Explanatory Memorandum to COM(2012)773 - Exercise of the Union's rights for the application and enforcement of international trade rules - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2012)773 - Exercise of the Union's rights for the application and enforcement of international trade rules. |
|---|---|
| source | COM(2012)773  |
| date | 18-12-2012 |
The present proposal for a Regulation of the European Parliament and of the Council reflects the Union's priority to enforce effectively its trade rights. This objective was set out in the Commission Communication on 'Trade, growth and world affairs'[1] and endorsed in the Council conclusions of 21 December 2010[2].
The Union currently does not have a common legislative framework[3] to enforce its rights under international trade agreements. The present proposal aims to remedy this situation.
The Union may be called on to take unilateral measures to enforce and defend its rights and interests under international trade agreements. This is the case under the dispute settlement rules of the World Trade Organization (WTO), as well as under bilateral or regional dispute settlement mechanisms. A similar situation exists as regards trade safeguards and so-called 'rebinding' exercises under international agreements. Any such measures require rapid action in order to function as an effective and credible tool to induce compliance and in order to meet the deadlines set out in the Union's relevant international commitments. This calls for rapid, efficient and flexible decision-making within the structures provided by the Treaty of Lisbon.
Prior to the entry into force of the Lisbon Treaty, the Union approached enforcement in an ad hoc manner in the form of Regulations adopted by the Council on the basis of a Commission proposal, based on former Article 133. On the other hand, after the entry into force of the Treaty of Lisbon, the Council and the European Parliament are co-legislators under the ordinary legislative procedure in relation to the measures defining the framework for implementing the common commercial policy (Article 207 of the Treaty on the Functioning of the European Union, 'the TFEU'). Enforcement of rights under international trade agreements is a typical executive function that may require adopting and implementing measures within strict deadlines. It is appropriate for the Council and the European Parliament to establish a clear and predictable framework for the adoption of any such acts.
The practice prior to the entry into force of the TFEU serves as an illustration of the desirability to operate under procedures that enable quick and efficient decision-making to enforce the Union's rights:
– In the WTO dispute settlement case US-Foreign Sales Corporation, the adoption of Council Regulation (EC) 2193/2003 of 8 December 2003 increasing customs duties on some imports from the US took 8 months from the adoption of a Commission proposal. The suspension of that measure, through Council Regulation (EC) No 728/2006 of 15 May 2006, took 3 days to adopt from the adoption of a Commission proposal.
– In the WTO dispute settlement case US-Byrd, Council Regulation (EC) No 673/2005 of 25 April 2005 increasing customs duties on certain products originating in the US took approximately 2 months to be adopted, from the adoption of a Commission proposal.
– In WTO dispute settlement case US-wheat gluten, Council Regulation (EC) No 1804/98 of 14 August 1998 reserved the EU rights to rebalance the adverse effects of the US safeguards measures in accordance with Article 8 of the WTO agreement on safeguards. Its adoption took 1 month from the adoption of a Commission proposal.
– In US-Steel, adoption of Council Regulation (EC) No 1031/2002 of 13 June 2002 on safeguard rebalancing measures took 2 months; repeal of rebalancing under the same case only took 4 days.
In the absence of an appropriate legislative framework for the implementation of commercial policy measures in situations similar to the above mentioned cases, it would be necessary to resort to the ordinary legislative procedure for the adoption of measures in certain situations. It takes 15 to 31 months on average for the adoption of a legislative act, a length which could affect the ability of the Union to exercise its rights effectively within the time frames defined in international trade agreements.
The present draft Regulation is rooted in the consideration that (a) the adoption of commercial policy measures to enforce the Union's rights under international agreements is a typical executive function that needs to be implemented within a framework of common rules; (b) in the absence of an appropriate legislative framework, the Union's ability to effectively enforce its rights may be compromised; (c) there is a potential conflict between the relatively lengthy Union's decision-making time frames and the time frames for the enforcement of rights under international trade agreements.
In this context, the present draft Regulation proposes the creation of a common legislative framework to enforce the Union's rights under international trade agreements, in line with the Treaty of Lisbon. The Regulation proposes to empower the Commission to adopt implementing acts in accordance with Article 291 of the TFEU, within the scope established by this draft Regulation and within the limits and in accordance with the criteria expressly set out. The scope of the Regulation extends to adoption, suspension, modification and termination of implementing acts with regard to:
(a) Enforcement of the Union's rights under binding multilateral and bilateral dispute settlement rules;
(b) Rebalancing measures under multilateral and bilateral safeguard rules;
(c) Rebalancing measures in cases of modifications by a third country of its concessions under Article XXVIII GATT 1994.
Under the present draft Regulation, the Commission may adopt the following types of commercial policy measures: customs duties, quantitative restrictions on imports or exports of goods, and measures in the area of public procurement. This approach results from the experience gained over the years in the adoption of commercial policy measures, and it reflects the fact that action in the selected areas is practicable and generally effective. At the current stage of development of Union law, particularly taking into account national regulations on services and intellectual property and the limits to effective action inherent to the nature of those sectors, it is appropriate to focus on other commercial policy areas for the purposes of the Commission's empowerment. It should be noted that so-called 'cross retaliation' (i.e. suspension of concessions or other obligations in a different sector from the one where the violation was adjudicated) is generally possible under WTO rules and that there is no limitation on 'cross retaliation' in the Union's free trade agreements. Should it prove necessary for the Union to resort to commercial policy measures not covered by the draft Regulation, including with regard to trade in services or the commercial aspects of intellectual property rights, the Commission could make proposals for a legislative act on the basis of Article 207 TFEU or resort to other applicable procedures.
A review clause establishes that the Commission shall assess the functioning of the present Regulation three years after the first instance of implementation of the draft Regulation occurred. The Commission shall issue a report and, if the circumstances so warrant, may propose adequate measures to improve the Regulation efficiency. In this context, consideration can be given to the range of commercial policy measures under the Regulation such as trade in services and intellectual property rights, in addition to goods.
With respect to government procurement, under the terms of the WTO Agreement on Government Procurement ("the GPA"), both in the version currently in force and in the revised version, when a GPA Party fails to respect its commitments, other GPA Parties may suspend concessions or other obligations only with regard to procurement markets. Given this, it is important to foresee in the proposed draft Regulation the possible adoption of commercial policy measures concerning public procurement, in order to make it possible for the Union to effectively enforce its legal rights with respect to government procurement covered by the Union's international obligations. Aside from the WTO dispute settlement system, which has been used in several occasions to tackle practices contrary to the GPA, action to enforce procurement commitments is also likely to arise in a bilateral context, as recent bilateral trade agreements concluded by the Union include fully-fledged dispute settlement mechanisms. The Union has experience in the implementation of commercial policy measures limiting access for third countries to the Union's procurement markets, where necessary i. Due to the particularities of public procurement, in particular the existence of an administrative procedure that regulates and determines access to specific calls for tenders, it is possible to foresee action as regards procurement of both goods and services. Furthermore, commercial policy measures under this draft Regulation would match the scope of the procurement commitments that are suspended –i.e. they would apply to certain entities and above certain thresholds only. Finally, the relationship between the present proposal and the Commission proposal for a Regulation of the European Parliament and of the Council on the access of third-country goods and services to the Union's internal market in public procurement (COM(2012) 124 of 21 March 2012) should be noted. The latter proposal aims at increasing the Union's leverage for the negotiation of terms of access for the Union's goods, services and suppliers to the public procurement markets of third countries: it thus focuses on the access to the Union's procurement market of third country goods and services not benefiting from any market access commitments under existing international agreements covering public procurement. The present proposal, by contrast, deals in a horizontal manner with the enforcement of such agreements: it thus completes the regulation of international aspects of public procurement, in so far as it provides a framework of rules that will allow the enforcement of procurement provisions in international trade agreements.
Contents
In the preparation of the present proposal, two non-papers were circulated to the Council's Trade Policy Committee and the European Parliament's International Trade Committee (INTA) on 19 September 2011 and 11 November 2011, respectively. Member States were consulted in two technical meetings on 27 September and 28 November 2011 respectively.
The purpose of efficient and efficacious enforcement of the Union's rights enjoys broad support.
No impact assessment of the present proposal has been carried out, since: the present initiative does not have a direct economic, social or environmental impact and the nature of the measures at issue (case by case) does not in any case allow an ex-ante evaluation.
The Union does not have a common legislative framework to enforce the Union's rights under international trade agreements. The current initiative intends to remedy to this situation by proposing the establishment of a legislative instrument to allow the Union to enforce and defend its rights in compliance with its international obligations. Its objective is efficient and swift implementation with a view to safeguarding the Union's interest. Accordingly, on the basis of Article 207 of the TFEU, it proposes to empower the Commission to adopt, suspend, modify or terminate implementing acts to enforce the Union's rights within the structure of the Treaty of Lisbon, i.e. in accordance with Article 291 of the TFEU.
Under WTO and bilateral dispute settlement rules as well as multilateral and bilateral safeguard measures the Union may be required to take unilateral measures to defend its rights and interests. Enforcement action under dispute settlement provisions or re-balancing measures requires relatively swift action in compliance with the relevant trade rules and in order to function as an effective tool to induce compliance.
The regulation must be adopted at Union level. The common commercial policy is an exclusive competence of the Union.
Article 207 of the TFEU.
The objective of the draft Regulation is to lay down rules and procedures to ensure that the Union is in a position to effectively exercise its rights to suspend or withdraw concessions in response to breaches of by a third country of international trade rules with a view to securing a satisfactory solution; and to rebalance concessions or other obligations in the trade relations with third countries, when the import treatment accorded to goods from the Union is altered.
The scope of the draft Regulation, as set out in Article 3 covers the following situations:
(a) Following the adjudication of trade disputes under the WTO Dispute Settlement Understanding (DSU), when the Union has been authorised to suspend concessions or other obligations under the multilateral and plurilateral agreements covered by the Dispute Settlement Understanding.
Under the WTO, suspension of concessions or other obligations is governed by Article 22, paragraph 3 of the DSU; in case of prohibited subsidies, Article 4.10 of the Agreement on Subsidies and Countervailing Measures applies[5] and with regard to so called actionable subsidies Article 7.9 of the Agreement on Subsidies and Countervailing Measures.
(b) Following the adjudication of trade disputes under other international trade agreements, including regional or bilateral agreements, when the Union has the right to suspend concessions or other obligations under such agreements.
Such international trade agreements concluded by the Union set out rules for dispute settlement which entitles the parties to enforce their own rights in accordance with the rules set out in the relevant agreement.
(c) For the rebalancing of concessions or other obligations, to which the application of a safeguard measure by a third country may give right pursuant to either Article 8 of the WTO Agreement on Safeguards (AoS) or the provisions on safeguard rules included in the Union's regional or bilateral agreements.
Article 8 AoS, which only relates to goods[6], states that Members applying safeguard measures generally must offer trade compensation to countries affected by the safeguard adverse effects following consultation prior to the application or extension of a safeguard measures, in accordance with Article 12, paragraph 3 of the AoS. In the event no agreement is reached, the affected exporting Members individually may take re-balancing measures, not later than 90 days after the measure is applied. The right to take re-balancing measures vis-à-vis the Member applying the safeguard may be exercised a) either three years after the measure has come into effect or b) as soon as the measure is found to be WTO-incompatible by the WTO Dispute Settlement Body (DSB) (the three-year grace period set out in Article 8 of the AoS does not apply if the measure is based on a relative increase in imports). Similarly rebalancing measures may arise under the application of safeguard rules embedded in bilateral or regional FTAs[7].
The existing Union legislation implementing multilateral and bilateral safeguard measures does not regulate these aspects of either Article 8 of the AoS or the relevant rules in the FTAs but rather establishes the procedures for the application of safeguard measures by the Union. Any rebalancing measure would in principle be subject to the ordinary legislative procedure, unless covered by the present single legislative framework.
(d) In cases of modification of concessions by a WTO member under Article XXVIII of the General Agreement on Tariffs and Trade (GATT) 1994, where no compensatory adjustments have been agreed.
In case of modification of a concession by another WTO member pursuant to Article XXVIII of the GATT 1994, if no agreement is achieved with the members holding negotiating or supplying rights, the contracting party which proposes to modify its concession is free to do. In this case, those members[8] holding a right may take rebalancing measures not later than six months after such modification of the concession has occurred. Such rebalancing measures would imply withdrawing, upon the expiration of thirty days from the day on which written notice of the withdrawal of the concession is received by the contracting parties, substantially equivalent concessions to those initially negotiated with the contracting party that modifies or withdraws a concession. So far the Union has not withdrawn concessions under Article XXVIII of the GATT 1994. However, should the possibility arise, trade re-balancing stemming from modification of concessions by other WTO members under Article XXVIII GATT respectively would occur within relatively short deadlines (not later than 6 months after the Member modifies or withdraws its concession). Effective decision-making procedures to implement rebalancing measures would allow the Union to engage credibly vis-à-vis its partner in rebinding negotiations and may influence the course of negotiations on compensatory adjustment to the Union's advantage.
The Regulation is without prejudice to the adoption of commercial policy measures under other procedures, for instance with regard to commercial policy measures in the sector of services and intellectual property rights following multilateral and regional or bilateral dispute settlement adjudication.
Pursuant to Article 291 of the TFEU, when action is necessary to enforce the EU rights under the circumstances above mentioned the Commission shall adopt implementing acts in accordance with the examination procedure (Article 4 "Exercise of the Union's rights"). Implementing acts shall respect the rule that the level of countermeasures should not exceed the level of nullification and impairment, generally intended as the adverse impact on the Union resulting from the third country measure, as defined in the relevant agreement (Article 2 'Definitions'). In determining the scope of the implementing act to be adopted the Commission shall also rely on various criteria, in addition to the interests expressed in the public consultations and the Union's general interests, i.e. effectiveness of the measures in inducing compliance of third countries with international trade rules; potential of the measures to provide relief to economic operators within the Union affected by third country measures; availability of alternative sources of supply for the products concerned, in order to avoid or minimise any negative impact on downstream industries or final consumers within the Union; any specific criteria that may be established in international trade agreements in connection with the situations foreseen in Article 3.
The types of commercial measures that may be enacted by means of an implementing act are measures concerning imports or exports of goods and measures in the field of public procurement.
Import or export measures include the suspension of tariff concessions and the imposition of new or increased customs duties; introduction or increase of quantitative restrictions on imports or exports, whether made effective through quotas, import or export licenses or other measures.
The WTO Agreement on Government Procurement states that any dispute arising thereunder shall not result in the suspension of concessions or other obligations under any other covered agreement of the WTO. Being so, it is important to foresee in the proposed Regulation the possible adoption of commercial policy measures concerning public procurement, in order to make it possible for the Union to effectively enforce its legal rights. Due to the particularities of public procurement, in particular the existence of an administrative procedure that regulates and determines access to specific calls for tenders, it is possible to foresee action as regards procurement of both goods and services.
In this regard, the type of commercial policy measures that may be enacted concern the exclusion from public procurement of tenders the total value of which is made up for more than 50% of goods or services originating in the third country concerned; and/or the imposition of a mandatory price penalty on that part of the tender consisting of goods or services originating in the third country concerned (Article 5 'Commercial policy measures').
The examination procedure should be used for the adoption, suspension, modification and termination of the implementing acts determining the appropriate commercial policy measures for the exercise of the Union's rights (Articles 4 "Exercise of the Union's rights" and 7 'Suspension, modification and termination of measures'). In adopting implementing acts, and with a view to avoiding the proliferation of additional structures, the Commission should be assisted by the existing Trade Barrier Regulation Committee, established by Regulation (EC) No 3286/94.
None.
The proposed Regulation provides a mechanism to enforce the Union's rights and apportion responsibility between all institutions.