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The European Union Trade Policy

The European Union is a supranational union of 25 European Member States. It was established under that name in 1992 by the Treaty on European Union (also known as the Maastricht Treaty). However, as already explained, many aspects of the Union existed before that date, through a series of acts dating back to 1951.

The EU's activities cover all areas of public policy, from health and economic policy to foreign affairs and defence. However, the extent of its powers (its competences) differs greatly between areas. Thus, for example, it resembles a federation on trade with third countries, monetary affairs, agricultural and environmental policy. It resembles a confederation on social and economic policy, consumer protection, and home affairs, and it resembles an international organisation in external relations (foreign affairs).

A key activity of the EU is the establishment and administration of a common single market, consisting of a customs union, a common trade policy, a single currency, a common agricultural policy, and a common fisheries policy.

The customs union is a free trade zone with a common external tariff: as the EU is a group of Member States forming a customs union, it has introduced such a tariff system. The same customs duties, quotas, preferences or other non-tariff barriers to trade apply to all goods entering the area, regardless of which Member State within the area they are entering.

The EU's 25 Member States negotiate as one through the European Commission. The formulation of the EU's external trade policy has traditionally involved Member States' representatives, who are closely consulted on a regular basis, and each Member State's government ministers, who themselves take the key decisions about the direction of trade policy through majority (or in some areas, unanimous) voting within the EU's Council of Ministers. The European Parliament is kept abreast of developments.

The external trade policy of the EU, which covers approximately one-fifth of world trade, is referred to in EU parlance as the Common Commercial Policy (CCP). While commercial policy originally focused on tariffs and other border measures which affected trade in goods, the scope of the policy today is far more diverse. Other policy areas, which can be generally referred to as regulatory issues have become increasingly relevant to international trade. These mainly include the following:

  • technical standards and regulations,

  • environmental policy,

  • consumer policy,

  • intellectual property,

  • competition policy.

The CCP has, furthermore, developed a sophisticated network, by means of trade agreements and regulations, of trade relations with third countries. This reflects the granting of trade preferences. Hong Kong traders familiar with the Chinese mainland export market will most likely know, for example, of the EU's Regulation on the Generalised System of Preferences, or GSP. The Regulation grants reductions in import duties, or nil rates, depending on the "sensitivity" of the products imported into the EU. Beneficiary countries are the world's developing countries, although some sectors for some developing countries are excluded. A good example of this is mainland China's textile sector, which the EU believes to be developed enough not to need a competitive boost under the GSP (the GSP and its application to Chinese mainland exports is analysed later in this Guide).

The EU's CCP is designed so as to both restrict and promote trade. While - in large part due to WTO rules and the pressure of multilateral liberalisation - trade policy has become less restrictive over time, considerable scope for protection remains in particular sectors. Textiles and clothing are one such sector. Agriculture is another.

The use of anti-dumping measures and regulatory barriers are additional ways in which trade is restricted. While the former are used so as to protect domestic industry which is under threat or suffering from price-undercutting imports, the latter comprise a large body of EU legislation, whether to protect the environment or human and animal health.

Regulatory measures come in many guises, from mandatory labelling to prohibitions on the use of certain dyes or hazardous substances. These will be dealt with further below as, strictly speaking, although they very much affect trade in goods, they do not fall under the CCP.