The Pursuit of Non-Trade Policy Objectives in EU Trade Policy

Abstract

The European Union (EU) often conditions preferential access to its market on compliance with Non-Trade Policy Objectives (NTPOs), including human rights and labor and environmental standards. In this paper, we first systematically document the coverage of NTPOs across the main tools of EU trade policy: its (association and non-association) trade agreements and Generalized System of Preferences (GSP) programs. We then discuss the extent to which the EU can use these tools as a ‘carrot-and-stick’ mechanism to promote NTPOs in trading partners. We argue that, within trade agreements, the EU has limited scope to extend or restrict tariff preferences to ‘reward good behavior’ or ‘punish bad behavior’ on NTPOs, partly because multilateral rules require members to eliminate tariffs on substantially all trade. By contrast, GSP preferences are granted on a unilateral basis, and can thus more easily be extended or limited, depending on compliance with NTPOs. Our analysis also suggests that the commercial interests of the EU inhibit the full pursuit of NTPOs in its trade agreements and GSP programs.

Non-trade provisions in trade agreements and FDI

“…In EU PTAs, which "cover" approximately half of our estimation sample, CPR provisions are considered essential elements of the agreements, and their violation can trigger sanctions up to the suspension of the agreement (Borchert et al, 2020). In contrast, ESR and EP provisions are generally included in the so-called trade and sustainable development (TSD) chapters of PTAs, with no sanctioning mechanism in place in case of "misbehaviour" on the side of the trade partners.…”

“…First, we add to the studies investigating the economic effect of trade agreements (among many others, Baier and Bergstrand, 2007;Egger et al, 2011;Heid et al, forthcoming;Olivero and Yotov, 2012) and the effect on FDI in particular (Anderson et al, 2019;Bergstrand and Egger, 2007;2010;Chen, 2009;Kox and Rojas-Romagosa, 2020;Ramondo, and Rodríguez-Clare, 2013). Second, we contribute to the recent literature investigating the non-trade content of trade agreements (Borchert et al, 2020;Lecher, 2016) and its impact on trade (Carrère et al, 2017;Lopez Vicente et al, 2020;Osnago et al, 2020;Raess and Sari, 2018). The paper closest to ours is Kox and Rojas-Romagosa (2020).…”

“…The European Union has often been considered a key actor in pursuing non-trade policy objectives within its trade policy (see Borchert et al, 2020 for an analysis of NTIs in EU agreements). This is reflected in Figure 3, which shows the evolution of all NTIs in EU and non-EU PTAs: the average legalization scores are substantially higher in EU PTAs, across the entire time period.…”

“…In addition, more recently, nontrade issues related to civil and political rights, economic and social rights and environmental protection have progressively become part of PTAs (Carrère et al, 2017;Lechner 2016, Raess andSari, 2018). A prominent example is given by the EU, which in 1995 decided to include non-trade issue clauses in all its trade agreements (Borchert et al, 2020), this therefore becoming a relevant aspect of its Southern and Eastern Neighbourhood policy.…”

Voluntary programs and emissions revisited: What is the effect of EU trade agreements with environmental provisions?

“…3 We then construct two trade policy indicators to (1) identify countries that are part of EU trade agreements and feature EP provisions and (2) identify countries that are part of EU trade agreements with an above median legalization of EP provisions. The rationale behind the construction of two indicators is that EU trade agreements differ widely in their coverage of EP issues, with a marked gap representing the EU Treaty of Lisbon in 2009: it is since then that "sustainable development", the umbrella under which EP issues are included in trade agreements, has become one of the key principles of the EU's trade policy (Borchert, Conconi, Di Ubaldo, & Herghelegiu, 2021). EP principles have acquired a significantly larger dimension in all the "new generation" trade agreements, starting with the EU-Cariforum agreement, marking a neat distinction between the agreements signed since the late 2000s and the preceding ones.…”