The Common Commercial Policy

Critique The Reform Of The Common Commercial Policy Under The Treaty Of Lisbon.

Abstract:

This essay is an attempt to critique the reform of the common commercial policy under the treaty of Lisbon. It explains the concept of common commercial policy since its evolution to the present treaty of Lisbon, the difference and the impact the changes have on the European Union and its member states.

The treaty of Lisbon strengthens democracy in the EU, The treaty of Lisbon initially referred to as the reform treaty amended the treaty of the European Union (TEU) and the treaty establishing the European community (TEC).

The treaty is an international agreement signed in Lisbon the capital of Portugal on the 13th of Dec 2007.The establishment of the treaty of Lisbon brought about some minor adjustment in the European union, such as an increased involvement of the European parliament in the legislative process through extended co-decision with the council of ministers, eliminating the pillar system and some aspects of the common commercial policy.

Common commercial policy is one of the main policies of the European Union, it falls under the Exclusive competence of the European union, it Implies uniform conduct of trade relations with 3rd world countries on matters that deal with custom union, tariffs, import and export, Foreign direct investment is part of the CCP, This paper will focus on the reforms of the common commercial policy as it affects the Foreign direct investment.

The foreign direct investment now falls under the exclusive competence of the European union, the Treaty brought about unfair changes to the foreign direct investment on the member states, the changes will throw the member states of balance in the sense that they no longer have a say on matters of foreign direct investment, matters they once had authority over.

In this essay, I will look at some of the parts of the Common commercial policy prior to the Lisbon treaty, I will deal with areas of FDI and BITS, I would also try to identify why it was deemed necessary to put this areas which were erstwhile handled by states under the exclusive competence of the EU,I would also consider how this reform has impacted on the relationship between the EU as an International Organisation and its member states.

In terms of sovereignty issues, does this imply that the EU is now a Super state? does this imply that the states have or are giving up their sovereignty?

The change done to foreign direct investment by the Lisbon treaty will place the member states in a dangerous situation, situations where the European Union is said to be the Alpha and Omega of their economy, because the European Union can be said to be ruling their economy.

Introduction:

The EU is an International Organisation and also a Custom territory under the provisions of Article 24 GATT. At present is has 27 members. The EU is committed to regional integration and to achieve, one of its functions is handling matters of trade, the EU is mandated under its constitutive documents to maintain a Common Commercial Policy of it member states. To this end, the CCP of the member states has always been within the competence of the EU as far back as the Treaty of Rome.

Irrespective of this mandate, there were some commercial policy issues that were still within the competence of the states; such issues as Foreign Direct Investment and the entering into Bilateral Treaties.

The EU’s mandate on the common commercial policy of its members has evolved over time, from the first regulation which was in operation between 1954 -1994, until opinion 1/94 came about from the European Court of Justice regarding the conclusion of the Uruguay round; the second regulation on CCP was in operation from 1994 -2000.

In Lisbon Treaty which entered into force 1st December 2009, was passed to provide for amongst other things a more unified CCP, Quoting from the treaty preamble, the main aim of the treaty of Lisbon is to finish the process which was started by the treaty of Amsterdam and Nice, it also aimed at making the EU more efficient and to improve the coherence of its action. Some commentators have argued that the implication of this treaty would lead to the centralisation of the European union. and will, consequently weaken democracy in individual member states, as a result of the shift in power from national electorates.

The implication of the treaty of Lisbon on the EU and its member states cannot be over emphasised. Amongst other things the treaty has given the European union more powers over matters of trade and all aspects of common commercial policy e.g. on matters that have to do with foreign direct investment, protection of intellectual property right, services e.t.c.

The question then is what are the implications of the reforms of Commercial Policy under the Lisbon Treaty? How reasonable is this change?

In this paper, I will analyse how common commercial policy has evolved over time, I will also look at the aspect of foreign direct investment and its changes.

Commercial Policy Prior To The Lisbon Treaty

Background Of The Common Commercial Policy:

According to the Europa, The expansion of international trade made common commercial policy one of the Community’s most important policies. At the same time, the successive enlargements of the Community and the consolidation of the common market strengthened the Community’s position as a pole of attraction and influence for trade negotiations, conducted bilaterally with other countries and multilaterally in the GATT.

The main provisions of the CCP is Article 133 EC, The main objective of the common commercial policy was to establish a common market between the Member States of the Community in which goods, people, services and capital could move freely, also decisions under common commercial policy have been taken by qualified majority within the Council since 1st January 1970.

At the end of the Uruguay round, The European court of justice held that the European community and its member states had shared competence to conclude agreements which fall under the GATTS and TRIPS, because only part of this agreement falls into the scope of Article 133 European community treaty. The treaty of Amsterdam changed Article 133 to enable the Council extend the capacity of the common commercial policy by unanimous vote to aspects of GATT and TRIPS which were not included, but contrary to this, the council declined.

The Nice treaty extends the common commercial policy to the negotiation and conclusion of agreement in the field of trade and services and the commercial aspects of intellectual property(exc. investment). Opinion 1/75 laid down the scope of the CCP; here the court ruled that common commercial policy is a field that moves gradually through a mixture of internal external measures without any priority of one kind over the other.

In 1994, the commission thought only the EC should have the right to ratify agreements based on Art 133EU treaty former Art 113, but the member states also wanted a right to ratify the agreements as well, in Opinion 1/94 the court explains that the ratification of CCP needs ratification from both the EC and the member states and asked that they cooperate tightly, the court went on to say that the common commercial policy covered some modes of supplying services. Going by the system of the General Agreement on Trade in Services (GATS), it distinguished four different ways in which services were supplied:

• Cross-border supply,
• Consumption abroad,
• Commercial presence and
• Movement of persons.

Only the first one falls under the common commercial policy. It was also held that international agreements in the field of transport are excluded from the scope of the common commercial policy; transport was the subject of a separate and specific title of the Treaty.

Furthermore, it was held that the parts of the Agreement on Trade-Related Aspects of Intellectual Property (TRIPs) which handled matters on intellectual property rights were not the structure of the common commercial policy. But the Court affirmed its jurisprudence on the origin of Community competence.

The ECJ confirmed that CCP falls under the exclusive competence of the EU, the concept of CCP was not a very strict one because the court did not construe the exclusivity strictly, in Donckerwolcke the ECJ held that the member state could deviate from the CCP rules under specific authorization by the community,

The concept of the CCP changed in the 1970’s when there was a tendency toward a more regulatory and less liberalizing approach to international trade, but Foreign direct investment still remained shared competence.

Some changes to the CCP were matters concerning cultural and audiovisual services, educational services and social and human health services were removed, matters concerning Investment were included to the scope of the CCP.

A Look At Foreign Direct Investment.

FDI does not have a specific definition but Directive 88/361/EEC provides for a community level agreed definition which is somehow connected to CCP, “Investments of all kinds by natural persons or commercial, industrial or financial undertakings, and which serve to establish or to maintain lasting and direct links between the person providing the capital and the entrepreneur to whom or the undertaking to which the capital is made available in order to carry on an economic activity. This notion should be understood widely.

FDI accounts for two-third of the world’s money, against a share of one-third for trade. A multilateral framework was not possible to achieve and states preferred the “spaghetti bowl” of bilateral investments agreements.

A bilateral treaty is a treaty strictly between two state parties. These two parties can be two states, or two international organizations, or one state and one international organization. It is similar to a contract, so it is called contractual treaty, or bilateral agreements are agreements between two political entities, thus legally binding these two territories only. Bilateral trade relations are about agreement on custom unions, free-trade, association, co-operation and partnership.

The European Member states enter into BITs with other countries to attract foreign investment; Each EU Member State negotiates its own bilateral investment treaties (“BITs”), which contain investment protection measures such as rules on the repatriation of funds and safeguards against unlawful expropriation.

The EU concludes bilateral agreements and plans certain trading policies with other countries, 121 countries are potentially linked to the EU by regional trade agreements, and many negotiated in the 1990s.Some Key EU bilateral agreements include:

• Economic Partnership Agreements in negotiation with ACP countries (Cotonou)
• Free Trade Agreements with EFTA, EEA, Euromed, Mercosur (in negotiation), South
• Africa.
• Customs Unions with Turkey, Andorra and San Marino
• Partnership and Cooperation Agreements with Russia and Ukraine
• Stabilisation & Association Agreements with Balkans countries.

To attract FDI in some developing countries, International investment agreements (IIAs) are key instruments which are utilized, IIAs are part of the policy structure for foreign investment, and it is only one of the many factors which companies consider when making investments.

Under the constitution, FDI was under the shared competence of the European union, but as time evolved, some major changes were made, The treaty of Lisbon included foreign direct investment under the scope of the CCP.

The fact that FDI has been included in the common commercial policy will affect the member states tremendously, The member states will no longer be able to enter into BITs any more, Germany has concluded almost 140 BITs, Great Britain has concluded more that 120, Austria 50 and France almost 100, The European Union now has competence to negotiate BITs in almost all parts and to adopt the appropriate legislation regarding the access of foreign direct investments into the EU internal market, the treaty lives no room for adjustment of some sensitive matters.

Under the Lisbon treaty, investment agreements that cover all forms of investments would probably not fall under the exclusive common commercial policy competence, it will depend on the definition of FDI used and the ambitions to protect portfolio investments though the CCP is now under the competence of the EU, with exceptions of regulation of portfolio investments that is under the shared competence of the EU.

WTO And Foreign Direct Investment

The European Union and the WTO share some similarities, both of them are organisations created basically for trade promotion between states, the difference between them is that the WTO is multilateral in nature, while the EU is regional; The WTO was set up in 1995 because of the Uruguay Round of multilateral trade negotiations (1986-1994). It is an international organization that sets the global rules for trade between nations. The EU is one of the key players in the WTO, Part of its functions are to reconcile disputes between trade partners and for negotiations between all WTO members to further open trade between them.

The latest convention text extends commission competence and qualified majority votes in council to include FDI. Previously commission competence did not include matters of FDI, which were subject to unanimous vote in council.

The principal multilateral agreements on FDI is from the 1994 Uruguay round of the GATT, the fore bearer of the WTO which includes agreements on trade related investment measures,The Uruguay round of GATT was the 1st to attempt an agreement covering trade and investment.

The Lisbon treaty has given the EU expanded powers to act on the world stage including the ability to enter into treaties, this has a wide impact on the structure for foreign investment within Europe and the protection of European Companies investment overseas, currently there are about 200 Intra-EU FDI agreements entered into by European Member state with states outside EU, Eastern Europe Member state have signed numerous agreements to attract FDI from 3rd world countries.

The European union now has exclusive competence over FDI, The member states are no longer involved, from the analysis above, the fact that member states get involved in lots of BITs cannot be over emphasized, In situations where there is a dispute arising for existing BITs who would be the parties, would the European Union allow the Member states who took part in the previous BIT take part in the proceedings, it is hard to see how a dispute arising out of an agreement entered into by the EU as a party would be handled although, Article 188c brings FDI into the competence of the EU, as well as putting pressure on Member states to renegotiate existing agreements or negotiations on FDI, it is thought that Member states will no longer be able to negotiate treaties of their own accord.

Some commentators have suggested that the EU will prefer not to include investor state arbitration in its dispute resolution clauses, forcing an investor to bring a claim against the ECJ.

Trade Talks In The Wto.

All member states of the EU are individually members of the WTO, but the EU negotiates in the WTO as a single body.

The WTO and the multilateral trading system are the main emphasis for EU trade policy. The EU are of the belief that a system of global regulations are the best ways to make sure that trade between countries is fair and open.

Before the eradication of the pillar system and the general use of the name (EU), the European Commission represented the European Union in trade talks, the Member state are also represented in WTO, but each member state is bound to support the common EU position in the area where the EU has exclusive competence as in most trade.

Before the treaty of Lisbon came into existence, If a WTO agreement contains matters that fall under the shared competence of the EU then it will have to be signed jointly with the Member states, In 1994 the EU court decided that the EU was not fully competent for all parts of intellectual property rights, then the Member state had to co-sign the full agreement.

The Nice treaty brought about a change in this issue, but it still has some issues for parts of trade in some sensitive services, The Lisbon treaty has eliminated these remaining problems as the Nice property eliminated the difficulties for intellectual property rights.

The New Lisbon treaty has bestowed the EU with legal personality, they now have the right to enter into international agreements with states or third countries, sign treaties, etc, On issues of decision making, voting within the ministers is subject to parallelism of form rules, therefore the council makes decisions by a qualified majority, but there is an exception to this, in a situation where the agreement relates to an aspect in which unanimity is required for the adoption of a union act..

Most EU positions are elected by qualified Majority. The treaty of Lisbon demands the use of qualified majority voting in all international agreements where the international decisions relating to them are agreed by qualified majority. It was decided by the court, but the principle may now be used in many more areas because the Lisbon treaty has widened the scope for EU legislation, the Member state can no longer veto joint legislation, and this will be discussed further into the essay.

It is difficult to find areas where the EU should not be able to enter into WTO agreements without decision by qualified majority or a requirement for co-signature by the Member state.

Trade agreements on the commercial aspects of intellectual property rights is not shared competence any more, This change has outlawed the previous court decision on WTO and opens for exclusive EU agreements including intellectual property rights, called TRIPS.

Article III-217 of the Draft Constitutional Treaty specifies that the Common Commercial Policy includes “the conclusion of tariff and trade agreements relating to trade in goods and services and the commercial aspects of intellectual property, foreign direct investment”.

According to the Treaty of Lisbon, goods, services, intellectual property rights and investment would be covered by the Common Commercial Policy, Compared to the Nice treaty the scope would be increased in two ways: First, the exception concerning cultural and audiovisual services, educational services, and social and human health services would be removed; and lastly, investment would be included in the scope of the Common Commercial Policy. This will have consequences on the ratification stages of international trade agreements in the WTO.

According to Markus Krajewsk,i the original Article 133 required ratification of the Uruguay Round agreements by the parliaments in all EU member states in addition to the ratification requirements at the European level. Based on the version of the Nice treaty trade agreements only need to be ratified by the national parliaments if they concern investment and cultural and audiovisual services, educational services, and social and human health services. However, as long as agreements in these areas are part of a “package deal”, which is usually the case with WTO, agreements, national parliaments still have to ratify the entire “package”

Lisbon has given Parliament powers to adopt the legislation for implementing the common commercial policy, under Lisbon, Parliament consents is needed on all trade agreements before the Council can conclude them, also the European Parliament now have to be informed frequently by the Commission on the progress of negotiations in trade agreements, the involvement of the European parliament on trade matters has been largely increased by the Lisbon treaty compared to Nice.

Issues Of Transperency In The Wto:

The New Lisbon Treaty has a transparency clause (new Article 16(8) of the amended TEU): “The Council shall meet in public when it deliberates and votes on a draft legislative act.” meetings of the Council of Ministers which deals with legislative acts will be public, this appears to be a good change the Lisbon treaty has brought because, the EU is not transparent when handling competence on matters of trade and they cannot account for the article 133 committee, which can be manipulated by the union.

The European Parliamentary Labour Party called this change a “long overdue reform that was driven by the 2005 UK Presidency ”Federal Union considered that the provision would change the way the EU functions, national parliament would be able to hold their governments responsible for their actions, which would be more understandable to the public.

On the contrary, Lord Brittan of Spennithorne was against the move, saying that “the position in which there was haggling and negotiation rather than the necessity to take up public positions was on the whole a good arrangement”

The transparency of the council of ministers is very important to the EU as a whole; lack of transparency is an avenue for corruption.

EU Members States In The WTO (National Veto):

Another issue to consider is the change in voting system before the Treaty of Lisbon, some scholars have commented on this change, on whether there is a national veto in the WTO member states, such as Jens peter bonde and David O’Sullivan, Director-General for Trade, European Commission.

According to Jens peter bonde, Agreements in the WTO are negotiated by the EU under their competence from the council of minister, he pointed out that when EU has the authority to decide laws for the member states, then they also have automatic right to enter into international agreements as well. This principle follows from several court cases; it has now been extended by the Lisbon treaty as a general competence to enter into all kinds of agreements with other states or international organisations in areas where the EU decide internally.

According to art 47 TEU, the EU will have the competence to negotiate on behalf of all member states, the principle and the procedures can be found in the Lisbon treaty, article 206, 207, 212 and 218-219 TFEU.

The exclusive competence of the CCP according to the Lisbon treaty will make the member state loose all competence for entering into commercial agreements with third countries or international organisation, under the Lisbon treaty international trade agreements will normally be decided in the EU by qualified majority in the council of ministers but an overall agreement may still contain single topics for which unanimity is required or where the EU may have no formal competence for internal legislation, in a situation where the matter involves unanimity then the EU can set up mixed agreement and invoke the flexibility clause of Art 308-Art 352 TFEU in the Lisbon treaty.

This method is misleading because the inclusion of single topics that need unanimity decision in the WTO does not mean that member states can veto the parts that is dealt with by qualified majority, the Lisbon treaty makes majority voting the normal rule, but it has some specific amendment to avoid the need of consensus and joint conclusions of mixed agreements with national co-signatures.

Peter bonde elaborates that the key component of WTO agreements are based on treaty Articles where all internal rules are decided by a qualified majority, here there is no national veto whether for internal rules or for agreements in the WTO.

“The foreseen changes in the Lisbon Treaty are designed to avoid the few remaining

Unanimity problems of the past where one single point requiring unanimity could mean

that the whole package should be decided by unanimity. In EU it is called for the

“pastis principle”. One unanimity drop could colour the whole package.”

He concluded that

“There may be a veto on WTO issues…….. But surely not under the Lisbon Treaty

if you look carefully at the negotiating mandate from the Hong Kong meeting.

There, I have found not one single point requiring unanimity under Lisbon. I am

not an expert and may lack knowledge from the secret negotiations and the

Secret negotiating mandates decided in the secret EU Council meetings”.

Comments from David O`Sullivan, Director General for trade in the European Commission, He pointed out that the Lisbon Treaty would not bring dramatic changes in the day-to-day handling of trade policy that the EC’s common commercial policy is already an exclusive competence. Even before the Nice Treaty, Member States did not have the ability to negotiate trade agreements “on their own”. This has actually been the case since the inception of the common commercial policy in the late 1960s. he believes that it is true that the Lisbon Treaty would have some modifications to the decision-making in the Council, But it does not change the fundamental principle that one single instance of mixed competence will require Member States to co-sign the mixed agreement.

Lisbon has given Parliament powers to adopt the legislation for implementing the common commercial policy, under Lisbon, Parliament consents is needed on all trade agreements before the Council can conclude them, also the European Parliament now have to be informed frequently by the Commission on the progress of negotiations in trade agreements, the involvement of the European parliament on trade matters has been largely increased by the Lisbon treaty compared to Nice.

Conclusion And Recommendation.

The competence of the Common commercial policy formally under the competence of the member state has been given up by the member states to the EU, most especially the aspect of FDI.

one of the most significant changes done to the CCP, is the competence of Foreign Direct Investment, FDI has been part of the Common commercial policy, but it has never been exclusive competence, but the Lisbon treaty has included it to the exclusive competence of the EU, Can we now say that the member states has given up their sovereignty?

Elmar Brok Member of the European Parliament said that “it is clearly defined that the European Union does not have the competence of competences, it is clearly said in this Treaty that every competence the European Union has is given by Member States and can be taken away by the Member States”

In Article 4 and 5 TEU, it sets out an obvious provision that the EU may only exercise such authority as the Member States have given them, this provisions goes a long way to say that the member states have the authority to withdraw their competence from the EU based on a general agreement, in my view the change in competence of the CCP as it relates to FDI is indeed, not beneficial to the member states in any way.

The fact that the member states, all of a sudden have no say over their investment and BITs entered into with other countries becomes an issue, member states are the big losers in this because the EU is now seen as a super states that decides all the affairs of its members, the member states should have a say on matters of their economy, I do not think it is a wise idea to leave all the responsibility to the EU, the member states are in a better position to know what kind of investment will be beneficial to their economy and citizens.

What happens to their existing partners who may not want to have direct contact or business with the Union as an international organisation, there is a fear of decline in third world investment due to this change.

Another point note worthy, is the fact that the trade matters in the EU are not transparent so the tendency of the member states been lost on transaction of investment, matters so important to the economy of the state is unavoidable, because the EU will not keep then fully informed of the happenings or the process of the transaction.

Lastly it is not clear as to what happens in situations where there is a conflict in the WTO, if any problem arises on issues of trade, how will such issues be handled, will the EU preside in a case or will they allow the member states to handle this, this question is yet to be clearly answered.

The ability of the council to reverse competences is an option in the Treaty of Lisbon, the Council has the authority to ask the commission to submit proposals for a legislative act to be repealed at the initiative of one or more of its members, the IGC “welcomes the Commission’s declaration that it will devote particular attention to these requests.” The Declaration says that Member States, can meet in an inter-governmental conference, and decide to amend the Treaties, this could be either by decreasing or increasing the competence of the EU.

I am of the opinion that the unions’ competence be reversed back to the member states especially on matters of FDI.

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