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Trading Voices

Princeton University Press

Introduction

THE EUROPEAN UNION (EU), the world's largest trader and a heavyweight in the international political economy, is not an easy bargainer to deal with. The complex, unusual, often unintelligible nature of the European "beast" has left many foreign negotiators perplexed: if the EU speaks with one voice in trade, does it hold the final say over international trade agreements? Once concluded by EU negotiators, can agreements be overturned by recalcitrant EU member states? When is it appropriate to negotiate with the EU or with the member states directly? Over time, both the requirement to present a common front and the complexity of the EU's institutional structure have served the EU well in international trade negotiations.

Just take the negotiation of the landmark free trade agreement with South Africa as an illustration. In 1995 the EU and South Africa started negotiating a sweeping trade-liberalizing deal supposed to free 90 percent of the trade between them. After four years of intense, sometimes tense negotiations-in particular over the issue of the labeling of South Africa's fortified wines as "port" and "sherry," which it eventually agreed to phase out-EU and South African negotiators finally concluded adeal in 1999, due to enter into force in January 2000. To the dismay of other EU member states, at the last minute Italy refused to ratify the agreement, unless South Africa dropped the use of the words "grappa" for its minuscule annual production of 30,000 bottles of the similar alcoholic drink, and Greece decided to block ratification as well, unless South Africa dropped forever the use of the name "ouzo" (which, embarrassed EU negotiators later realized, was not produced at all in South Africa). South African negotiators were astonished by these new demands and by the inability of the EU to overcome its internal disputes. South African President Thabo Mbeki lashed out at the EU for showing bad faith in raising objections after the signature of the accord, and the South African Trade Minister Alec Erwin lamented that it was impossible to negotiate with the EU if it was incapable of raising itself above peripheral concerns, but their protests were to no avail. South Africa eventually caved in and agreed to end the controversy over the names of spirits, and the landmark EU-South Africa free trade deal was finally implemented.

As many trade negotiators around the world have come to realize, it is not easy to bargain with the European Union. With its complex institutional procedures and multiple masters, more often than once its trade partners have been forced to give in to a EU speaking with a single voice, but a single voice reached through an unclear division of competences. Nor is the United States an easy bargainer, for that matter. Between checks and balances among the various branches of government and the easy capture of Congress by special trade interests, American trade negotiators have often used their institutional constraints as bargaining advantages. Willingly or not, the EU has come to rival the United States in this domain. It has become a mighty actor in world trade policy because its member states have pooled sovereignty and external representation in trade, thereby making the collective whole greater than the sum of its parts. But part of this might has come from the incomplete integration of European trade policy, leaving room for involvement by the member states, and from the constant political battles over trade competence between national and supranational actors.

The fact that the EU speaks with a "single voice" in trade has enabled it to affect the distributional outcomes of international trade negotiations and shape the global political economy. Indeed, the EU has exerted a particularly liberalizing influence on the international trading of services and has actively contributed to the development of institutional rules within the World Trade Organization (WTO) designed to prevent unilateralism. In this case, international bargaining power has been a positive externality of the pooling of the diverse European national positions on trade under a single institutional umbrella. By contrast, cacophony is costly, or so it seems: only when the European Union speaks with a single voice has it been able to convey its structural weight into international negotiating leverage.

This book aims to answer many of the questions raised by the process of "trading voices" in the European Union. By which mechanisms does a single internal voice translate into external bargaining power? What are the distributional outcomes of trading individual voices for a single one in an international negotiation? Does the EU's influence lie merely in the combined weight of each of the member states, or does it depend on individual states' preferences or the rules through which these preferences are aggregated into a single voice? When the member states have diverse positions, how does this diversity translate into the outcomes that the collective entity is able to extract in the international negotiation? In particular, which combination of institutional rules and individual preferences makes member states winners or losers from the single voice arrangement? Finally, what are the trade-offs between the advantages of scale in terms of international influence and the internal political costs of having to override heterogeneous preferences?

This book is about the politics of international trade bargaining. It analyzes the determinants of EU bargaining power in international trade negotiations, with a detailed study of four cases of transatlantic trade disputes. The central argument is that the EU's complex institutional structure and the obligation to negotiate international agreements with a "single voice" have an important, sometimes decisive, impact on international trade negotiations-but a different one than is commonly believed. Most claim that the EU has little influence or that it strengthens the European voice in such disputes; instead, I show that the requirement to present a common front in international trade negotiations can strengthen or weaken the EU's bargaining leverage, predictably so, depending on the type of voting rules employed, the distribution of preferences, and the specifics of the issue. Specifically, I find that unanimity voting strengthens the hand of EU negotiators to resist demands for policy changes but weakens their ability to advocate policy changes. Adding to the growing literature on both rational and historical institutionalism, this book aims to specify the conditions under which institutions matter and transform outcomes in a way not predicted by preferences and power alone. A related argument is that, far from having a negative impact on the collective bargaining power, the diversity of European positions might, in some circumstances, act as an influence multiplier and therefore become an asset.

This book is also about the EU as a global actor. In spite of its reputation as an economic giant but a political dwarf, the EU has developed into a highly active, though unorthodox, global actor with a multifaceted set of foreign policies. These policies are far more ambitious than those of any other regional economic organization. From trade to global aid, from sustainable development to democratic consolidation, the EU has become implicated in world affairs and has developed an international presence not captured by a focus on military and diplomatic capacities alone. The EU is the single biggest market for imports from developing countries, and it exports more than twice the amount to developing countries than the United States, Japan, and Canada put together. The EU is the world's largest aid donor, providing more than 50 percent of global aid, and it has long offered trade preferences to the least developed countries. Yet the EU still lacks a comprehensive external policy encompassing trade, development, diplomatic action, security, and defense. By analyzing the one area in which the EU is an uncontested world power, this book sheds light on some misunderstood determinants of its international influence and offers a glimpse at the EU's potential as an international actor-potential not yet realized in areas of international activity other than trade.

This book is also about transatlantic relations, which are becoming more complex and more contested in the twenty-first century. Trade being the only forum in which the EU speaks to the United States with an equal voice, an analysis of the EU as a global trader and trade negotiator can provide an understanding of the dynamics of the sometimes stormy transatlantic trade relationship. The EU is currently the world's largest trader and one of the main players involved in negotiating trade agreements as part of the ongoing Doha Development Round under the WTO. This provides opportunities for further transatlantic trade conflicts, as do the numerous EU-U.S. disputes under consideration at the WTO, such as those on Genetically Modified Organisms and on tax breaks on exports ("Foreign Sales Corporation").

Finally, this book can be read as a primer about the history and making of trade policy in the European Union. Trade is the EU's oldest, and most successfully integrated, common policy. Over the past two decades, trade policy has spilled out of the restricted confines of customs duties and tariffs. It now links commercial flows and the collective preferences of societies on issues such as health, the environment, culture, and social rights. This book traces the evolution of the rules for making trade policy in Europe from the 1957 Treaty of Rome to the 2003 draft Constitution, from De Gaulle's 1965 empty chair policy to the 1994 judicial challenge to the EU's competence over trade in services. By focusing on the political trade-offs associated with the pooling of external representation, this book presents the first systematic evidence of why the current battle over trade is located partly in the battle over institutions, as antiglobalization activists have realized. The institutional battle is particularly acute in the EU because of its complex multilevel structure and the ambitious constitutional exercise in which its members have engaged ahead of its enlargement to the east. The results of this battle seem of prime importance for the rest of the world since the EU is the world's largest trader.

Trading Voices: The Pooling of International Representation

From its very beginning in 1958 with six participating member states, the European Economic Community (EEC) became a single actor in trade policy. The requirement of pooling external representation in international trade negotiations was enshrined in the emerging European institutional structure. Why did national governments transfer part of their trade policymaking authority to the supranational level with relatively little hesitation? The main reason was legal and practical: the only way the EEC could legally exist under the General Agreement on Tariffs and Trade (GATT) was to be a customs union, and the only practical way to manage the external relations of such a union was by adopting a single voice in trade. The EEC's founding fathers also believed that the benefits of "trading voices" far outweighed the costs. As in the United States, where negotiating authority is often transferred temporarily to the executive branch, the delegation of competence could provide greater insulation from domestic pressures and therefore ensure economic liberalization. A final motivation was the assumption that unity brings strength, and therefore that a unified voice would reinforce Europe's international bargaining power.

Legal Obligation and Efficiency of the Negotiating Process

The Common Commercial Policy was created, above all, by an exogenous legal obligation. The single voice in trade was indeed necessary for the European Community to be allowed under the existing GATT rules. European regional integration represented an exception to the principle of multilateralism on which the GATT was based, but according to its article XXIV, the rule of the most favored nation could be circumvented by the creation of a free-trade zone or a customs union, in the hope that such zones would eventually encourage comprehensive global trade liberalization.

The objective of the 1957 Treaty of Rome was to create a customs union among Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany in which there would be no barriers to trade and a common external tariff would be applied to imports from third countries. The EEC's founding fathers chose to build a customs union for both economic and political reasons. Economically, it did not seem to make sense to keep separate tariffs with third countries while abolishing customs duties among member states who were geographically contiguous. If external tariffs were kept separate, imports from third countries would flock to the member state with the lowest tariffs and then circulate freely within the zone, thereby rendering national tariffs obsolete. Moreover, contemporary customs union theory argued that the dismantling of tariffs and quotas, as well as the establishment of a common external tariff, would force a more efficient use of factors of production. Politically, the creation of a customs union, which entailed some sharing of sovereignty with respect to the conduct of trade policy, meant closer cooperation and relationships between former enemies.

Because a customs union is a community of nations that liberalize trade internally while erecting common external barriers, it does require a common policy toward third countries. In particular, a mechanism was needed to harmonize the national rules governing the entry of products from third countries into each of the EEC's member states, in order to avoid diversion of trade, misallocation of factors of production, and distortion of competition stemming from the free movement of goods within the boundaries of the Common Market. The creation of a customs union therefore meant the establishment of a common external tariff (CET)-that is, a tariff rate uniformly applied to imports of goods and services from countries outside the EEC, irrespective of the member state of destination. Originally the CET was the arithmetic average of the national tariffs applied in 1957 by the member states. It was subsequently negotiated down in successive rounds of multilateral trade negotiations under GATT. The newly created European Commission was granted the authority to negotiate for the collectivity in order to allow the internal market to function as a unit.

The delegation of negotiating competence to the collective entity was expected to increase the efficiency of the process. Indeed, trade policymaking has always been a long and complex process. In the United States, the passage of the American Smoot-Hawley Tariff Act of 1930 had been a "truly Sisyphean labor," according to Schnattschneider, who counted eleven thousand pages of testimony and briefs collected over forty-three days. Concentrating the power to negotiate into the hands of a small number of executive agents could maximize the gains obtained in the external negotiation and accelerate the attainment of these gains since it likely speeds up the negotiating process. Increased efficiency is indeed a traditional argument used in principal/agent analysis to justify the delegation of competence from a principal to an agent.

As in the United States, efficiency was, and still is, one of the main arguments used in Europe to justify the delegation of trade negotiating competence to the supranational level. Commission negotiators are better equipped than national negotiators to bargain internationally with successful results because they avoid long domestic debates about the details of the issues being negotiated. Moreover, if EU negotiators are given sufficient but restricted competence, they can credibly conclude agreements that the other party knows will be approved internally. The efficiency argument was succinctly summarized by former EU Trade Commissioner Sir Leon Brittan, who argued that wider powers for the Commission and an end to the unanimity rule would "speed up negotiations, simplify decision-making and increase the EU's trade policy influence in relation to the U.S. and Japan."

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Excerpted from Trading Voices by Sophie Meunier Copyright © 2005 by Princeton University Press. Excerpted by permission.
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