Free trade agreements (FTA) are international treaties that two or more State negotiate in order to strengthen their commercial relations, making export easier and cheaper.
These agreements are important because even if a very huge number of Countries is today member of WTO (World Trade Organization) and so subject to its regulations, there are still means and ways to protect market form foreign imports. We talk about tariffs as well as non-tariff barriers, e.g. standard regulations and quantitative restrictions (quotas).
With a FTA States can eliminate or reduce barriers to trade between them: this gives companies an easier access to a new market and the opportunity to reduce export costs.
FTA and the European Union
Articles 207 and 218 of the Treaty on the Functioning of the European Union (TFEU) give European institutions competence on dealing with international commerce and so FTA. Member States cannot conclude such agreements by their own.
The procedure to approve a FTA may require much time, for negotiations are not easy to carry and the institutional passages in order to conclude a similar treaty are not few. Nevertheless, as we’ll see later, companies that hope to benefit with these agreements need not to wait too much, as the Council may ask for a provisional entry into force.
Let us have a closer look at this procedure. The initiative to start a negotiation is in the hands of the Council, the institution representing the national governments. They authorize the Commission to meet the third party following precise guidelines.
The negotiations are held behind closed doors; however, the Commission must report the European Parliament and the Council on their status and respect directions of the letter.
Once agreement has been reached on a text, it is translated in all the official languages of the European Union. The Council then approves it. Here technical and linguistic changes are possible.
The Council may now decide to let the agreement entry into force provisionally. Before we go on, first we need to clarify the nature of FTAs: according to the provision in them, we speak of EU-only or mixed FTAs. The formers contain regulations in matters where the EU has exclusive competence, while the letters concern also concurrent legislation. EU-only provisions alone can entry into force provisionally (that’s what happened with CETA).
In order to make the entry into force final and complete, the European Parliament (and in case of the ratification of a mixed FTA, also all the national parliaments) must give its consent.
Opportunities for Europe and its partners
After the 2016 US presidential elections and the protectionist positions of the new administration, global trading is rapidly changing. In January 2017 Donald Trump announced the US withdrawal of TPP, the ambitious agreement aiming to create a very strong commercial cooperation between the United States, Canada, Japan, ASEAN and other Pacific Countries (Mexico, New Zealand, Australia, Chile, Peru, Colombia).
The Transpacific Partnership may never entry into force: without its most important member, the agreement as it has been concluded does not fit the others partners. Japan has additionally declared it is not interested in a modified version of the treaty. “it would be meaningless” said PM Shinzo Abe.
TPP failure may nonetheless become an opportunity for Europe. On one hand, Asian Countries like Vietnam and Japan are particularly interested in finding a new important economic partner; on the other hand, the EU may use FTAs as a tool to strengthen cooperation with Asia also in non-economical fields, in competition with China, that works to maintain its dominance in the area.
Hanoi is currently negotiating a FTA with the European Countries. Reaching an agreement is difficult because of human rights situation in Vietnam, but the country needs a new economic partner: European market is an excellent alternative to China, with whom commercial relation are quite unfair for Vietnam. That’s a perfect example where the EU could use FTAs as a political instrument.
Something similar can be said for Japan. In this case Europeans aim to have access to a market where its high-quality products are very appreciated. The EU-Japan FTA is in an advanced state of negotiation, and by the end of the year a text may be agreed.