The EU’s trade agreements

The European Union (EU) negotiates trade agreements on behalf of all of its member states, which means that individual member states are prohibited from negotiating individual trade agreements with non-EU countries.

The EU has in place trade agreements with countries and regions around the world. These trade agreements looks differently and parties benefit in various ways.

The picture below shows different types of trade agreements.

Multilateral trade agreement

These agreements are negotiated by three countries or more. Multilateral agreements makes all parties treat each other equally. No country can give better trade deals to one country than it does to another. This also means that negotiations of multilateral agreements are very complex and difficult, because the higher number of participants.

World Trade Organization

One example of multilateral agreement is the World Trade Organization, WTO. The WTO is a global membership group that promotes and manages free trade. The WTO handles ongoing negotiations for new trade agreements, settling disputes and enforce global trade agreements.

The current body of trade agreements that the WTO is built upon consists of 16 different multilateral agreements, which all WTO (150+) members have signed.

Regional trade agreement

Regional trade agreements (RTAs) are treaties among two or more parties that define the rules of trade for all parties. These agreements offers more favourable treatment to trade between the parties than they do to goods imported from outside the region. Usually this agreement leads to removal or reduction of tariffs on imports from regional partners and creates a free trade area.

One example of a regional trade agreement is the EU. In brief, the EU is a political and economic union that currently consists of 27 member states.   

The EU is a customs union, which means that:

  • there are no custom duties for the export/imports between the EU member states
  • all EU member states apply the same custom duties for imports from third countries
  • all EU members have common regulations related to imports and exports.

Free trade among its members was one of the EU's founding principles. Beyond its borders, the EU is also committed to liberalizing world trade.

Bilateral trade agreement

Bilateral trade agreements are between two parties. It gives access to the parties’ different markets, gives economic growth and reduces trade barriers such as tariffs and import quotas.

Free Trade Agreement

Free trade agreements (FTAs) are a good example of a bilateral trade agreement. Under a free trade policy, goods and services can be bought and sold across borders with reduced or no tariffs, quotas, subsidies, or prohibitions to inhibit their exchange. The EU has free trade agreements with individual countries throughout the world.

Economic Partnership Agreement

The economic partnership agreements, EPAs are trade and development agreements negotiated between the EU and African, Caribbean and Pacific (ACP) partners engaged in regional economic integration processes. EPA goes beyond conventional FTAs because it focuses on ACP development such as taking account of their socio-economic circumstances and provides assistance for countries to benefit from the agreements. In addition, EPAs opens up EU markets fully, but allow ACP countries long transition periods to open up partially to EU imports while providing protection for sensitive sectors.

Unilateral trade agreement

A unilateral trade agreement is a treaty that only requires the action or initiative of one state. The agreement benefits solely one state and has the potential to help developing countries’ economies.

Unilateral trade policies can be tariffs, or they can be trade preference programs, such as the EU’s generalized scheme of preference (GSP), and can be used as a strategy to promote economic growth in developing countries.

Generalised Scheme of Preference

The EU’s GSP is a set of rules allowing exporters from developing countries to pay lesser or no duties on their exports to the EU.

The EU offers three types of schemes:

  • Standard GSP: partial or full removal of customs duties on 66 percent of tariff lines for low and lower-middle income countries.
    Standard GSP on the EU Trade helpdesk website
  • GSP+ a special scheme that grants full removal of tariffs on over 66 percent lines that covers the same product categories as those covered by the general arrangement. Countries need to ratify and implement international conventions relating to human and labour rights, and environment and good governance.
    GSP+ on the EU Trade Helpsdesk Website
  • Everything But Arms (EBA) special arrangement for least developed countries, providing them with duty-free, quota-free access for all products except arms and ammunition. A country is granted EBA status if it is listed as a least developed country by the UN Committee for Development Policy.
    The UN website
    EBA on the Access2Markets website (European Commission)

Rules of Origin

Rules of origin are the criteria needed to determine the nationality of a product. It is of importance because the exported product may be applicable for reduced or no tariff at all, depending on which of the above-mentioned agreements the country of export has with the EU.

Example

An exporter from Armenia wants to export eggplants to Sweden. The general tariff is 12,8 percent, but Armenia is a GSP+ country. This means that the tariff is instead 0 percent. Note! The lower tariff is only applicable if the exporter follows the rules of origin.

There is a specific set of rules that describes the products origin. The two main types of origin criteria are:

  • Goods wholly obtained in a non-EU country: products that are produced/processed only in the beneficiary country and without incorporating materials from any other country. This includes plants, minerals or live animals, among other products.
  • Goods sufficiently transformed in a non-EU country: products which were produced with materials of other countries, or was partially processed abroad. There are three basic criteria used to determine if a product was sufficiently transformed in the beneficiary country:

     1. The value-added rule: a certain percentage of value must be added   to the product in the country of origin. This means that the value of all the materials used cannot exceed a certain percentage of the (ex-work) price of the product.

     2. Change of tariff classification: a product has, during manufacture, changed classification from the heading the materials had from the beginning.

     3. Manufacture from certain products: refers to specific processes that needs to be completed in order to decide origin. This rule specifically outline what process or input must be used in the making of a specific product. This criteria is often associated with steel, textile and apparel goods.

Even if a product is originating from the exporting country, its origin still needs to be verified in order to get reduced or fully removed tariff. This can be done with a document called proof of origin, which the relevant authority in the exporting country issues.

Worth mentioning is that many countries have implemented the Registered exporter system, REX, which is a system of self-certification of origin of their goods. This system simplifies the process for the exporter because instead of asking their authority for the proof of origin they can issue it themselves through this system.