The European Union and its trade partners

Over the years, the EU has been moving away from the production of labour-intensive, low-value products so as to specialise in higher-value, branded goods. With its open economy, trade is essential to the EU. To overcome barriers to trade and level the playing field for its businesses, the Union is negotiating a number of free trade agreements (FTAs). The EU is also a founder of and key player in the World Trade Organisation (WTO).

Legal basis

Article 207 of the Treaty on the Functioning of the European Union (TFEU) establishes the common commercial policy as an exclusive competence of the European Union.

The EU’s central position

The EU is the world’s largest economy, accounting for over 20% of global gross domestic product (GDP)[1]. Thanks to the size of its GDP (EUR 14 trillion) and the openness of its internal market, accounting for EUR 2 415 billion of exports and EUR 2 188 billion of imports[2], the EU has played a central role in shaping the global trading system, first and foremost by proactively contributing to the form taken by the WTO. Economic openness has brought, and will keep bringing, significant advantages to the EU, given that more than 30 million jobs in the EU depend on external trade and that 90% of global economic growth in the next 15 years is expected to be generated outside Europe[3]. New economic players and technological breakthroughs have significantly changed the structure and patterns of international trade. In particular, the widespread use of information technologies has made it possible to trade goods and services that could not previously be traded. Foreign exchange has grown tremendously during the last 20 years, reaching unprecedented levels. Today’s global economy is extremely integrated, and global supply chains have largely replaced the traditional trade in finished goods.

The effects of the global financial crisis have negatively affected the Union’s economic performance. Yet in some respects the EU’s economy has shown a notable resilience when compared with other industrialised economies, and its share of global GDP has declined less rapidly than those of Japan and the USA. The EU has also been able to preserve a relatively strong position in trade in goods while reinforcing its leading role in trade in services.

Role of the European Commission and the European Parliament

International trade was one of the first sectors in which Member States agreed to pool their sovereignty. As a consequence, they mandated the Commission to handle trade matters, including negotiating international trade agreements, on their behalf. In other words the EU, acting as a single entity, negotiates, on behalf of all its Member States, both bilateral and multilateral trade agreements. As is demonstrated by its record in the WTO dispute settlement system, the EU has shown a remarkable capacity to defend its own interests in international trade disputes. The EU has also used international trade tools to promote its own values and policies and has been trying to extend its own regulatory practices to the rest of the world. Indeed, the ‘promotion of European values’, among them human rights, sustainable development, good governance and respect for the environment, is one of the three pillars of the new EU trade strategy ‘Trade for All’.

The EU has traditionally favoured an open and fair international trading system. It has worked strenuously to ensure the integration of all countries into the world economy, including through the progressive abolition of restrictions on international trade.

The Treaty of Lisbon also enhanced the role of the European Parliament by making it co-legislator on matters involving trade and investment, on an equal footing with the Council. In addition, the Treaty conferred on Parliament a more active role in the negotiation and ratification of international trade agreements, since its consent is now mandatory. However, some elements of trade policy remain within the remit of the Member States. On 16 May 2017, the Court of Justice of the European Union (CJEU) published an opinion which gave clarity about the division between national and EU competences.

Trade policy and orientation

The 2010 communication ‘Trade, Growth and World Affairs’ made international trade one of the pillars of the Europe 2020 strategy aimed at making the EU greener and more competitive. Similarly, the ‘Trade for All’ strategy of 2015 reinforces EU trade policy as the main contributor to promoting growth, jobs and investment. It also calls for the WTO to be revitalised by giving it a central role in developing and enforcing rules, by adopting a more focused approach, instead of the current ‘single undertaking’ approach whereby all items on the agenda must be agreed together, and by creating a ‘two-tier’ mechanism that allows a subset of WTO members to advance on a specific issue, while enabling other members to join the group at a later stage.

However, after the stalemate in the multilateral negotiations within the WTO on the Doha Development Agenda, the EU had to find alternative ways to guarantee better access to third countries’ markets. To this end, a new generation of comprehensive FTAs, which go far beyond tariff cuts and trade in goods, were introduced.

The first such ‘new-generation’ FTA was concluded with South Korea and, following ratification by the European Parliament, has been provisionally applied since 1 July 2011. The Multi-Party Trade Agreement between the EU and Peru and Colombia, provisionally applied since 2013, the Association Agreement with the countries of Central America, the trade pillar of which has been provisionally applied since 2013, the EU-Canada Comprehensive Economic Trade Agreement (CETA), signed on 30 October 2016 at the EU-Canada Summit, the EU-Singapore FTA, on which negotiations were concluded in 2014, and the EU-Vietnam FTA, on which negotiations were concluded at the end of 2015, are all testimony to the new policy.

While negotiations with the US on the Transatlantic Trade and Investment Partnership (TTIP) have been suspended, an FTA with Japan remains a strategic priority, and the EU has also opened FTA negotiations with Indonesia and Tunisia, and is committed to opening further negotiations with the Philippines, Australia and New Zealand. Negotiations with Malaysia, Thailand and India will be resumed as soon as suitable conditions exist. The EU has also launched negotiations for stand-alone bilateral investment treaties with China and Myanmar, and will explore the possibility of launching similar negotiations with Taiwan and Hong Kong. Negotiations with Iran will be considered after the latter’s accession to the WTO.

These agreements bring significant benefits. The average tariffs imposed on EU exports are due to be cut by approximately 50%. FTAs are projected to contribute an additional 2% of EU GDP to economic growth in the EU[4]. The finalisation of these agreements may, however, take several years.

Imports and exports

Europe is the world’s largest exporter of manufactured goods and services, and is itself the biggest export market for around 80 countries[5]. The EU’s trade in goods with the rest of the world was worth EUR 3 454 billion in 2016[6].

The European Union’s main trading partners — Trade in goods in 2016 (million EUR)

Country Exports Imports Total Trade balance
US 362 153 247 826 609 979 +114 327
China 170 083 344 468 514 551 -174 385
Switzerland 142 455 121 669 264 123 +20 786
World 1 745 247 1 708 318 3 453 564 +36 929

Source: European Commission, 2017

Both imports and exports decreased in comparison with 2015.This decrease was larger for exports (EUR 44 billion) than for imports (EUR 21 billion). However both imports and exports are above 2014 levels.

The EU-28’s trade surplus for goods fluctuated from EUR 11 billion in 2014 to EUR 60 billion in 2015 and EUR 37 billion in 2016[7]. The trade surplus for goods was driven by positive trade balances for machinery and transport equipment and for chemicals and related products. The US remained by far the most important destination for goods exported from the EU in 2016, followed by China, Switzerland and Turkey.

Total imports in 2016 fell by 1.2% from the previous year’s level to EUR 1 708.3 billion. China was the EU’s leading supplier of goods in 2016, followed by the US and Switzerland.

The EU also leads the world in trade in services. In 2016, the EU reported a balance in service transactions with the rest of the world of EUR 130.4 billion, reflecting exports of EUR 819.9 billion and imports totalling EUR 689.4 billion. Trade in services accounted for 32% of EU exports and 28.8% of EU imports of goods and services in 2016[8]. The US, European Free Trade Association (EFTA) countries and Asia were among the EU’s biggest partners for trade in services. According to the most recent data available, EU trade in services mainly focused on three categories: other business services, transport and travel[9].

EU foreign direct investment

The EU is the world’s largest investor and a major recipient of others’ foreign direct investment (FDI). The entry into force of the Treaty of Lisbon in 2009 further extended the EU’s exclusive competences in international trade matters, which now include FDI. To clarify the exact scope of its competences on investment, the Commission asked the CJEU for an opinion on the EU-Singapore FTA. The Court’s opinion of 2017 confirmed that most aspects of FDI fall under EU competence, with some exceptions, in particular dispute settlement.

Share of world FDI in 2015 (%)

Country Inward stock Outward stock
EU 37.8% 48.0%
US 33.3% 37.7%
China 7.3% 6.3%
Canada 4.6% 7.0%
Japan 1.0% 7.8%

Source: European Parliament DG EXPO calculations based on European Commission figures

[1]‘European Union Trade and Investment 2014’, European Commission, 2014, p. 3, retrieved 11 January 2016, http://trade.ec.europa.eu/doclib/docs/2014/january/tradoc_152062.pdf

[2]‘EU position in world trade’, European Commission, retrieved 17 December 2015, http://ec.europa.eu/trade/policy/eu-position-in-world-trade/

[3]‘Trade for all: Towards a more responsible trade and investment policy’, European Commission, 2015, p. 8, retrieved 11 January 2016, http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf

[4]‘The European Union explained: Trade’, European Commission, 2016, p. 5, retrieved 15 December 2016, http://bookshop.europa.eu/en/trade-pbNA0216154/

[5]‘EU position in world trade’, European Commission, retrieved 16 June 2017, http://ec.europa.eu/trade/policy/eu-position-in-world-trade/

[6]DG Trade Statistical Guide June 2017, European Commission, http://trade.ec.europa.eu/doclib/docs/2013/may/tradoc_151348.pdf

[7]DG Trade Statistical Guide June 2017, European Commission, http://trade.ec.europa.eu/doclib/docs/2013/may/tradoc_151348.pdf

[8]European Parliament DG EXPO calculations based on European Commission figures.

[9]‘International trade in services’, Eurostat, http://ec.europa.eu/eurostat/statistics-explained/index.php/International_trade_in_services, retrieved 16 June 2017.

Mario Damen / Jakub Przetacznik

09/2017