July 2012

NEW EUROPE

Issue # 995

A New Europe Special Edition

Trade & Investment

More Europe for more investments.. The engine of growth for China-EUrelations... A good blueprint for the future... Unleashing the potential of the market... Trade: is engagement good?

Featuring:

Copyright: Lightspring

Rodi Kratsa

P. 02
Sticking together, going ahead...

H.E. Mr. Wu Hailong

Robert Sturdy

Leo Sun

Julia Harrison

Chance for major rethink of investment...

David Martin

P. 03

P. 04

P. 05
Donald Kaberuka

P. 06
Does REACH have a chilling effect ...

P. 07
Docking investment in international ...

A solid stepping stone for growth beyond...

Trade liberalisation How to make trade and standardization... easier...

Pawe Zalewski

P. 08
A transatlantic single market?

Changbeom Kim

Steven Blockmans

Lucas Bergkamp

Lisa Brandt

P. 09

P. 10
A fair trade for a better globa...

P. 11
This is no time for complacency... Why China cant adjust...

P. 12
Minxin Pei

P. 13
All EU countries deserve the same...

The financial crisis and EU-China trade...

Fabian Zuleeg

Chen Xin

P. 14

P. 15

Maria Badia i Cutchet

P. 16

Antonio Lopez Isturiz

Marietta Giannakou

P. 17

P. 18

P. 19

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SPECIAL REPORT|

NEW EUROPE

According to recent surveys, 26% of investors consider Northern Europe, and the United Kingdom in particular, attractive destinations, while just 3% of business leaders are interested in investing in Southern Europe. Trade imbalances are also significant within the EU, according to the latest Eurostat data, given that Germany's exports represent 8.2% of world exports, while many countries of the South hold a much smaller share
ment markets, better protecting Intellectual Property Rights (IPR), and tackling unnecessary barriers hampering the sustainable supply of raw materials. Towards this direction, negotiating and concluding free trade agreements (FTAs) with major partners is a key to opening new markets for goods and services and increasing investment opportunities. Last month, the EU signed an ambitious and comprehensive Trade Agreement with Colombia and Peru, as well as an Association Agreement with Central America. Nevertheless, negotiations for further FTAs should be intensified, taking into account the actions of other major world players. Today, emerging commercial actors take initiatives, such as China which agreed with the Mercosur countries to take steps to boost exports and seek to increase annual trade to $200 billion by 2016. It would be of particular importance for the two shores of the Atlantic Ocean, as well as for the global economy, to conclude an agreement with the US, given that the EU and the US economies already account together for about half the entire world GDP and for nearly a third of world trade flows. The report further highlights the potential and opportunities offered by the European Neighbourhood Policy in achieving prosperity, stability in the North and South of Europe as well as investment opportunities. I have proposed the creation of an ad hoc European Observatory for foreign direct investments, established in the framework of the European Commission, providing a better monitoring of the policies applied, evaluating the progress achieved and providing the appropriate elements to promote Europe as an investment destination. The report calls on the Commission to prepare a communication on the attractiveness of investing in Europe, in comparison with our main partners and competitors, identifying the advantages as well as the weaknesses of the EU and develop an integrated strategy and specific policies and recommendations, to improve the EUs investment environment. Such an integrated strategy aims to address the disparities and divergences within the EU, such as the ones between North and South or between different EU regions. According to recent surveys, 26% of investors consider Northern Europe, and the United Kingdom in particular, attractive destinations, while just 3% of business leaders are interested in investing in Southern Europe. Trade imbalances are also significant within the EU, according to the latest Eurostat data, given that Germany's exports represent 8.2% of world exports, while many countries of the South hold a much smaller share (e.g. Greece: 0.31%, Portugal: 0.39%, Ireland 1.04%). The report also highlights the important role that structural funds and innovative financial instruments can play, such as project bonds and the ones based on public-private partnerships and sovereign wealth funds. I also advocate a greater role for the European Central Bank in the secondary debt markets in order to inject liquidity and reduce excessive financing costs that many countries face, as well as the European Investment Bank for national or cross-border investment. At the same time, the report is calling for greater fiscal coordination on both the revenue and expenditure sides, including coordination of tax systems and social imbalances between Member Sates and strengthening cooperation of economic actors and complementarities between EU economies. The single market is one of the EUs most significant advantages in developing a friendly and motivational environment for businesses and consumers. Moreover, the report highlights the importance of the completion of the internal market given the added value of reducing bureaucracy and obstacles in the EU. It also stresses that encouraging institutional investors to participate in European venture capital funds can particularly benefit startup companies, and hence boost entrepreneurship and job creation. Moreover, the EU and Member States are encouraged to invest more on education, research and innovation, highlighting their comparative advantages on human capital. It is time for Europe to set "investing" at the core of the EU2020 Strategy. This means more Europe as well as more of Europe in the global economy.

Prospects for the global economy are slowly improving again, but growth is expected to be weak, especially in Europe highlighting the role that trade and investment can play in economic recovery. The European Union needs to get ready to gain new perspectives to achieve growth, reduce disparities and create jobs. My own-initiative report "Attractiveness of investing in Europe" urges for an integrated and coherent strategy at both national and European level in parallel with ensuring fiscal consolidation and restoring confidence of markets and investors in EU economies. The EU remains the first investment destination globally but it faces growing competition from emerging economies while the prolonged sovereign debt crisis is weakening this position. The EU is the first exporter of goods and services globally (16% of world exports in 2010 compared to 11.4% for the US and 6.9% for Japan). However, there is a growing perception that trade protectionism is gaining ground in some parts of the world as a political reaction to current economic difficulties. To address such developments, Europe must remain committed to its leading role in driving forward the global agenda on open and free trade, by addressing the current challenges including overcoming regulatory barriers, gaining better market access for services and investment, opening public procure-

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During the international financial crisis, China and Europe have maintained sound communication and co-ordination and have worked hard to keep markets open. These efforts have generated favorable opportunities for business co-operation between China and Europe
Throughout the 37 years of history of diplomatic ties between China and the European Union, the economic and trade cooperation between the two sides have constantly deepened and expanded, serving as an important engine of growth for China-EU comprehensive strategic partnership. Europe has for a multiple of years been Chinas largest trading partner, export market and source of technology transfer. China, on the other hand, is Europes largest source of import and the fastest growing export market. China is also Europe's second largest trading partner and export market. With the size of around $70 billion, Europe is in accumulative terms China's largest source of foreign investment. In 2011, Chinese companies made $4.28bn of investment in Europe, making Europe the largest destination of investment for Chinese companies. During the international financial crisis, China and Europe have maintained sound communication and co-ordination and have worked hard to keep markets open. These efforts have generated favorable opportunities for business co-operation between China and Europe. Despite the global economic downturn, our business cooperation have achieved positive growth. China has become Europe's fastest growing major market. In 2010, bilateral trade between China and Europe has fully recovered the loss during the crisis and gained new grounds. In 2011, trade volume once again grew to a record high, making business cooperation a

strong highlight in China-EU ties. During this period, European companies have seen remarkable growth in their business in the Chinese market, making China the most important market for European businesses. China always has confidence in the European economy and the stability of the Euro. We believe that the European Union has the ability to build agreement among member states, maintain stability in the financial market, and promote growth and employment. We have no doubt in Europe's ability to properly handle the sovereign debt crisis and to achieve sustained recovery of the European economy. China firmly supports the stability of the euro currency and the European economy. We appreciate the efforts of the EU side to address the debt crisis and expect the IMF and other major international financial institutions to play constructive roles in assisting Europe. China will continue to work with the international community and participate through various channels to help resolve the debt crisis. Since the beginning of this year, our business cooperation has experienced some downward trend due to the new development in Europes sovereign debt crisis. In the first four months of this year, bilateral trade only grew 0.3%. Chinas export to Europe declined by 2%.Rea l in-

vestment from Europe to China fell by 28% year-on-year. In contrast, last year, the figure figure for the same period last year was a positive 23%. Such a situation deserves the strong attention of our both sides. By no means should we stand to let our cooperation decline. We must exhaust all measures to remove the obstacles in our trade and put our cooperation back on the upward trajectory. We believe that doing so, both sides could achieve more in economic development, and Europe will be in a better shape to address the debt crisis. China needs Europe to achieve development and vice versa. As we continue to grow our cooperation, China and Europe have become so highly interdependent that it is absolutely essential for both sides to tide over the difficulty together. China is willing to work with the EU side to oppose protectionism, maintain our markets open, strengthen communication and coordination in multilateral institutions, and build a stable and open global business environment. China is ready to strengthen coordination with the EU side on trade and investment facilitation so as to foster a favorable policy environment and to create more market opportunities for our companies. China will continue to intensify the efforts of opening up, attach equal importance to import and export, and work to

promote basic balance in foreign trade. We will lower the import tax of some consumer goods and encourage more Chinese companies to import from Europe. We welcome more reputable and highend European businesses to benefit from the policy of the Chinese government to expand domestic demand. China will encourage more qualified Chinese companies to make investment and participate in merger and acquisition and contribute to employment and economic growth in Europe. At the same time, we hope that the EU will be prudent in adopting trade safeguarding measures, relax its control on hitech exports to China, and adopt convenient visa policies for business travelers. We hope to see more support and fair treatment and less misgivings and concern for Chinese investment in Europe. We strongly believe that as long as both sides fully respect each others interest and concerns, the two sides will be successful in identify shared interest and common ground though dialogue and consultation. We have no doubt that the differences and problems between China and Europe will not hold back our cooperation. We hope that business cooperation will continue to serve as a strong engine of growth, and constantly adds new substance and dynamism to the healthy, stable, and durable development of China-EU comprehensive strategic partnership.

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One year ago, a landmark Free Trade Agreement (FTA) between the European Union and the Republic of Korea entered into force. It was billed as a major coup for the EU, with economic gains for EU enterprise and industry and promises of exponential growth in trade between the two partners. EU exporters were expected to immediately save some 850m on day one of the FTA and EU importers some 1.6bn annually from not paying import duties. It was also predicted that agricultural exporters would save some 380m every year, while the EU textiles and clothing sector would immediately be relieved of almost all of its annual 60m in duties. Furthermore, it was estimated that the agreement would precipitate a 70 per cent increase in trade volume for financial services alone, with all of these factors expected to double trade between the two partners over a 20 years period. Impressive though these figures are, have these gains become a reality? The numbers speak for themselves. Foreign Direct Investment between the two partners increased for three consecutive quarters following the implementation of the agreement and jumped by 60% and EU exports to South Korea have increased by some 6.7 billion or 35% compared to the same period since 2007. According to the European Commission, a number of individual sectors have experienced specific trade bumps and seen faster than average growth. EU exports of pork are up by al-

The EU-South Korea FTA was the first of a new generation of trade agreements aimed at taking advantage of the world's high growth regions. EU negotiators are thrashing out agreements with major economies such as the United States, India, Canada, Japan and Singapore
most 120%, which translates into new trade of almost 200 million and the trade in leather bags and luggage has shot up by over 90%, or by 50 million. Similar trends have been observed with regards to high end manufactured goods with exports of EU machinery used for manufacturing of semiconductors up by 75%, representing 650 million in additional exports, and EU cars exports increased by over 70%. There is strong evidence to suggest that the FTA was directly responsible for this increase in trade volume. Whilst EU exports to South Korea have increased at an average of 35% compared to 2007, EU exports to other countries have risen by just 25% in the same timeframe. Furthermore, when you compare the levels of trade volume between the EU and South Korea with the level of trade liberalisation, the benefits of the agreement becomes even more pronounced. Trade volumes of products that had full tariff liberalisation increase by 46% and products with partial liberalisation saw a 36% increase. When one compares this to just a 23% increase where the FTA offered no change, it is hard to argue that the FTA has been anything but a success. The EU-South Korea FTA was the first of a new generation of trade agreements aimed at taking advantage of the world's high growth regions. As, nearly 90% of world growth will be generated outside of Europe, this move is essential if the EU wants to maintain its position as the world's leading trading bloc. As I write, EU negotiators are thrashing out agreements with major economies such as the United States, India, Canada, Japan and Singapore. Many have championed the EU-South Korea FTA as a model for all future agreements, myself included. As the Parliament's rapporteur on the EU-South Korea FTA, I saw first hand the depth of trade liberalisation involved in agreement. However, the crowning glory of this agreement is the inclusion of a robust bilateral safeguard clause, negotiated by the parliament, which strengthens the role of industry and guarantees its confidence by protecting sensitive sectors. The inclusion of said

safeguard clause certainly sets a precedent for any future trade deals. Unfortunately, in reality, indications from most of the ongoing negotiations suggest that they will not touch on this level of ambition both in terms of the scope and political will. Furthermore, it is apparent that domestic political hurdles will be a major factor, as each country represents its own specific needs in terms of its economy, geography and political make up. This does not mean that the framework of the EU-South Korea agreement cannot be used as a blueprint but just that it seems that this will be more aspirational than practicable. The difficulty of reaching similar agreements with other partners just goes to show how well the EU and South Korea worked together and the level of ambition and trust that the two partners have shown. However, it is not time to stand around patting ourselves on the back. The real work did not end with the implementation of the agreement back in July 2011 but it has only just begun. We must continue to work with our Korean friends to make sure that the agreement is working as it should and to ensure that it is fully implemented. There are still a number of crucial areas that must addressed, such as Non-Tariff barriers which are still detrimentally affecting trade between the two parties, notably in the automotive industry. This is incredibly important not only so that both sides fully reap the rewards of our labour, but so that we can learn from any difficulties for the many future agreements we are currently negotiating. Only then can we safely announce 'mission accomplished'.

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INTERVIEW | LEO SUN

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New Europe speaks to Leo Sun, President of Huaweis Brussels off ice and European Public Affairs and Communications Department, about trade and investment issues between the European Union and China. Recent years have seen much investment by China in Europe. How should that investment be focused? I think it should be in the ICT sector the IT is the focus for our company but I think in general when we invest somewhere, either there is a potential market, where you can expect high return in the business part, or you have a very important technology or competent, where the company really need to keep the leading position or you have to combination of the two, that's a strategic consideration where you can really improve your global standing. That's the sort of scenario when investing in Europe; the technology, high talent of human resources, and the potential of the market is also the focus of the company. What makes you pick a potential market? Is it human capital and level of professional development that Europeans are investing in their people? In the classic tech-com market, of course the human capital, the population, is very keen. Of course, overall, the GDP level, is also very important, but basically we see all over the world, what all the people, the families, the companies, the communication services, people need to connect to each other. That's why, in general, the Europe has a 500 million population with the highest GDP in the world, so of course you can imagine the potential is very high. If you talk about vertical market, especially like the big enterprise the companies need, I think that Europe is also in the leading position in the world and this part of the market is much bigger that the emerging market, lets say, so the potential of European market is very, very attractive. Is the European economy is more robust, in trading terms, than perhaps some of the more negative analysts would suggest? I think you ask a very big question. With the telecom sector, in Europe the penetration of the mobile services are over 80% among the different countries, which is already sufficient penetration, but the growth is very flat. In emerging markets the penetration is very low. But I think the growth is in the emerging market. When you go up to the advanced valuating service like multimedia, like the enterprise and broadband for the video, for the high value services, I think that Europe is still very advanced compared to other emerging markets. We noticed that some of the emerging countries develop very, very quickly. When we talk about investments, not only the company invest here to continue the level of service, the level of fiber infrastructures, everything. We think that overall Europe can do much better than we do today. We take the infra-

So that's why I think in terms of the policy or regulation or even the financial support, we should reward investors with a more easy environment, and the flexibility to manage their businesses. There has to be security in financial terms.
structure as one example, I think today, due to the investment and quality issues things can go much faster, while compared to Japan, Korea China or America, the fiber investment will go much faster. In terms of fiber investment, for example, what can Europe do to change its policy? What needs to be done to ensure this speed you are talking about? I think this is already a very topic that has been discussed with all the operators, with all the industrial players, with the European Commission and member states, because this is important part of the agenda, where are also required lots of financial investments, so I think it's basically a combination of everything, but in general I think, from country to country it's also very different. I think in general, we should encourage the investment, meaning bring more confidence, in this case, they looking for more like Telephonica, and they are looking for more comfortable return in term of financial return , in 20 or 30 years. So that's why I think in terms of the policy or regulation or even the financial support, we should reward investors with a more easy environment, and the flexibility to manage their businesses. There has to be security in financial terms. And how do we do that specifically? How do we encourage investment? I think there are a lot of proposals from the European Commission. Fiber, mixed copper, all these different technologies to make the investment happen quicker, and also the reward in matter who made the contribution in the fiber investments. But I think today the most important issue is that, basically this is model for telecom operator,

this is not convincing in a fiber investment, because the investment really high and the return will be very long, maybe 20 years and the most important thing once investing in the fiber, the revenue will not fly due to this investment, the offers to the consumer are flat. The requirement is very high, the people need high definition videos, mobility everywhere and an over the top company like the internet giants are pushing a lot of traffic into the infrastructure, but those kind of traffic, will not bring any revenue growth for the operators. Just for people who are not familiar with this sort of standard, what are we talking about here...? If we put it in a simple way, the infrastructure is a set for the operator to run their service. When you invest in a set, this should bring them all a revenue, I mean potential revenue. But in our case, this investment of a set is kind of mandatory to keep

the current revenue instead of creating something new. I think this is the fundamental change of current business model; meaning they invest all the money into the infrastructure to maintain what they gained already. So then it's creating the difficulty of the new investment. I think that somewhere industry should work on the technology point of view, work on a new arena to make the change in the industry more easy. So it's about creating some sort of certainty or confidence? This part, again, it's how to make sure to invest something where you can get more revenue. We also contribute through our angle to make a kind of technology innovation, so somehow to ease the investment part, meaning that through the technology innovation you invest less or you invest equal today, but you can get much bigger the natural capability or infrastructure capability. So this is our goal, to support this growth.

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Global economic developments are reshaping the way Europe, Europeans and European companies think of trade. Trade has now joined IP and anti-trust as a fundamental lever to ensure Europe maintains its global economic standing. Businesses are transitioning from a relatively narrow vision, essentially micro regulatory navel gazing on sector specifics, to a global view where the European single market is but one (albeit a large and dysfunctional one) piece of a much bigger puzzle. With the global crisis, trade flows and intra-regional impacts of economic policy are finally getting the attention they deserve. Europe, much like during the Cold War, continues to be the battle ground where East and West fight for economic supremacy and political influence. No relationships are under the spotlight more than EU-China, where conspiracy theories continue to abound. In reality Europeans remain quite open to Chinese investment in Europe. A census of EU policy-makers attitudes towards Chinese investment in the EU - conducted by FTI Consulting Brussels (unpublished) demonstrated this openness whilst cautioning for a need for reciprocity. Europes own contrived economic policy choices, or lack thereof, are creating pressures on its traditional commercial partners; and protectionist temptations coupled with bitter in-fighting between member states as to the direction to adopt - have created a political fog that breeds nervousness abroad. Concerns about the Eurozone crisis are having an impact on upcoming US presidential elections due to the fragile state of the US economy. Meanwhile, China-EU relations are complicated as China has not stepped up to the plate on sovereign debt and Europe is trying to ensure it gets a level playing field across a range of sectors and public procurement. Expect an even more difficult dialogue as European firms move out of China to more competitive production sites and as Chinese officials grapple with a looming economic slowdown. Not to mention the implications that a hard landing, in the form of a Chinese housing bust, would have for Europe and the world at large. Signs are already showing. Bank of America Merrill Lynch has cut Chinas annual GDP forecasts from 8.6% to 8.0% and the three main drivers of Chinas economic growth (investment, exports and consumption) have all shown weak growth. According to the Chinese National Bureau of Statistics, the Chinese economy grew at 8.1% between January and March this year, the lowest figure in three years. For better or worse, FDI in Europe suffers. Markets are paying more attention

Tellingly, nearly two-thirds of investors in the EU expect EU policy decisions to negatively affect their decisions to invest in Europe, making it crucial that the European business community actively participates in shaping European policy at the most senior level.
than ever to the issues at hand: FTI Consulting recently conducted an investor study (FTI Consulting: Global institutional investor survey, 2012) that highlights this shift in interest and raises the key question as to how EU policy decisions will impact the wider business community. Tellingly, nearly two-thirds of investors in the EU expect EU policy decisions to negatively affect their decisions to invest in Europe, making it crucial that the European business community actively participates in shaping European policy at the most senior level. If we consider the global economic outlook, investors in the European Union and North America are substantially more negative about the consequences of political decisions that will be taken in the coming five years than their Asian and Latin American counterparts. In the absence of reliable information, 86% of investors agree they are inclined to think the worst of the situation in the Eurozone. It is also interesting to note that in terms of the political sphere, 83% of investors agree that upcoming political elections of country leaders in the EU and consequently, a possible change to policies add to uncertainty as to whether to invest in the EU at this point in time. Western Europe does not fare well in terms of regions in which institutional investors see good opportunities arising over the next 12 months: the large majority (71%) point to North America as a viable option, followed by South East Asia (40%) and Latin America (38%) with Western Europe trailing behind with 34%. 59% of investors believe that in the coming 5 years, decisions by politicians will negatively impact their decisions to invest in listed companies in the EU, while only a meager 13% believe in a positive impact. For other markets institu-

tional investors are less negative: 42% of investors believe that the decisions by politicians will negatively impact their decision to invest in the US, compared to 31% for India and 31% for China. The question is does the crisis warrant a more flexible approach? Should the European trade modus operandi be revisited to shake Europe into a more dynamic approach? Or should Europe remain wary of not making hasty decisions that may affect its global standing? A question that currently plagues both trade and diplomatic realms within the Commission. Business faces an interesting dilemma. How to deal with a new world where the lines between public and private interest have blurred, where economic sensitivity can lead to market exclusion and where seemingly local decisions have global implications? The global financial turmoil has led to an increase in regulatory measures affecting investment opportunities and decisions and increased trade interest is not just a passing trend which will simply recede as market conditions improve. This begs the question is business missing an out by not engaging more in areas such as EU trade? 91% of investors want to see CEO engagement in the public policy debate on issues related to their business. Could business help EU growth by being more vocal on issues? Perhaps, but the incentives for them to do so on an individual basis often remain elusive.

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In the field of international trade there has been a flurry of activity since 2009 when the Parliament acquired new responsibilities under the Lisbon Treaty. The GSP trade scheme with developing countries has been revised; the Parliament endorsed trade agreements with Morocco and with the Pacific region but rejected the AntiCounterfeiting Trade Agreement; and the safeguard clauses in bilateral agreements with Colombia/Peru and Central America are being negotiated. Perhaps less high-profile so far, but arguably even more important, is the upcoming agreement needed on investment rules. Investment rules have wide-ranging implications for the treatment of European investors abroad as well as the environment we create for investors in the EU. Under the Lisbon Treaty, foreign direct investment (FDI) is now an exclusive competence of the Union. Currently a spaghetti bowl of over 1200 criss-crossing bilateral investment treaties (BITs) govern investment rules between an EU Member State and a third country, and the challenge is to transfer these to one comprehensive set of rules for the Union. Much of the focus so far has been on creating transitional measures and maintaining the rules of the bilateral agreements while a set of rules for EU investment is drawn up. But the focus now is shifting to the creation of the EU-level policy. Looking at the big picture is an opportunity for a fundamental re-think about what kind of investment rules we want. Attracting investment to the EU is of course a crucial part of our economic recovery, but there is little evidence that BITs in the past have been a major factor in investors choosing where they operate. Instead, investment rules come into play when a dispute arises, highlighting the need to look closely at who is really winning and losing in these agreements. The protection of European investors abroad and the creation of a stable investment environment within the EU should remain the central aim. Well-established principles which prevent states discriminating against foreign investors is key here. But increasingly there is a fundamental imbalance in the power investors hold over nation-states. Investors are challenging laws that protect our environment, our public health and access to land and water. And they're winning. The power these multi-national conglomerates are wielding over states is being done through the investor - state dispute settlement mechanism (ISDS). This clause, which already exists in most BITs, allows investors to challenge local laws which they believe violate the princi-

ples of fair treatment and non-discrimination. An arbitration panel then makes a judgement, and when they agree that the investment agreement has been breached, the state is liable to compensate the investor. Because previous attempts to regulate investment on a global scale through the WTO and OECD have failed, these challenges are operating without the main public spheres of trade rules and dispute settlements. Democratically adopted laws are being privately challenged, often in complete secrecy when the right to hold proceedings confidentially is allowed. In developed countries this circumvents opportunities to exhaust local remedies first in highly-developed legal systems. This is not a hypothetical situation. Investor to state disputes have increased sharply over the past few decades, from 5 cases in 1995 to 375 in 2010. Investors are able to choose the country in which they launch the challenge, often initiating it from a country with favourable BIT terms for their cause. Cases have challenged laws on access to water and land, and have been launched through the multilateral investment agreement in the energy sector, the Energy Charter. At stake is a state's ability to legislate in the public interest on environmental protection, access to essential services and public health, without being challenged by private investors. Of immediate concern is protecting the EU's ability to uphold environmental legislation such as the Fuel Quality Directive, and in particular the ban on importing tar sands.

In health policy, Philip Morris has recently launched arbitration against Australia from their Asian headquarters. The tobacco giant claims the recently-passed Australian law on plain packaging cigarettes, which is due to come into effect in December, violates the Hong Kong - Australia BIT. The outcome of this challenge will be watched with interest from the EU, both in terms of the launch of the EU Tobacco Framework Directive expected early next year, where many in Europe hope plain packaging regulations will be proposed, and in the adoption of investment rules in upcoming free trade agreements (FTAs) with Canada, Singapore and Malaysia. Last year in the Parliament we adopted a report on the future of investment policy, and now is the time to defend these priorities in the investment chapters of FTAs currently being negotiated with developed countries. In the Comprehensive Economic and Trade Agreement (CETA) with Canada, currently under negotiation, inclusion of the ISDS is not necessary, given the highly developed legal institutions which both parties can rely on. Indeed there are serious concerns that an ISDS clause could be used against the EU ban on tar sands, which Canada opposes. In the broader reform of investment policy with developed countries, our key principles must be included to begin to redress the balance away from transnational corporations to allow states to protect genuine interests in

the public sphere. Indeed we have already seen such a clause in the EU - Cariforum EPA, which includes a commitment for parties not to lower environmental or labour rights standards, and a provision on the behaviour of investors to promote corporate social responsibility. A dual approach is needed to fairly balance the responsibility of the state to uphold fair and equal treatment of investors with investor responsibility to respect reform of the public sphere in the interests of citizens. Opening up the arbitration process to public scrutiny and including far more input from civil society and trade unions will begin to shed some much-needed light on the power struggles that are happening behind the closed doors of ISDS cases. The creation of an EU investment policy is an important opportunity to learn lessons from the many BITs that Member States have been operating under and create a fair and effective set of European investment rules to govern trade in the 21st century. Central to this is the creation of binding clauses in investment agreements to allow states to regulate in the public sphere for environmental protection, public health and labour rights without being undermined by profit-driven litigation. Investors have shown they are headstrong in pursuing cases where pro-environment or pro-health legislation provides an obstacle to increasing their trade. We must have equally robust rules to allow the European Union to defend these interests.

AFP PHOTO / Saeed KHAN

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Nowadays, we seem to have landed in a peculiar set of circumstances when it comes to the EU trade: the focal points of trade keep moving out of the Euroatlantic zone towards the East China Sea area, the Doha round continues to be in a deadlock, the EU fights the internal crisis which largely impacts trade and the three key European policy making institutions are still in the process of redefining the practical application of the shift in decision making balance that the Lisbon Treaty has brought about just a short time ago. In addition, the functioning of the EU single market hence the EU internal trade is being increasingly questioned, not as a concept but merely "the daily manner" that dream is turned into action, though. However, what is obviously of most interest to me, as the Vice-Chairman of the INTA committee at the European Parliament, is the functioning of the external trade of EU. Most of the key players decided to pursue bilateral free trade agreements (FTAs) rather than wait for a positive outcome of the Doha negotiations. Despite supporting multilateral trade relations under the WTO regime, the EU is trying to catch up on concluding several FTAs with the third countries. Let me make you here a side remark. Recently, we have entered a new era in the balance of power between the EU institutions, as the European Parliament (EP) is finally on the equal terms with the Council and the Commission in most of the policy areas including trade. What is more, under the Lisbon Treaty, the EU Trade Policy has become the exclusive competence of the EU. I am personally very pleased with the fact that the EP has a stronger position on international trade because I deeply believe that the EU needs the right system of checks and balance in this area especially in view of the current challenges such as the rise of China and the financial crisis. Coming back to the FTAs, our role is to make sure that negotiated FTAs are truly competitiveness-driven as the Commission intended. These agreements have to be a stepping stone rather than a stumbling block, by tackling issues that are not ready for multilateral discussions. Last year, we started our trade with South Korea under the new FTA regime and I am keen on receiving the first comprehensive assessment of its implementation later on this year. A number of negotiations - with the ASEAN, Canada, GCC (Gulf Cooperation Council), India, Malaysia, Singapore, Mercosur and Central America - are under way. I hope we will have concluded the agreement with Singapore by the end of July. The negotiations with the ASEAN seem to have stuck. In the case of the EU-Canada deal, that is the most ambitious attempt yet to reduce non tariff barriers between two mature economies, the outstanding issues are rules of origin and supply management of agricultural goods. Never-

It is also worth mentioning that the EU initiated a new generation of FTAs, so-called Deep and Comprehensive Free Trade Agreements (DCFTA), which go far beyond what has been traditionally negotiated within a typical FTA framework by addressing issues such as competition, IPR, services, approximation of laws, mutual recognition of standards and public procurement
theless, the agreement is still expected to be finalized within this year. It is also worth mentioning that the EU initiated a new generation of FTAs so-called Deep and Comprehensive Free Trade Agreements (DCFTA) which go far beyond what has been traditionally negotiated within a typical FTA framework by addressing issues such as competition, IPR, services, approximation of laws, mutual recognition of standards and public procurement. In March, we initialled a DCFTA with Ukraine which has become a template for the negotiations with countries such as Moldova, Georgia or Armenia. I am particularly proud of the EU - Ukraine DCFTA for I have always opted for a conclusion of the agreement while being aware of the rule of law issues in that country and sharing all concerns about it. I believe stopping the agreement would neither be beneficial to us nor to Ukraine. The EU simply cannot turn its back on Ukraine now; what we need to do is to encourage them own ability to solve themselves issues by implementing the necessary reforms. Not only do we have work to do in terms of Ukraine, but also in the Mediterranean region. The current Association Agreements with these countries (excluding Syria) only cover essentially trade in goods, which is not sufficient. I think the proposals laid out in the "Euro-Mediterranean Trade Roadmap beyond 2010" are a good start. We should really do our best to complete and reinforce the network of Free Trade Agreements in the EuroMediterranean Region. As much as I support our drive for FTAs, we cannot be content with them alone. During the recent European Think Tanks forum in Berlin I called for establishing an EU geo-economic strategy that will enable us to compete with China and tackle the economic crisis. Some of the Members States seem not to remember that that they are too small to compete with the power of China, Japan and South Korea or socalled emerging countries. In my opinion, pursuing national geo-economic policies by the Member States is a vicious circle that undermines our Common Foreign Policy. In order to face all the challenges and find our new role in changing geometry of geo-political and geoeconomic balance, we need to stick together.

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It has been almost two months since I arrived in Brussels as Ambassador to the EU. In this short time, I witnessed efforts by European leaders to overcome the euro-zone crisis and limit its impact on the European economy. I have also seen firsthand their resounding commitment to the vision of integrated Europe. This reminds me of the past history of European integration when European countries pursued closer cooperation in order to secure peace and prosperity for their people, who suffered greatly from the devastating World War. This long march towards an integrated Europe started with trade liberalization and subsequently incorporated many other fields. Similarly to trade liberalization that took place in Europe during the 1950s and 1960s, I am confident that the Korea-EU FTA, which has been in effect since 1st July 2011, will be a cornerstone in our bilateral relations, and a solid stepping stone for economic growth which is essential in overcoming the euro-zone crisis. Coincidentally, my tenure as Ambassador has coincided with the first anniversary of the FTA. My belief is corroborated by the latest trade statistics between Korea and the EU. However, it is premature to assess the full impacts of a comprehensive agreement like the FTA only one year after its implementation. That being said, I would like to share my assessment of the FTAs effects. Firstly, the FTA serves as a model for seeking economic growth and job creation through trade and investment liberalization. According to Commission statistics released on 27th June, EU exports to Korea increased by 6.7 billion, or 35% compared to the same period since 2007. Particularly, exports of products for which tariffs were eliminated (such as wine, some chemical products, textiles, clothing, machinery, appliances, iron and steel products) increased by 46% or 2.7 billion. Likewise, exports of partially liberalized products and products with no tariff change grew by 36% and 23% respectively. The increase of EU exports to Korea is also shown in Korean statistics. EU exports during the past eleven months from July 2011 to May 2012, increased by 14.8% compared to the same period between 2010 and 2011. Conversely, Korean exports to the EU decreased by 11.5%. This seems to imply that the FTA favors only the EU. However, this statement should be taken with caution since exports of Korean products for which tariffs were fully or partially eliminated have increased relatively high. For this reason I believe that the FTA is mutually beneficial.

Inbound investment from the EU to Korea has grown by 60.5% or $3.6 billion between July 2011 and March 2012. I believe that this can be attributed to the high quality of Koreas human resources, advanced infrastructure and geographical proximity to the worlds second and third largest markets
I wish to highlight another trend which indicates the Agreements effects. Inbound investment from the EU to Korea has grown by 60.5% or $3.6 billion between July 2011 and March 2012. I believe that this can be attributed to the high quality of Koreas human resources, advanced infrastructure and geographical proximity to the worlds second and third largest markets. Additionally, the FTA networks which Korea has been establishing with major trading partners (including the US, India and ASEAN) are playing an important role in encouraging investment inflows. Secondly, the impacts of the FTA are not limited to bilateral relations, but also reach out to regional and global trade policies of both sides. As for Korea, the effectuation of the FTA was followed by the Korea-US FTA, which opened a new horizon for Koreas position as a FTA hub. Korea has advocated for a multilateral trading system while continuing to expand its FTA network. In light of these assessments, I believe that the Korea-EU FTA will provide a needed boost to economic recovery and accelerate bilateral trade. Of course, such positive developments will not be achieved by themselves. We shall ensure that the Agreement will be implemented effectively and work together to prevent protectionist measures from expanding. Furthermore, we will continuously try to make a breakthrough at the stalled multilateral trade negotiations at the World Trade Organization Doha Development Agenda. Thirdly, the FTA serves as one of the two pillars of the strategic partnership between Korea and the EU, together with the Framework Agreement (FA) signed in May 2010. Since the conclusion of the FTA and FA, we have established various channels of dialogue at different levels, ranging from high political to civil-society level. Issues for discussion extended from politics, security, and economics to development cooperation, climate change, and many others. This is a sea of change compared to the time of the establishment of bilateral relationship in 1963. In this regard, year 2013, which will be commemorating the 50th anniversary of our bilateral relationship, will be a meaningful occasion. It will be a good opportunity to take stock of major achievements such as the FTA and FA, and allow us to further explore how to chart out our future relationship for the next 50 years. I am confident that the EU will overcome the current crisis, even though it may take some time. Consequently, the EU will provide the world with a renewed insight how economic integration, including trade liberalization, can bring welfare and peace to its citizens, as it already did 50 years ago. I am sure that Korea, who shares with the EU basic values of democracy, market economy and rule of law, will be a good partner towards this end.

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As the worlds largest trading bloc, the EU is scrambling to maintain its position on international markets and increase its competitiveness. The rise of the BRICS, the re-direction of US attention towards the Pacific and the protracted Eurozone crisis have substantially weakened the European Unions international profile. By 2015, shifts in trade flows will mean that 90% of global trade will be generated outside of the EU, mainly in Asia. Against this background, the European University Institute (EUI) and the Centre for the Law of EU External Relations (CLEER) recently organized an expert meeting which brought together members of the EU institutions (European Parliaments INTA Committee; Cabinet of Trade Commissioner De Gucht), think tanks and academia to explore the challenges which the EU is facing in the areas of trade liberalisation and standardisation. One general lesson drawn from the discussions was that the European Unions low politics of trade and investment negotiations and its export of standards continue to play an important role in shaping the role of the EU at the international stage. Whereas the EU a member of the World Trade Organization and an actor that (allegedly) speaks with one voice in all of its trade and investment relations professes multilateralism, it has in reality consistently pursued a policy of entering into preferential trade agreements at bilateral and interregional levels. In fact, this trend follows general international trade practice. Global economic instability and a stagnant multilateral system (cf. the deadlocked Doha Round) have strengthened the pursuit for bilateral trade relations as governments realise that the future growth and stability of their economies rests on the unimpeded trade in goods and services. For the same reason, both eurosceptics and eurofederalists can agree to the EU pursuing an open market agenda through enhanced bilaterism. Globalizations profound impact on the EUs internal market has resulted in a growing spaghetti bowl of trade arrangements and a continued drive towards the harmonisation of laws, so as to secure EU market access in third countries and create regulatory convergence and interoperability. To boost global competitiveness of European industries, regulatory convergence has been revived and revamped as a policy objective in EU-led trade talks by aiming for increased standardisation and mutual recognition. In an effort to capitalize on the opportunities that the rise of the rest has to offer, the EU negotiated the first of a new generation of Free Trade Agreements (FTAs) with the Republic of Korea. South Korea is the EUs eight largest trade partner and the EU has become South Koreas second largest export destination. The implementation of the FTA is expected to double trade between the two partners in the next 20 years. The agreement has been hailed by policy-makers as the most comprehensive of

trade deals ever concluded by the EU. Besides progressively eliminating duties on nearly all trade in goods, the agreement addresses nontariff barriers to trade, many of which were identified as particular obstacles. It also includes provisions on issues ranging from services (including financial services and telecoms) and investment protection, competition (both anti-trust and state aids), public procurement, intellectual property rights (including patents and geographical indications), transparency in regulation, to sustainable development. To ensure enforceability of commitments, the FTA includes strong clauses setting up mediation and dispute settlement mechanisms. Over time, this will lead to a new branch of FTA jurisprudence. The agreement also established various institutional bodies to monitor the implementation, such as the EU-Korea FTA Trade Committee, a Customs Committee and several working groups. As such, the FTA does indeed represent an ambitious approach to trade. To be sure, the progressive lowering of tariffs will only be felt after a longer time period, and as most of the regulatory changes have yet to be implemented, the trade benefits of the agreement can only be assessed with certainty after five or ten years. Yet, evidence gathered from its first in operation shows that the FTA is indeed proving its worth. The conclusion of this new generation FTA is a key part of the EUs growth strategy and will be replicated for other trade partners: negotiations are on-going with Canada, India, Singapore and Mercosur. Also, the EU has initialled a so-called Deep and Comprehensive Trade Agreement with Ukraine and it foresees to conclude similar agreements with other

Globalizations profound impact on the EUs internal market has resulted in a growing spaghetti bowl of trade arrangements and a continued drive towards the harmonisation of laws, so as to secure EU market access in third countries and create regulatory convergence and interoperability
neighbouring countries in the east (Armenia, Georgia and Moldova) and to the south of the Mediterranean (Egypt, Jordan, Morocco and Tunisia). In parallel, an Economic Partnership Agreement has been concluded with Cariforum, the first of a kind aimed at going beyond the classic FTAs with (regional groupings of) African, Caribbean and Pacific countries by also focussing on sustainable growth and poverty reduction. Less forthcoming is the strengthening of trade relations with the EUs two biggest trading partners: the US and China. With the EU being the top export destination for Chinese goods, China Europes second, and the EUs desire to reduce Chinese trade irritants like a lack of enforcement of intellectual property rights, inconsistencies in regulatory practices and the maintenance of non-tariff barriers, there is a mutual interest in deepening the EUChina trade relationship. Yet, high-level discussions aimed at concluding a comprehensive Partnership and Cooperation Agreement have gone on for more than five years and still expose a hiatus in positions on many important chapters. Further trade liberalisation with the US has also been difficult for years. Whereas mutual agreements based on transatlantic regulatory convergence in hitherto unregulated markets (e.g. nanotechnology, electronic vehicles, ehealth) are setting global thresholds in standardisation, diverging regulatory philosophies, different risk assessment systems and differences in the implementation of international standards, to name just a few, are holding back a boost in trade between the partners. Yet, the most exciting trade prospects are still to be found across the Atlantic. After all, no other trade relationship in the world is as integrated as that between the EU and the US. In sum, the deadlock in the Doha Round is providing the EU with cover to enhance its bilateral and interregional deals with trade partners. The EU has made use of this by actively pursuing a more tailor-made approach in its trade policy so as to prevent a further slump in European growth. The first signs of this trade policy show that the EU is getting returns on its investment. Perhaps it is time for the EU to also stop paying lip-service to reviving the Doha Round and find alternative ways to live up to its constitutional obligation to promote multilateral solutions to global challenges in trade and development.

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By Ahmad Mohamed Ali Al-Madani, Donald Kaberuka, Haruhiko Kuroda, Thomas Mirow, Luis Alberto Moreno, and Robert Zoellick

WASHINGTON, DC The world is now in the fourth year of the Great Recession. So far, the economies belonging to the World Trade Organization have resisted the kind of widespread protectionism that would make a bad situation much worse. But protectionist pressures are building as weary politicians hear more and more calls for economic nationalism. The WTOs best defense of open trade is a good offense. A new WTO Trade Facilitation Agreement would benefit all by increasing developing countries capacity to trade, strengthening the WTOs development mandate, and boosting global economic growth. More than a decade after the launch of the Doha Round of global free-trade talks, this agreement could be a down payment on the commitment that WTO members have made to linking trade and development. Developing countries stand to gain the most from improving trade facilitation. The right support would help traders in poorer countries to compete and integrate into global supply chains. There are rich opportunities for gains. Inefficiencies in processing and clearing goods put traders in developing countries at a competitive disadvantage. Outdated and inefficient border procedures and inadequate infrastructure often mean high transaction costs, long delays, opportunities for corruption, and an additional 1015% in the cost of getting goods to market even more in landlocked countries. Research by the World Bank suggests that every dollar of assistance provided to support trade-facilitation reform in developing countries yields a return of up to $70 in economic benefits. When funds are directed at improving border-management systems and procedures the very issues covered by the trade-facilitation negotiations the impact is particularly significant. Projects aimed at boosting efficiency and transparency, supported by development banks and bilateral donors, have made a dramatic difference. In East Africa, procedural improvements have reduced the average clearance time for cargo crossing the Kenya-Uganda border from almost two days to only seven hours. In Cameroon, some of our organizations have worked with the World Customs Organization to help the customs authority reduce corruption and increase collection of revenues estimated to be more than $25 million a year. On the Laos-Vietnam border, a sub-regional cross-border transport agreement has cut cargo transit times from four hours to just over one hour. A new customs component to a highway project be-

tween Phnom Penh and Ho Chi Minh City helped increase the total value of trade through the Moc Bai-Bavet border by 40% over three years. In Peru, some of our banks have worked with international freight forwarders to connect remote villages and small businesses to export markets through national postal services, turning more than 300 small firms into exporters, most for the first time. The outlines of a new WTO Trade Facilitation Agreement are already clear, but some technical differences remain on specific provisions. Developing countries want a credible commitment to support implementation, such as technical assistance and capacitybuilding. A World Bank study estimates that the costs of implementing the measures likely to be covered by a Trade Facilitation agreement would be relatively modest $7-11 million in the countries studied, spread out over a number of years especially when compared to the expected benefits.

Capacity-building and financing programs for governments that want to improve their trade facilitation are available already. Major donor countries and international development organizations have put a priority on, and increased investment in, trade facilitation. According to the OECD, from 2002 to 2010, trade facilitation-related assistance increased tenfold in real terms, from almost $40 million to nearly $400 million. The African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank, the Islamic Development Bank, and the World Bank stand ready alongside the WTO to assist developing countries through the process of full and effective implementation of the agreement. That means helping countries to assess their trade-facilitation needs on a case-by-case basis, match those needs with the resources required, and broker partnerships between recipient countries and develop-

ment allies to ensure that support is provided quickly and efficiently. In international negotiations, there is always a way forward if the benefits of an agreement are shared by all. Trade facilitation offers a development dividend for all countries. It is time for WTO members to make progress on issues where there is room to do so. It will be a down payment on a solid investment. Ahmad Mohamed Ali Al-Madani is President of the Islamic Development Bank. Donald Kaberuka is President of the African Development Bank. Haruhiko Kuroda is President of the Asian Development Bank. Thomas Mirow is President of the European Bank for Reconstruction and Development. Luis Alberto Moreno is President of the InterAmerican Development Bank. Robert B. Zoellick is President of the World Bank Group. Copyright: Project Syndicate, 2012. www.project-syndicate.org

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In 2006, the EU adopted the REACH (Registration, Evaluation and Authorization of Chemical Substances) Regulation. REACH establishes a system of restrictions on the design, manufacture and use of chemicals, and imposes information, registration and disclosure requirements including supply chain communication, all to protect the environment and human health. As was widely feared, it has recently become clear that this regime is not good news for trade and investment. The idea behind REACH was novel and unprecedented: comprehensive life-cycle regulation of all chemical-related risks, with industry bearing the duty and burden of ensuring and, in some cases, demonstrating chemical safety. REACH also encourages and requires manufacturers to substitute dangerous chemicals with safer ones and to avoid vertebrate animal testing of substances. The REACH framework is implemented and overseen by a newly established European Chemicals Agency (ECHA), the European Commission, and national authorities from all 27 Member States. REACHs extraterritorial coverage of both chemicals-in-bulk and chemical-based-products (ranging from clothing to electronics) is effectively reshaping global industry supply chains. Industrys response to REACH and REACH compliance has been observed to distort capital flows to and within Europe. With REACHs registration program currently in full swing, EU chemical producers and importers have already submitted thousands of lengthy substance dossiers to ECHA, and are required to submit many more by prescribed June 2013 and June 2018 deadlines. REACHs authorization program for substances of very high concern (SVHCs) is also now underway and will soon begin to impose significant new restrictions on chemicals. Arguably, REACH provides disincentives for investment in the European chemical industry, and, in fact, investments have dropped off. One recent European Commission-sponsored study reflects that REACH compliance has thus far cost industry at least 2.1 billion, while another study has shown that REACH obligations are having a chilling effect on chemical substance and product innovation. Furthermore, REACH has had widespread effects on international trade in bulk chemicals and other products containing chemicals, notwithstanding EU commitments to ensure REACHs consistency with international trade rules overseen by the World Trade organization (WTO), to which the EU member states are parties. Indeed, REACH has triggered concerns from EU trading partners ever since it was first introduced, and uncertainties remain concerning whether REACH, as implemented, meets the demands of international trade law. Three recently issued WTO tribunal decisions interpreting the Technical Barriers to Trade

(TBT) Agreement have reaffirmed WTO Members sovereign right to regulate for the protection of human health and the environment at their chosen level of protection. But governments may not freely employ technical regulations in a discriminatory manner or as unnecessary obstacles to trade. First, technical regulations cannot be designed or applied in a manner that accords imported products less favourable treatment than like domestic or third country products. While not overtly discriminatory, REACH could potentially be applied in an uneven-handed manner to impose a disproportionate impact on non-EU products that is sufficiently detrimental to affect the fundamental conditions of competition for like chemical-based products in EU markets. The diverging interpretations of REACH, such as the ongoing disagreement regarding the application of the communication requirements for substances in articles, could possibly subject imported products to more extensive and costly restrictions relative to EU products, which could render them less profitable, and thus, less competitive in EU markets. A recent EU Commission-sponsored study found that REACHs allocation of compliance and enforcement responsibilities to EU Member States has yielded non-uniform, uneven results, including with respect to customs agency inspections. Such variations could potentially impose relatively greater administrative burdens and costs on non-EU manufacturers that place their products at a competitive disadvantage vis--vis local companies. Non-EU small-and-medium-sizedenterprises (SMEs) without European presence or negotiating leverage are likely to be most affected.

Second, technical regulations may not impose unnecessary obstacles on trade that are more trade-restrictive than necessary to fulfil a legitimate objective, considering the risks nonfulfilment would create. REACHs aim of protecting human health and the environment would qualify as a legitimate objective. A series of problems, however, including ineffective risk communication, the lack of substance prioritization, budgetary limitations and ECHAs perfunctory compliance checks and infrequent dossier evaluations indicating relatively few harmful substances will be adequately examined, collectively raise questions about the extent to which REACH, in fact, contributes to the fulfilment of that objective. Moreover, a recent EU Commission-sponsored report detailing the considerable costs and administrative burdens imposed by REACHs registration and data gathering requirements, and another study analyzing reasonably available less trade restric-

tive alternative chemicals regulatory systems strongly suggest that such requirements are more trade-restrictive than necessary to achieve REACHs objective. Other programmes, such as Canadas and Japans chemicals management regulatory processes, arguably provide less trade-restrictive alternatives. These regimes feature less expensive and more efficient iterative screening approaches that permit regulators to set aside many substances and uses from the beginning on the grounds that they are unlikely to cause unacceptable risk. In sum, REACH was designed with ambitious goals in mind, but its implementation may ultimately prove market-distorting and noncompliant with international trade rules. And even if REACH is ultimately found to be WTO compliant, it would not appear to be the most appropriate instrument for reducing chemical risk in a cost-effective and balanced way.

Lucas Bergkamp is a lawyer, medical doctor and a partner in the Brussels office of the international law firm of Hunton & Williams. He is editing a book on the law and practice of REACH, which will include a chapter on REACHs effects on international trade authored by Lawrence Kogan. Lawrence A. Kogan is a Managing Attorney of The Kogan Law Group, P.C., a New York City-based multidisciplinary professional services firm, and the President/CEO of the Institute for Trade, Standards and Sustainable Development (ITSSD), a Princeton, NJ-based non-profit legal research, analytics and educational organization. His analysis of REACH in light of recent WTO jurisprudence will appear in the next issue of the American University International Law Review. Nicolas Herbatschek is an associate in the Brussels office of Hunton & Williams and studies chemistry at Hull University.

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I spy with my little eye something beginning with I...it is about trade and it moves across borders. No, one would probably not guess investment in response. Foreign direct investment is neither visible nor tangible. Yet, reaching $2.4 trillion globally in 2009 according to UNCTAD, the result of it is. Investment generates jobs and is a vital component in promoting welfare and economic growth. It is also an inseparable part of global supply chains. A global policy approach is thus needed. Trade policy has not kept pace with the increasing importance of investment in international trade. There is much focus in Europe and the United States on balances for trade in goods, or rather, on imbalances. But trade is no longer mainly about large containers of goods being shipped across borders. Instead, companies invest on location to set up offices, production and distribution channels. In contrast to the past, it is not primarily a question of avoiding custom duties at the border. Market presence is vital in competitive and rapidly changing markets. Companies seek to reach out to their clients, consumers and entrepreneurs abroad. According to the World Bank, around 55-60% of the total trade volume in the world is related to commercial presence, i.e. foreign direct investment. Investment is also a crucial component in the internationalisation of production chains. The scale of the trade within companies as well as between companies in the same sector is significant, particularly in internet- and technical services. OECD figures show that intra-firm trade represented almost 50% of U.S. total imports in 2009, and almost 30% of total export. Despite the significant increase in investment flows, a wide range of restrictions and regulations limit investment in foreign markets, including everything from taxes on imported goods, local content requirement for goods or services, certificates and testing requirements, and obligations for companies to invest proceeds in R&D activities in the host country. Moreover, as companies move abroad, they often want to bring workforce, at least at a first stage. However, cumbersome procedures and restrictions for visas or work permits imply significant costs. This has a particularly hampering effect on the internationalisation of small and medium-sized enterprises. Companies need predictable and secure environments if they are to invest. Firms are obviously not interested in completely unregulated markets, but basic regulatory aspects such as transparency and non-discrimination. In light of recent events in

Argentina, companies must be guaranteed that their invested capital is protected against expropriation without compensation or other malpractices. There must also be forums to settle legal disputes, in case commercial conflicts arise between companies and state authorities. The question is how to bring about a coherent international regulatory framework for investment. Even if the multilateral Doha negotiations were to resume in the WTO, trade and investment has not been on the table since the so called Singapore issues were dropped in 2004. Naturally, policy makers from developed countries have been seeking other venues to respond to business interests. Preferential trade agreements and bilateral investment treaties therefore dominate alongside the general provisions in the Agreement on Trade Related Investment Measures (TRIMs), GATT and in GATS. Global welfare could benefit from a defragmentation of the present patchwork of investment regulations. It is particularly important to get the emerging economies on board. Foreign direct investment is increasing rapidly to the BRICS countries. FDI inflows to China increased by 8% in 2001, and 31% to India, according to UNCTAD. The emerging economies are

however the ones that apply the most restrictive barriers to investment as part of their national industrial policies. But it is in their interest, as well as in everybody elses, to address these issues in a comprehensive international rules-based system for investment. Such an accord would help countries attract foreign assets and know-how. It would also reassure companies that are considering expanding their business and investing abroad. The recent initiative between the EU and the US on Shared Principles for International investment can be a flagship in the spreading rules-based and transparent practices. This is a positive development particularly in light of the EUs struggle to form a coherent investment policy since the Lisbon Treaty placed investment under exclusive community competence. Being the biggest players in the field of foreign direct investment, EUUS mutual investment stocks amounting to over 2 trillion, their leadership in spreading good practices is vital. Such principles can be extended to form the basis on an international agreement in the near future. In a world of changing economic patterns and power structures, safeguarding the principles of a rules-based system is of ever so great importance.

Companies need predictable and secure environments if they are to invest. Firms are obviously not interested in completely unregulated markets, but basic regulatory aspects such as transparency and non-discrimination

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The economic relationship between the US and the EU has certainly not been free of conflict in recent years, be it chlorinated chickens, alleged favourable treatment for domestic manufacturers such as Airbus or the inclusion of international aviation in the ETS. Europeans often complain about alleged disregard of health, social and environmental standards while the US accuses the EU of trying to close its markets. The ongoing increased emphasis on security after 9/11 by the US and more protectionist rhetoric on both sides in the wake of the economic crisis have recently also weighed on this relationship. Currently, the US is exasperated by the failure to get the Eurocrisis under control and is looking increasingly to China while the Europeans still see the US as an obstacle for international financial sector reform and for decisive action to combat climate change. Reading this list of grievances - and there are many more might suggest that there is something fundamentally wrong in the relationship of the US and the EU. In fact, the opposite is true: the EU-US transatlantic economic space is the most important engine of the global economy, bar none. Not only are there huge trade and investment flows between the US and the EU, by and large they share common values and economic interests at the global level. This transatlantic relationship generates significant economic activity on both continents, generating jobs and growth which both the US and the EU desperately need. The underlying strength of this relationship, should, however, not trigger complacency. Rather, both the EU and the US must realise the dormant potential which lies in deepening and broadening this relationship, especially at a time when positive impulses are hard to find in the global economy. There are still many opportunities for the EU and the US (as well as the countries connected to both of these trading areas through EFTA and NAFTA). In time, the goal should be the creation of a transatlantic Single Market which would create the biggest economic block in the world for some time to come. A recent joint report, The Case for Renewing Transatlantic Capitalism by a range of Think-Tanks highlights the areas where the most significant potential lies for the future, be it in addressing unfinished business, such as the elimination of remaining tariffs, in deepening and broadening cooperation and coordination in areas such as financial sector reform, research and innovation or macro-economic policy, or in developing a transatlantic economic space for the future, including the digital economy. The case for a deeper and broader eco-

The underlying strength of this relationship, should, however, not trigger complacency. Rather, both the EU and the US must realise the dormant potential which lies in deepening and broadening this relationship, especially at a time when positive impulses are hard to find in the global economy.
nomic relationship between the US and the EU seems clear. But decisive action, so far, is missing. Yes, there are various fora and initiatives which are pursuing deeper economic integration, such as the EU-US partnership for growth and jobs, but progress is, at best, slow. We should learn from the experience of the 1992 Common Market project: setting an ambitious joint vision, followed by an equally concrete and comprehensive implementation plan. So far, there is little appetite on either side of the Atlantic. Deeper integration always implies some losers of the process while the benefits are much more diffuse and longer term. The economic crisis is also demanding immediate answers from decision-makers, with the result that long term, strategic planning suffers. Politically, in the US Presidential election the candidates do not seem to perceive further integration with Europe as an electoral bonus while in Europe many people feel that further concessions to the US are the wrong signal, given the role US banks played in the crisis. There also seems to be much less willingness to compromise; negotiations are seen as an adversarial process with winners and losers, rather than a positive sum game where everybody can benefit. Above all this looms China, which many see as the economic model of the future, so why invest political capital in the moribund economies of the West? This way of thinking is short-sighted and dangerous. Europe and the US still share a common destiny: neither can survive the global economic, environmental and political challenges without the other. It is high time to not only reinvigorate the economic partnership but to push it to a higher level. Further economic integration, starting with a full partnership agreement, to boost investment and trade should be a first step. After all, in the current environment, the tangible benefits of generating additional growth and jobs must surely be of interest to politicians on both sides of the Atlantic. But here high level leadership is needed a much stronger push from the US President and real Member State pressure, starting with Europes traditional trading nations such as Germany, is needed. In the longer term, a strengthened economic partnership should also be a first stepping stone to further cooperation. In the new globalised economy, even the EU and the US will become too small to defend their interests unless they can work together even more than they have in the past.

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Bilateral trade volume between China and the European union, reached 567 billion in 2011, the highest record of China-EU trade, in the context of the ongoing European Sovereign Debt Crisis. China's export to the EU in 2011 was 356bn, with 14% growth, and import from EU is 211 billion USD, increased 25%. The faster expanding of import from EU also means a China's support to European economy to overcome the crisis. The decline of the EU share in China's trade Although China-EU trade reached its highest level in 2011, we can still see a slight decline of the EU's weight in China's trade since the financial crisis. The bilateral trade volume in 2009 took the highest share of China's external trade in recent 20 years, with 16.5%. Since then, it takes a downward turn, and in 2011 it dropped to 15.6%. The EU share of Chinese exports reached its peak in 2008 with 20.5%, but since then it has also declined. In 2011 it represented 18.7% of the China's export. EU's share in China's import declined from 12.7% in 2009 to 12.1% in 2011. The declining share in China's trade does not necessarily mean that EU is less important for China, but means China's trade is expanding in other markets, which reflects China's multi-market strategy. The increase of China's share in EU trade From the EU side, there is an interesting tendency happening. From the bilateral point of view, the EU is China's biggest exporting market, and at the same time China is the EU's biggest import resource. And if we add the US to the picture, another interesting tendency appears. Based on the data from Eurostat, in the share of the EU's import, China obviously is a steadily expanding, with a 10% increase from less than 8% in 2000 to more than 18% in 2010. At the same time, we can see that the US share in EU imports is almost in a down turn, with 10% decrease from close to 21% in 2000 to near 11% in 2011. In 2006, China for the first time surpassed the US and became the EU's biggest import resource. On the other hand, in the share of EU export, in the latest 10 years, the US share has been experiencing a similar 10% drop, from 28% in 2000 down to 18% in 2010, and in 2011 it turned to 17%. At the same time, China's share in EU exports has been one of consistent expansion, from 3% in 2000 reached close to 9% in 2011. If we see the trade flows between EU-

The declining share in China's trade does not necessarily mean that EU is less important for China, but means China's trade is expanding in other markets, which reflects China's multi-market strategy.
US and EU-China, the picture would provide a very sharp comparison. In 2000, EU-China trade was around 100bn, and by 2011 it turns to more than 400bn. However, EU-US trade had some waves around 400bn in the latest 10 years. China's catching-up in trade is at so fast a pace, which leads China will soon become the EU's biggest trading partner, and in the next 10 years China will be the EU's biggest export market. What does it mean? It means that the trade and economic interdependency is going deeper and deeper between EU and China. And the interdependency has experiencing a slight adjustment since the financial crisis. It means not only does China count on the EU, but also the EU counts on China as well. China does matter for the EU.

EU-US and EU-China bilateral trade volume

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Since the Lisbon Treaty came into force, international trade relations have become a core piece of EU actions and policies. To this extent, European institutions have adapted their organisation and widen its functions in order to cope with the great challenges ahead related to this action field. Indeed, the European Parliament (EP) has gained full competences in the definition of these policies. All EU trade legislation and international trade agreements must be debated and voted within the International Trade Committee (INTA) and later ratified by the plenary before entering into force. EU trade policy is based on a comprehensive approach that addresses the challenges of globalisation by working for fair and balanced trade relations between the EU and third countries and watching over social and labour standards. Furthermore, its actions are driven by EU key targets, gathered under EU2020 Strategy: creating sustainable economic growth and jobs in Europe and improving living and working conditions of people in Europe and in our trading partner countries. To this extent, when negotiating trade agreements, EU is always demanding about the fulfilment of these very essential principles as it is also extremely respectful to its international commitments, particularly with those within the World Trade Organisation (WTO). In the context of the crisis and the rise of protectionism, multilateralism under the WTO rule is EU priority work system. Indeed, EU stands for supporting and improving the role of WTO as the best equipped and most sophisticated body of global economic and trade governance. EU also promotes regionalism as a way to deepen trade partner countries' integration and development and to push forward comprehensive and ambitious trade agreements. However, this alternative approach should be carried out in a way that multilateralism is not undermined. With regard to the challenges of trade agreements, fighting against dumping practices, seeking for a balanced policy regarding trade aspects of Intellectual Property Rights (IPR) and removing of trade-related hindering measures such as non-tariff barriers are among the most relevant ones. Recent debates have focused on balancing international trade regulations and EU industrial policies in a complementary way that so that European and partner countries' industries gain protection and widen its growth perspectives. IPR is also in the spotlight, especially following ACTA (Anti-Counterfeiting Trade Agreement) debate in the EP and its

EU trade policy is based on a comprehensive approach that addresses the challenges of globalisation by working for fair and balanced trade relations between the EU and third countries and watching over social and labour standards.
rejection. On this sensitive matter, EU should take the lead and revise EU IPR Enforcement Directive raising a balanced and innovative proposal that can meet both IPR right-holders concerns and citizens' rights. Besides, EU actions to promote development through trade are also among the top current priorities. In this regard, EP has been working on important pieces of legislation and relevant reports on EU trade relations with neighbouring countries, those included in the European Neighbourhood Policy (ENP) and also those undergoing important political transition processes in the aftermath of the socalled Arab Spring. One of the top EU concerns since the break of this major event is giving support to these countries so that they can successfully achieve a true democratic reform and guarantee basic human rights, equality and justice. And, it is precisely in this context where trade can play a crucial role. With appropriate rules and conditions, trade can contribute to tighten up EU links with its partner countries. Additionally, EU trade policy is an exclusive common policy that allows a true European coordination in order to deal with the challenges and needs that those countries should face. Therefore, the European Commission established the "more for more" principle so that any democratic development being launched in the neighbouring countries should receive trade and economic compensations from the EU. In other words, the deeper their commitment with democracy is, the stronger EU cooperation will be. This principle also applies to the EU mechanisms and instruments to turn its objectives and priorities towards neighbouring countries into specific actions, such as the European Neighbourhood Instrument (ENI) which provides funding and economic backing to each country, according to its needs and its economic situation. Throughout the implementation of these mechanisms and regulations, EU also seeks to fulfil its essential principles, namely social and labour standards. To that extent, EP has always raised its concern whenever a trade partner country or a potential one may breach International Labour Organisation (ILO) conventions. This also includes a strong commitment to fight against child labour and to protect children rights. In short, international trade is indeed a core EU policy and has become a very powerful European tool to serve to our most basic values and contribute to create a fairer world and to spread respect to fundamental rights and enhance the living conditions of EU and partner countries' citizens.

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New Europe recently spoke with MEP Antonio Lopez Isturiz, Secretary General of the European Peoples Party (EPP), and asked his opinions on trade developments in the European Union and beyond. According to Commissioner Barnier, furthering integration to our internal market is going to be accomplished. And this is going to be a very attractive market for outsiders. We have to go further into the market integration. Barnier is working now against the clock in order to achieve this, with the help of the European Commission, with the help of the European Parliament and I expect that European Council governments, they also perform, because we have to go further into this, this will help a lot. Outsiders, investors, they have to find this as a single market economy. That has to be before everything. This will create real growth and jobs. The so called emerging powers are also suffering from this crisis. This crisis has taken a toll in everybody, if not, ask President Obama, it's taking a toll in the US because of this, unemployment is going up in the United States and this could be jeopardize in Obama's campaign, so this is happening to everybody. Much of the focus is now in Europe, because we have 28 separate reactions. What we are tending to do now is have a single reaction, so it will be good to achieve that. From other markets, with India, China, so on, United States, there has been a single responses, but they are not performing as well as people think. So this is a general crisis, it's not about Europe. And Europe, due to the attacks that suffered the euro is now reacting in more I believe, in a better way. To others, who are now sleeping, thinking that their economies will survive this, my message is: be aware. This is going to be a long standing crisis. It's been now for three, four years going on, and my belief is that Europe will see before others the beginning of growth, and employment, because of the actions that are taken now. Of course, no one can explain, that they are living in the city of London, in the financial city that they not respond to European supervision or anything, this will take out credibility, the city. This is the second time, the first was 2008, now it's again, so that's why I'm saying the reaction of Cameron government is good and the European reaction also has to be very quick, because we will loose credibility, because in the end they are as integrated to the European system as everybody and this is not the case unfortunately, they do not respond to European quality and supervision. So, now is the time also for the

financial city of London to react and work with us together. If not, we'll fail. I don't know if they are so reliable economies as they say, still, China is a dictatorship, India is going through difficulties. But it's going also through economical problems, so I believe this is a move, that does not respond to reality. I think and I will invite investors to think double, about getting out of Europe, because Europe, in the end, will come to solution of this crisis as has been done since the 1940s. We have faced many crisis, this Europe has faced many crisis and they have always overcome, because at the end governments realize, the people, that more of the integration is needed, everyone of this crisis, so finally the response will be a united one, this time from the economical side. There are two, three different kinds of people that think that United States is a competitor, the other thinks it the Asian markets, it's not clear between the experts. For me more than competition the United States we have to have closer economical

relations, we can do together. Unfortunately Obama is a president that has more the Asian approach, because he was educated in Hawai, so he is closer to Asian markets than to European ones and this is a mistake, I think we should be closer together. Economically, the relation has been good. It's operative and it's good that we have an economical relation, like we have with Turkey and other countries, I believe in privilege partnership, not further enlargements of the European Union, which now, citizens of the European Union don't understand, especially now in the framework of the crisis, but privilege partnership commercial, trading with these countries is vital. We are working now against the clock, with Georgia, Azerbaijan, Armenia, we have accepted civil parties from these countries now, we are now helping with the political landscape of these countries, because we want to have an economical privilege partnership with all these countries, also to help the internal market.

To others, who are now sleeping, thinking that their economies will survive this, my message is: be aware. This is going to be a long standing crisis

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CLAREMONT, CALIFORNIA Chinas current economic slowdown has no shortage of causes: Europes financial turmoil, sputtering recovery in the United States, and weak domestic investment growth, to name the most commonly cited factors. Since exports and investment account, respectively, for 30% and 40% of Chinas GDP growth, its economy is particularly vulnerable to weakening external demand and accumulation of non-performing loans caused by excessive and wasteful spending on fixed assets. But Chinas vulnerability to these factors, as serious as they are, is symptomatic of deeper institutional problems. Until these underlying constraints are addressed, talk of a new consumption-based growth model for China, reflected in the governments recently approved 12th Five-Year Plan, can be no more than lip service. After all, Chinas major trading partners, international financial institutions such as the World Bank and the International Monetary Fund, and senior Chinese officials themselves have long recognized the structural vulnerabilities caused by excessive investment and low household consumption. And, for nearly a decade, China has been urged to undertake reforms to redress these economic patterns, which have undermined the welfare of ordinary Chinese and strained the global trading system. The best-known feature of Chinas macroeconomic imbalances is heavy dependence on exports for growth, which is typically attributed to weak domestic demand: as a middle-income country, China lacks the purchasing power to consume the goods that it produces. With nearly unlimited access to advanced-country markets, China can tap into global external demand and raise its GDP growth potential, as it has done for the past two decades. If this view is right, the solution is straightforward: China can correct its imbalances by increasing its citizens incomes (by cutting taxes, raising wages, or increasing social spending), so that they can consume more, thereby reducing the economys dependence on exports. Indeed, nearly all mainstream economists prescribe this approach for China. But there is another explanation for Chinas excessive export dependence, one that has more to do with the countrys poor political and economic institutions. Specifically, export dependence partly reflects the high degree of difficulty of doing business in China. Official corruption, insecure property rights, stifling regulatory restraints, weak payment discipline, poor logistics and distribution,

widespread counterfeiting, and vulnerability to other forms of intellectual-property theft: all of these obstacles increase transaction costs and make it difficult for entrepreneurs to thrive in domestic markets. By contrast, if Chinas private firms sell to Western multinationals, such as WalMart, Target, or Home Depot, they do not have to worry about getting paid. They can avoid all of the headaches that they would have encountered at home, because well-established economic institutions and business practices in their export markets protect their interests and greatly reduce transaction costs. The Chinese economys institutional weakness is reflected in international survey data. The World Bank publishes an annual review of the ease of doing business for 183 countries and sub-national units. In its June 2011 survey, China was ranked 91st, behind Mongolia, Albania, and Belarus. It is particularly difficult to start a business in China (151st), pay taxes (122nd), obtain construction permits (179th), and get electricity (115th). Faced with such a hostile environment, Chinese private entrepreneurs have been forced to engage in institutional arbitrage taking advantage of efficient

Western economic institutions to expand their business (most export-oriented businesses are owned by private entrepreneurs and foreign firms). Unfortunately, as China has already claimed a large share of the worlds merchandise exports (10.4% in 2010) and economic stagnation in the West is constraining external demand, this strategy can no longer work. But reorienting their businesses toward the Chinese domestic market requires far more than government policies that put more money in consumers' pockets. In order to enjoy the same low transaction costs that they have in exporting, Chinas entrepreneurs need a much better business environment: an effective legal system, a sound regulatory framework, a government that protects their brands by fighting intellectual-property theft, dependable logistics and distribution networks, and a graft-resistant bureaucracy. China cannot create such an environment quickly. In essence, the Chinese government must transform a predatory state into a nurturing one, and treat private entrepreneurs as creators of wealth rather than targets of extraction. In nearly all other countries, such a transformation was accomplished by establishing the rule of

law and/or moving from autocracy to democracy. The impossibility of sustaining growth in the absence of the rule of law and political accountability presents the Chinese Communist Party with an existential dilemma. Ever since it crushed the prodemocracy movement in Tiananmen Square in 1989, the party has vowed not to surrender its political monopoly. The investment boom and the globalization dividend of the last two decades allowed the Party to have its cake and eat it maintaining its rule on the basis of economic prosperity, while failing to establish the institutions critical to sustaining such prosperity. Today, this is no longer possible. So in a sense, the Chinese bubble as much an intellectual and political bubble as an economic one has burst. As Chinas economic deceleration exposes its structural vulnerabilities and flawed policies, the much-hyped notion of Chinese exceptionalism that China can continue to grow without the rule of law and the other essential institutions that a modern market economy presupposes is proving to be nothing but a delusion. Copyright: Project Syndicate, 2012. www.project-syndicate.org

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INTERVIEW | MARIETTA GIANNAKOU

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New Europe speaks to Marietta Giannakou MEP (EL, EPP) about investment prospects in Greece. Do you think the investment and trade plan has improved? The atmosphere is different, but is it stable? With the government coming from three parties, there is a government dedicated to implementation of the programme, with some changes. The government has to discuss with the Troika. I think everybody is satisfied with this, because they had, people were very worried about the two elections and the unstable situation that was created between the elections. Also they were very anxious

about this question of the election, it was a kind of referendum, yes or no to the euro, at least, or yes or no to Europe. Now they are satisfied and pressing for the implementation of the programme, they ask for reforms and that is normal, the state needs to be reformed and modernised and on the other side they have to try for the privatisation and to find a way to eliminate deficit and to create a country, a state capable to face the problem of the debt itself. Greece is just one of the 27 countries, how do you think the economic crisis has affected the investments in the Europe? It is true, that the intention for invest-

ments is missing for the moment. So I mention the modernisation of the state, for example a tax low stable for year in order to create stable atmosphere for the investors. And a state that will be capable to react very fast to the demands of the markets, investors, state etc. This is one of the biggest problems, the Greek state was big concerning the number of people in the public sector, but not so capable, not so modern, not so effective. Following the recent summit, do you fee all of the European countries are part of a common policy? The summit is a real step for the integration of Europe, the decisions are posi-

tive concerning the growth and the creation of jobs, decisions are important, but the European Commission has to give a guideline what kind of growths are we ready to prepare, and the other side the creation of jobs is not that easy, because we are in the time of society of information, so many companies use other technology, more than the human resources. If you want to be just, to give the same opportunities to different countries, all the countries have the right to use this new mechanism. Finance Spain and Italy, and Greece also has a right to not have the recapitalisation of banks, to not have the capitals to be added to the debt if in Greece, they implement the programme.

In late 2009, European Commission President Jos Manuel Barroso and the Indonesian President Susilo Bambang Yudhoyono tasked a Vision Group of relevant persons from both Indonesia and EU to produce recommendations on how to take relations to the next level. The recommendations of the Vision Group were presented to the EU Trade Commissioner and the Indonesia Trade Minister on 4 May 2011 in Jakarta. The joint final Report underlining the Vision Group's recommendations was presented to the public during the dis-

semination event held in Brussels on 28 June 2011. EU Commission Trade Spokesman, John Clancy, told New Europe, Indonesia is the largest economy in South East Asia, blessed with natural resources and offering a sizeable domestic market with a growing middle class. The EU has therefore interest in opening negotiations for a comprehensive free trade agreement. As in the on-going negotiations with Singapore and Malaysia, the EU aims at an agreement that would cover goods, in-

cluding tariff and non-tariff barriers, services, investment, public procurements, competition, intellectual property rights and sustainable development, etc. He continues. Some of these areas might prove challenging for Indonesia and it is therefore in the process of consulting its stakeholders and finalising the 'socialisation' of an EU-Indonesia Vision Group Report calling for the launch of a 'Comprehensive Economic Partnership Agreement' between the two sides, taking into account its experiences with the

liberalisation of trade within ASEAN and other major trading partners. This process is continuing under the new Minister for Trade. Once this exercise is over, the European Commission hopes that Indonesia will be ready to confirm its interest in starting the preliminary discussions to prepare the launch of FTA negotiations. Indonesia is the strongest economy in ASEAN with half of its GDP and population (240 million inhabitants) and with a bilateral merchandise trade who was reaching 20 billion in 2010.