COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT AND THE ECONOMIC AND SOCIAL COMMITTEE THE NEW TRANSATLANTIC MARKETPLACE B. TRADE POLICY CONSIDERATIONS 4. RELATIONSHIP WITH THE MULTILATERAL SYSTEM Further liberalisation in the form of comprehensive multilateral negotiations conducted within the framework of the WTO remains the central trade policy objective of the EU. The proposed NTMA is carefully designed to promote this objective, whilst in itself delivering major economic and political benefits for the two partners. The underlying principle is that each part of the NTMA should encourage and facilitate broader international liberalisation. The proposed tariff initiative is explicitly and exclusively multilateral; the EU and the US will make a joint commitment that, in future multilateral negotiations, they will eliminate all industrial tariffs by 2010 if a critical mass of trading partners (understood in terms of volume of trade and/or numbers of countries) do the same. A bilateral preferential deal is thus ruled out. In the area of technical barriers to trade, the multilateral rules recognise the possibility of bilateral recognition of equivalence of the parties’ certification systems. This is an area of trade where full mutual trust in a partner’s capacity to fully protect high levels of product safety is of paramount importance, to maintain common protection unaffected by trade rules. For this reason, the prospects for multilateral progress in the foreseeable future are limited. Nevertheless, more rapid progress can be made between two major economies with similar degrees of economic and technological development as well as similar public policy objectives. Rather than becoming obstacles to other partners, common standards will provide easier market access to the two largest trading entities in the world. In services, the intention of the NTMA is to promote both a successful and WTO-compatible bilateral arrangement but also to enable the EU to prepare the ground for successful multilateral negotiations in services, due to start in the year 2000. [top of section] [back to contents] There are several ways in which a NTMA in services could support the multilateral approach: The demonstration effect that differing regulatory approaches can indeed be bridged between major trading partners, and therefore are politically and technically capable of being bridged more widely. The incentive effect whereby EU and US enjoyment of a liberalised preferential area for services will attract strong interest from other trading partners for participation in the process (thereby offering a stepping stone towards wider liberalisation of various regulatory barriers among trading partners). Our ultimate objective would be that the liberalisation achieved in the NTM would be matched multilaterally. The creation of models for future WTO rule-making, for example by moving from hybrid to negative listing, i.e. everything is liberalised unless subject to a specific exemption in a schedule. The exploration of ways in which partly or completely excluded areas in the current GATS could be tackled bilaterally and therefore opened up on a multilateral basis. These effects outweigh any possible concern that a bilateral initiative could weaken support for further liberalisation in GATS. On the contrary, the NTMA should enable us to go further and faster than we would otherwise have been able to in achieving EU objectives in these negotiations. More generally, and in the areas of government procurement, intellectual property and investment in particular, the NTMA approach should be both to pursue full compatibility with multilateral rules and - at the same time - to seek "better" rules and/or "deeper" liberalisation with respect to the existing WTO framework as well as in new areas not yet fully covered by it, so as to serve as a model for future WTO rule-making. Such a policy stance would emphasise the leading role of the Transatlantic partners in underpinning and further developing the multilateral trading system. In each area the "best practice" in terms of liberalisation should be sought, so as to achieve not only the largest economic benefits bilaterally but also a demonstration effect vis-à-vis other trading partners. [top of section] [back to contents] 5. WTO COMPATIBILITY The NTMA described in this Communication would be fully WTO-compatible. In the tariff area the initiative is fully compatible since it is foreseen on a MFN basis. The MFN principle applies in general also in the area of technical requirements. WTO Members are not entitled to maintain differing technical specifications for products originating from different countries, nor to require different procedures of conformity assessment. This latter requirement implies that where a country does not regulate safety of a product at all, or where it is satisfied with a suppliers’ declaration of conformity , it has to extend this treatment to all WTO Member countries. However, two areas for bilateral (non-MFN based) co-operation exist and the NTMA will make full use of them. First, mutual recognition. Where WTO Members require an independent verification of a product, or mandate a government agency to verify compliance, Members may bilaterally recognise the competence of their respective certification bodies. The WTO/TBT agreement explicitly recognises this right, while requiring "positive consideration" to recognise other Members that could demonstrate equivalent competence. Second, harmonisation. All Members are free to determine the specifications that products must meet, within certain general rules. Nothing prevents two countries from harmonising such specifications, provided that these are applied to other Members in a non-discriminatory manner. In the area of services the NTMA will comply with the GATS requirements, which are similar to those established under Article XXIV of GATT. Article V (Economic Integration) of GATS sets forth several conditions which would need to be met, in particular: substantial sectoral coverage (in terms of a number of sectors, volume of trade affected and modes of supply); no increase in the overall level of barriers to trade in services originating in other GATS Members within the respective sector; and the elimination of substantially all discrimination (through the elimination of all existing discriminatory measures and/or the prohibition of new or more discriminatory measures). The "substantial coverage" condition requires that, in principle, all service sectors are adequately covered (although there is some scope for interpretation as to whether this includes sectors not presently covered in the GATS, such as air transport and maritime transport, or where appropriate MFN exemptions have been listed). The ‘substantial coverage’ condition also requires that provisions on investment (commercial presence mode of supply) and also on the supply of services implying the temporary movement of certain categories of physical persons (including key personnel) be included as well. [top of section] [back to contents] As for mutual recognition in the services area, article VII of the GATS specifically provides for the conclusion of agreements for the mutual recognition of education, qualifications or ability to provide services. Furthermore, the Annex on Financial Services allows mutual recognition of prudential measures, facilitating the establishment and provision of financial services. The scope for removing technical and legislative barriers to trade could be examined for several services sectors, such as regulations governing bank branches, securities regulations and the licensing of professionals. Article VII requirements (and a similar requirement in the Annex on Financial Services) to give adequate opportunity for similar agreements with other countries would, however, need to be observed. With regard to government procurement, WTO rules are to be found in the plurilateral Government Procurement Agreement (the GPA). The question of MFN treatment should be considered within the specific context of the GPA agreement which, on the one hand, imposes an MFN treatment between contracting parties and on the other hand, allows contracting parties to limit this by inserting "General Notes" in Appendix 1 to the Agreement which reintroduce bilateral relations based on reciprocity between two or more parties. Whilst an NTMA initiative in procurement would not encounter WTO compatibility problems, commitments undertaken by either party might, in some cases, involve extending EU-US bilateral concessions to EEA partners and, depending on the areas involved, to other GPA contracting parties. In the intellectual property area, for the NTMA to be WTO compatible, any modifications to domestic legislation would have to be applied by the two Parties in compliance with the national treatment and MFN provisions contained in the TRIPs Agreement. In the investment area, other than in services (see above), there are no WTO obligations affecting this proposal. [top of section] [back to contents] 6. RELATIONS WITH THIRD COUNTRIES The NTMA will not involve the creation of any new barriers with the rest of the world. Moreover, it is designed to encourage and facilitate wider multilateral liberalisation, and the elements of the Agreement which provide for bilateral liberalisation would not necessarily remain exclusive to the EU and the US. It is also designed to permit extension to those third countries who are willing and able to match the commitments. While the impact on third countries, including in particular countries preparing for accession to the EU, is a factor to be borne constantly in mind during negotiation, overall there is likely to be a net positive and dynamic effect, which can be illustrated for each NTMA component, referring to different groups of third countries. [top of section] [back to contents] Tariff liberalisation On tariffs, the conditional commitment to reduce industrial tariffs to zero would be on a strictly MFN basis, to be realised only by 2010. The NTMA as such will thus not have any effects on third countries in this area. However, once such a multilateral step would be taken, there will be a net positive effect on third countries. Those third countries which will join such a conditional EU-US offer and undertake similar commitments will provide the necessary ‘critical mass’ to turn the elimination of industrial tariffs into a reality. They will gain enhanced access to EU and US markets, and to each others’ markets. At the same time they will open their own markets to EU and US industrial products, which would be a clear sign of their economic advance and the completion of a global process of reduction of industrial tariffs, which began in fact with the first Round after the creation of GATT in 1947. Those third countries which are not in a position to submit such commitments, and this is likely in practice to be the case exclusively for the least developed countries, would benefit from greatly enhanced market access at zero tariffs not only to EU and US markets but also to neighbouring mid-income developing countries which undertook similar MFN tariff elimination commitments, without having to give up their national tariff protection. These effects should be considered alongside the reduction of preferential market access currently enjoyed by ACP countries under the Lomé Convention, and any increase of competition in the Community market. The EU and US should also reaffirm their commitment to ensure that less developed countries secure a share in the growth in international trade commensurate with the needs of their economic development, with a view to their smooth and gradual integration into the world economy, as well as their commitment to address trade and development issues in the WTO. Further economic analysis, to be conducted before firm commitments are made in WTO multilateral negotiations, should cover the impact of the proposed elimination of industrial tariffs on the less developed countries, including the consequences of increased competition, the extent to which they will have to open their own markets, and the extent to which they will enjoy increased access in other markets. [top of section] [back to contents] Free trade area in services On services, as indicated above, the NTMA would fully meet GATS rules and would be designed to be widened to the maximum extent possible into multilateral liberalisation. The dynamics of the transatlantic services market should render it attractive to join the more ambitious NTMA services commitments on a reciprocal basis by countries who were in the past rather reluctant to join in multilateral liberalisation initiatives. There will be every reason for third countries to seek to match the NTMA bilateral liberalisation commitments because the EU and the US would in return bind their matched offers in the liberalisation package emerging from the GATS 2000 talks. The NTMA would not, in respect of any Member outside the agreement, raise the overall level of barriers to trade in services within the respective sectors or sub-sectors compared to the level applicable prior to such an agreement (GATS Article V(4)). Furthermore, third country services suppliers can benefit as, in accordance with GATS Art.V(6), a company incorporated and engaged in substantive business operations in the EU or US would be entitled to benefit from an EU-US FTA in services regardless of the ownership of its capital. [top of section] [back to contents] Technical barriers to trade As regards the area of technical barriers, the EU is free under the WTO-TBT code to conclude mutual recognition agreements and to accept technical regulations of other countries as equivalent. The impact on third countries varies according to the degree of regulatory convergence which has been agreed with other countries. The countries most concerned are those which either apply the acquis communautaire of the Internal Market (e.g. Turkey, EFTA Members of the European Economic Area) or those who are committed to introduce Internal Market rules as part of the pre-accession strategy for candidate countries (CEECs, Cyprus). These countries should benefit most from the NTMA since their products would be produced according to those EU standards which would in future be recognised as being equivalent by the US or be harmonised in the transatlantic marketplace. Other third countries could eventually join the NTMA mechanism covering technical barriers, provided these countries were willing and able to undertake the same comprehensive regulatory commitments. This challenge would be particularly relevant for other major trading partners, who maintain hitherto substantial regulatory trade barriers. [back to contents] [previous section] [next section] [top of section]