body stage of disputes – justice delayed is justice denied – and appropriate measures should be adopted in order to make this possible. The European Union therefore agrees that a meaningful reform is needed. Such reform should maintain the negative consensus rule, the independence of the Appellate Body and the central role of dispute settlement in providing security and predictability to the multilateral trading system.

In particular, while many of the issues above are reflected in principles developed in the Informal Process on matters related to the functioning of the Appellate Body led by the Chairman of the Dispute Settlement Body, the EU is open to consider how to give them a stronger legal formulation, as well as to consider additional improvements. An early signal by the United States of their readiness to enter into good faith negotiations to find a multilateral agreement on dispute settlement reforms would greatly enhance confidence and should enable reaching an agreement to restore binding dispute settlement and a functioning Appellate Body.

4.Towards a more effective negotiating function

At the heart of the crisis in the WTO lies the failure of its negotiating function. WTO reform should aim at restoring the effectiveness and credibility of the WTO as a forum for the negotiation of trade rules and further liberalisation. WTO rules need to be brought into line with the economic and trade realities of the 21st century. On substance, the priority should be to modernise the rules of the WTO on e-commerce, investment facilitation, services domestic regulation and on the role of the state in the economy, including on subsidies. Once rules are modernised, consideration could also be given to advancing liberalisation on goods and services in a manner that ensures a better balance of commitments. As regards the method for negotiations, a single undertaking approach has failed to deliver and progress can be best achieved through different processes, in particular open, plurilateral agreements. In parallel to substantive negotiations, WTO members should reflect on ways of better integrating plurilateral agreements into the WTO framework.

4.1Modernising WTO rules

A.Establishing new rules on digital trade, services and investment

Negotiations with broad participation are ongoing on services domestic regulation, e-commerce and investment facilitation. All three negotiations are essential to make the rules of international trade responsive to the digital transformation of the economy, the growing importance of services and the need to facilitate investment as a key for development.

The EU is fully committed to these negotiations. MC12 provides an opportunity to record substantial progress on the e-commerce and investment facilitation initiatives and to conclude an agreement on services domestic regulation. Concluding negotiations on ambitious and inclusive agreements in these three areas is critical to demonstrate the relevance of the WTO to the main drivers for the expansion of trade and investment in the 21st century and to facilitate the integration of developing countries in global value chains. It would also avoid fragmentation of the global trading system if such issues can only be tackled in bilateral agreements or in plurilateral agreements outside the WTO framework.

B.Establishing new rules to avoid competitive distortions due to state intervention in the economy - competitive neutrality

The rules of the WTO are not sufficiently effective in tackling the negative spillovers of state intervention in the economy. This is particularly true when state intervention distorts competition in the home market or even in global markets. The frequent lack of transparency in such interventions further aggravates the problem. The issue is not the role of the state as such. Public intervention may be needed to achieve legitimate goals, and the WTO should accommodate different degrees of public ownership in the economy. Rather, the issue is to effectively counter those interventions that have negative spillover effects, distorting competition by favouring domestic firms, goods or services vis-à-vis foreign ones, limiting access to markets or having an impact in global markets.

New rules on industrial subsidies are essential to counter the negative effects of heavy subsidisation on international trade, which can generate distortions of competition in both traditional sectors and new technologies. Subsidies may also result in excess capacities. An important objective of stricter rules would be to arrive at significantly greater transparency and identify additional categories of prohibited subsidies, as well as categories of subsidies presumed to be injurious. Together with discussions on such ‘red’ and ‘amber’ boxes, there should also be consideration of a ‘green box’ that includes those subsidies that support legitimate public goals while having minimal distortive impact on trade. This would particularly be the case of certain types of environmental and R&D subsidies, provided they are subject to full transparency and agreed disciplines.

State-owned enterprises (SOEs) are, in a number of countries, an instrument through which the state decisively influences the economy, sometimes with market-distortive effects. However, the importance of SOEs is not yet matched with sufficient disciplines to capture any market-distorting behaviour. New international SOE rules should focus on the behaviour of SOEs in their commercial activities, in line with the disciplines already agreed in several free trade and investment agreements.

Apart from industrial subsidies and SOE disciplines, there is a need to reflect on what other elements could be part of new WTO rules aiming at ensuring the principle of “competitive neutrality” and promoting a level playing field. This should include, for instance, strong rules against practices forcing companies to transfer innovation and technology to the state or to their competitors (forced technology transfers) and rules to ensure that domestic regulation is transparent and pro-competition. The overall aim should be that any state intervention in the economy is done in full transparency and does not distort competition to favour certain firms. The EU intends to further discuss these issues first through its trilateral cooperation with the US and Japan but also with any interested WTO member, with a view to start work on developing WTO rules to effectively respond to competitive distortions.

C.Addressing imbalances between members’ market access commitments

Market access commitments have not been updated since the conclusion of the Uruguay Round and are increasingly disconnected from the economic realities of the 21st century. The current structure of WTO market access commitments in goods and services does not correspond to the actual level of openness of many countries and fails to reflect the significant changes in weight of certain major trading nations in the world economy (e.g. China).

While ensuring a better structure of overall tariff commitments is important, the primary focus of any WTO reform effort should be to modernise rules on competitive neutrality: subsidies, SOEs, forced technology transfers and domestic regulation. When subsidies are artificially lowering the prices of goods, SOEs are abusing their dominant position in a market or firms are being forced to share their technology with their competitors, lowering tariffs will not correct the imbalances among members. Nevertheless, in the short to medium term, and in order to further build confidence within the system, the EU supports sectoral initiatives where liberalisation has broader benefits, as is the case for the liberalisation of tariffs on health and selected climate-mitigation goods or the liberalisation of environmental services.

As for trade in services, the priority should be to conclude negotiations on rules for the digital economy. Once those negotiations are concluded, consideration could be given to launching negotiations on services. Such negotiations should be open to the participation of interested WTO members and be anchored in the WTO, while building upon the progress made in the Trade in Services Agreement negotiations.

D.The contribution of agriculture

Restoring the credibility of the WTO as a negotiating forum would also require the membership to tackle agricultural negotiations, which remain largely blocked despite the positive outcome at the Ministerial Conference in Nairobi. Agriculture remains an important – even core – interest for much of the WTO membership and the lack of progress risks to negatively affect the wider WTO reform agenda.

Commitments on domestic support in the agriculture sector should be the priority of negotiations, considering the proliferation of trade distorting policies and measures. In order to be successful, however, such negotiations would require contributions from all, or at least all major, members. Looking forward, the EU is in favour of a substantial reduction in trade-distorting domestic support. The EU has reformed its agricultural policy over the last 30 years, moving away from trade-distorting to non-trade-distorting support. Other WTO members have yet to undertake similar reforms.

Reviving negotiations on agricultural market access, whether in relation to tariff reductions or other elements, does not seem likely for the time being. These form part of a wider set of market access negotiations including industrial goods, where the conditions for balance do not seem to be present.

Negotiations in the short term should thus focus on the issues which have gained importance in the pandemic and where there is some scope for convergence. The EU will focus on export restrictions and transparency improvements for the 12th Ministerial Conference.

Finally, there is a need to mainstream environmental sustainability aspects in the agricultural negotiations in line with the necessity of the green transition of economies.

4.2 Integrating open plurilateral agreements in the WTO

Although the WTO cannot regain its credibility and effectiveness without modernising its rules, it is abundantly clear after 25 years that such modernisation cannot be achieved through multilateral agreements based on a single undertaking. In parallel, a great number of bilateral or regional trade agreements are being negotiated, including on issues for which the WTO has so far failed to produce multilateral outcomes, for example on digital trade or on state-owned enterprises. The most positive development in recent years has been the interest of a growing number of countries to develop such rules in the WTO framework through open, plurilateral negotiations. If no effective formula is found to integrate plurilateral agreements in the WTO, there would be no other option than developing such rules outside the WTO framework.

The WTO Agreement provides for plurilateral agreements to be incorporated into the legal architecture of the WTO in Article X:9, whereby the Ministerial Conference may decide by consensus to add trade agreements concluded by a group of WTO members to the list of WTO plurilateral agreements in Annex 4. However, Article X:9 has not been used since the WTO’s establishment. Reaching consensus on adding a plurilateral initiative to Annex 4 has been perceived to be an insurmountable difficulty, even if the rights of non-participants were not diminished by the plurilateral commitments taken by a group of WTO members. The methodology used to integrate plurilateral agreements in the WTO architecture so far has been for every participant to incorporate the additional commitments unilaterally into their schedule of commitments, as was done for the Understanding in Financial Services Commitments and the Reference Paper on Telecommunications. However, this has its drawbacks. Not every additional commitment fits neatly into a schedule of commitments. In addition, non-participants could bring dispute settlement proceedings against a participant for breach of these additional commitments, even if they, as non-participants, are not bound by such commitments.

Meaningful WTO reform will have to recognise this reality and the Commission will call for a reflection on how to create an easier path for plurilateral agreements to be integrated in the multilateral architecture. The EU would favour an inclusive approach to open, plurilateral agreements that facilitates participation by developing countries and allows them to decide whether they wish to join the agreement, leaving the door open for them to join in the future. That is not to say that the WTO should accommodate all plurilaterals. Discussions could identify certain principles that plurilaterals should comply with in order to be incorporated into the WTO framework. These principles could relate to openness to participation and future accession by any WTO member, facilitation of the participation of developing countries, transparency of the negotiating process, as well as means of protecting the existing rights of non-participants while avoiding free-riding.

5. Improving the functioning of the WTO system

5.1 
   Reinforcing the monitoring and deliberative functions of the WTO

Work in the regular WTO councils and committees plays an essential role in safeguarding the rules-based multilateral trading system by, inter alia, conducting day-to-day technical business, monitoring members’ trade policies, addressing trade concerns and giving members a place to deliberate on trade developments. With virtually no outcomes in rule-making in recent years and a paralysed dispute settlement system, effective monitoring and policy deliberations are ever more important to maintain the WTO as a credible basis for trade relationships. Unfortunately, a number of ineffective procedures, gaps in compliance with transparency obligations and widespread lack of trust often make effective engagement difficult.

Over the past years, the EU has been working towards improvements, in particular in the areas of transparency and trade concerns. Together with the US, Japan and other members, the EU made a proposal on improving transparency and compliance with notification obligations in the area of trade in goods. The proposal suggests incentives as well as administrative measures as a response to significant delays in submitting notifications, a long-standing problem affecting transparency. We hope this horizontal contribution will also trigger the necessary discussions on improving transparency in specific areas, such as agriculture. With a different set of members, the EU presented suggestions to improve work in regular WTO bodies in a proposal on guidelines for WTO bodies addressing trade concerns. This proposal aims to facilitate the resolution of trade concerns among members before they escalate to dispute settlement stage or clog up agendas for years. The objective remains to have these proposals adopted at MC12.

Beyond these proposals, further work is needed to improve the WTO monitoring and deliberation functions. While timely compliance with notification obligations is one aspect of transparency, so is the quality of the information provided. Overall, there is a case for more effective monitoring of members’ trade policies at the committee-level. This could include having WTO committees explore how to make notification reviews more effective. There could also be scope for considering issues on which the Secretariat should be able to produce monitoring reports that rely on different publicly available sources of information.

It would also be useful to take stock of activities in WTO bodies with a view to identifying which ones need more resources/attention and which ones should be downsized or deactivated. This would allow the WTO to focus resources on those committees that are more actively and efficiently used by members, while other committees could be suspended unless convened upon explicit request by a member (this is already the case for most subsidiary bodies of the Council for Trade in Services). Certain committees could be revitalised by enhancing their contribution to policy deliberations, such as the Committee on Trade and the Environment, for example. Moreover, the role of the General Council to review developments affecting the trading system or to debate studies prepared by the Director-General in cooperation with other international organisations could be enhanced.

5.2
   The role of the Director-General and the WTO Secretariat

The appointment of the new Director-General represents an opportunity for a fresh start. For WTO reform to work, the Director-General needs to be involved proactively and visibly. Members can trust and should encourage the Director-General to support them in addressing the key challenges of the WTO. They should actively support her in taking initiatives in the interest of advancing the objectives of the WTO and proposing solutions for deliberation by members. While it is often stressed that members are responsible for setting the agenda of WTO work, such a facilitating role of the Director-General is compatible with the member-driven nature of the organisation.

The Director-General and the Secretariat in particular can reinforce the monitoring and deliberation functions of the WTO. First, in order to contribute to members’ deliberations effectively, the Secretariat should be able to rely on the trust of members for preparing analytical reports on relevant topics and deepening cooperation with other International Organisations, without the need for advance clearing with the membership. Second, transparency on Members’ trade policies would benefit from a reinforcement of the monitoring activities of the Secretariat.

While cooperation between the WTO and International Organisations, including UN bodies, works generally well, the Director-General should pursue more targeted cooperation with the objective of jointly contributing towards fulfilling the objectives of the SDGs.

5.3
   More effective stakeholder engagement: Business and civil society

Back in 1996, WTO members already recognised “the role NGOs can play to increase the awareness of the public in respect of WTO activities” and agreed “to improve transparency and develop communication with NGOs” by tasking the WTO Secretariat to manage direct contacts with civil society. The main channels of engagements are the annual Public Forum, attendance of civil society at Ministerial Conferences, briefings by the Secretariat, as well as the possibility to submit position papers and topical discussions. Business representatives are also involved in topical discussions, as well as the Trade Dialogues series since 2016; a dedicated page within the WTO website gathers information tailored to businesses’ interests.

There may be scope to modernise and further develop the modalities for consulting business and civil society with a view to revitalising the involvement of these stakeholders in the trade debate. First, while NGO briefings by the Secretariat are currently reserved for registered NGOs based in and around Geneva, electronic means and virtual platforms would make it possible to broaden attendance to accredited NGOs around the globe, enabling NGOs from developing countries with limited means, in particular, to get involved. Second, a consultative or advisory committee with a balanced selection of business and civil society representatives could be created to gather input from stakeholders on important developments affecting the multilateral trading system and relay them into ongoing negotiations and deliberations. Third, engagement around concrete topics could be reinforced by organising discussions around crosscutting issues related to aspects of sustainable development or regional trade agreements, for example. Fourth, members should examine how to increase transparency by opening meetings or parts thereof to the public, by virtual means.

6.Achieving WTO reform

6.1Building alliances to deliver WTO reform

Delivering on the elements of WTO reform outlined in this Annex will require engagement and buy-in by a significant number of members. Achieving reform necessitates alliance-building, avoiding polarisation and the willingness of members to engage in an incremental process that will eventually lead to a compromise. As a major economic power that believes firmly in multilateral rules-based trade, the EU needs to continue to show leadership.

As an example of the EU’s working cooperatively with other like-minded partners, the initiative on trade and health was developed through the Ottawa Group. Similarly, the EU has been working with the ‘FAST’ (Friends of Advancing Sustainable Trade) Group on how to revitalise WTO work on trade and the environment
[7](#footnote8)
.

While groups of like-minded countries such as the Ottawa and FAST Groups are important to attract initial support in view of seeking broader engagement by the WTO membership, an essential building block for WTO reform is a high degree of convergence in the reform agenda between the United States and the EU. Throughout history, EU-US cooperation has been the main driving force for progress achieved in GATT/WTO negotiations. The EU has cooperated with the US within the framework of the trilateral initiative with Japan. The election of a new US President committed to multilateral institutions is an opportunity for close transatlantic cooperation on all aspects of WTO reform, including the reform of WTO dispute settlement. This would be greatly facilitated by an early signal by the new US administration of its intention to fully engage in negotiations to find an agreement on reforms to the Dispute Settlement Understanding and to lift the block on appointments of members of the Appellate Body. In the run-up to MC12, the EU and the US could intensify their engagement on all aspects of WTO reform to seek a maximum of convergence on their respective positions, including possible joint proposals. Work in the trilateral group with Japan should also be intensified with a view to present a joint proposal on how WTO rules could be developed to better address competitive distortions arising from state intervention.

The EU also intends to give a particular priority to engage in a dialogue with African countries on the WTO reform agenda. This could include consideration of how to better integrate the SDGs into the work of the WTO, as well as how to ensure that any open, plurilateral initiatives are inclusive and take into account the capacity constraints of developing countries with small administrations. Discussions could also cover the issue of special and differential treatment and how the WTO can support integration through the African Continental Free Trade Area. In this context, the EU remains supportive of the African Union obtaining observer status in the relevant WTO bodies.

The EU will continue to engage in discussions with China and India on the different aspects of the WTO reform agenda. China’s per capita GDP has increased by a factor of 10 since its WTO accession, and China has become the WTO’s largest exporter in the course of just two decades. Many WTO members are of the view that China’s market access and other commitments do not sufficiently reflect its growth, and that further liberalisation by China would confer greater legitimacy on its role in the organisation. India has a highly dynamic economy and is a leading player in the G20, although its overall level of development and competitiveness cannot be compared to that of China. Both countries are indispensable partners for WTO reform discussions. Discussions with China and India should help to better understand our respective perspectives, including on the issues for which progress should be achieved at MC12 and beyond.

6.2 What can be achieved by MC12 – the next steps

The agenda for WTO reform must be ambitious, but it must also be realistic. The different work strands of WTO reform need to be properly sequenced. Not all elements can or should be deployed simultaneously, but rather different components will follow different processes and be brought forward in different configurations – be it multilateral or plurilateral – and with different groups of members. The next WTO Ministerial Conference will be key for the WTO reform process, both in terms of delivering a potential package of outcomes and in launching new processes and areas of work that can serve as a springboard for the reform agenda.

Three areas where work should intensify prior to MC12 are trade and health, fisheries subsidies and the reform of the dispute settlement system.

In addition, the following outcomes could be achieved by MC12:

1.An agreement should be reached to reinvigorate WTO work on trade and environment in view of mainstreaming sustainability issues in the WTO’s work. Ideally, this should be done multilaterally, although certain elements may only be pursued by subgroups of interested WTO members, such as the liberalisation of selected climate-mitigating goods and environmental services.

2.Work should be launched amongst interested countries on the development of rules on competitive neutrality, including modernised rules on industrial subsidies.

3.Substantial progress should be recorded on the plurilateral initiatives on e-commerce and investment facilitation. The Joint Statement Initiative on services domestic regulation could be concluded at MC12.

4.The renewal of the multilateral e-commerce and TRIPS moratoria should be ensured at MC12.

5.Improvements to the WTO’s regular work function, through agreements on the horizontal transparency in notifications and trade concerns proposals.

6.On agriculture, a package of transparency improvements across the board and on export restrictions could be agreed at MC12. The initiative on the exemption of the World Food Programme humanitarian purchases from export restrictions could also be part of such an outcome. The EU is open to discuss how to progress after MC12 on the main aspects of the negotiations, in particular on trade distorting domestic support.

Beyond these outcomes, a Ministerial Declaration articulating a political commitment to reform would be a significant additional element to support future work. This Declaration could focus on issues such as improvements of the negotiating, monitoring and deliberating functions of the WTO; and look into institutional improvements in the functioning of the Organization. The Ministerial Declaration could establish a Working Group on WTO Reform to consider these issues and guide the membership towards delivering outcomes. MC12 should thus set the agenda for further work on the medium to long-term areas of reform, some of which should be completed before the subsequent Ministerial Conference (MC13).

:   [(1)](#footnoteref2)

     
       With the WTO’s predecessor agreement, the General Agreement on Tariffs and Trade (GATT).
:   [(2)](#footnoteref3)

     
       Jakubik, A. and Piermartini, R. (2019). ‘How WTO commitments tame uncertainty!’, WTO Staff Working Papers ERSD-2019-06, World Trade Organization (WTO).
:   [(3)](#footnoteref4)

     
       World Bank Group and World Trade Organization (2015). The Role of Trade in Ending Poverty. World Trade Organization: Geneva. See also Commission on Growth and Development in 2018 ‘The Growth Report: Strategies for Sustained Growth and Inclusive Development’.
:   [(4)](#footnoteref5)

    Leaders' Declaration G20 Riyadh Summit November 21 - 22, 2020
:   [(5)](#footnoteref6)

    The Ottawa Group participants are: Australia, Brazil, Canada, Chile, the European Union, Japan, Kenya, South Korea, Mexico, New Zealand, Norway, Singapore and Switzerland
:   [(6)](#footnoteref7)

     
    <https://trade.ec.europa.eu/doclib/docs/2020/november/tradoc_159117.pdf>
:   [(7)](#footnoteref8)

    The initiative has 23-cosponsors – Australia, Canada, Chad, Chile, Costa Rica, the European Union, the Gambia, Fiji, Iceland, Japan, Korea, Liechtenstein, Maldives, Mexico, Moldova, Montenegro, New Zealand, North Macedonia, Norway, Senegal, Switzerland, Taiwan, Penghu, Kinmen and Matsu and the United Kingdom.

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