Concluding an ambitious liberalisation deal with South Korea will top the trade agenda of the Swedish EU Presidency. Stockholm, which is one of the most free trade oriented capitals in Europe, hopes to clinch the most ambitious free trade agreement (FTA) ever negotiated by the EU. Alongside the European Commission, the Presidency will have first to convince several reluctant member states to accept a compromise on the remaining outstanding issues. Stockholm will have to fight hard to promote an ambitious free trade agenda as many European governments and voters fear the consequence of further market openings in the context of the economic crisis. Against this backdrop, providing a new momentum to the World Trade Organisation Doha trade talks will be the Presidency’s second key priority.

Sweden sees a new window of opportunity to conclude the controversial trade talks launched in May 2007 with South Korea. In the aftermath of the European elections, Trade Minister Ewa Björling and EU Trade Commissioner Catherine Ashton want to remove the remaining stumbling blocks by the summer. “Our first priority is to close the ambitious and valuable free trade agreement with South Korea,” said Ashton, after meeting Björling late May in Stockholm. Both fear that the upcoming German elections, scheduled for September, and the preparation for the next Commission could delay the conclusion of the agreement. Moreover, South Korea is likely to resume its trade talks with the US soon, which could sideline the discussions with the EU. The talks stalled last March over the sensitive issues of duty drawback (see box) and rules of origin. Several member states, led by Germany, believe the Commission is giving too much to Seoul, especially in the car sector. “I believe that we can solve the outstanding issues and get a deal that will benefit a wide range of European industries,” stated Ashton.

According to the most optimistic scenario, the EU could initial a deal as early as in July, when South Korean President Lee Myung-bak will visit Europe. But first, the Commission and Seoul will need to craft a compromise that is acceptable for all European capitals. On 10 July, the member states and the Commission will hold a critical discussion on the Korean FTA, during a 133 Committee meeting, and assess the situation, following a ministerial meeting held between Asthon and Trade Minister Kim Jong-hoon, on 26 June in Paris. “The Commission hopes that Germany will eventually cave in on that day,” a diplomat told Europolitics.

Providing new impetus to the stalled Doha trade talks in order to combat the global economic crisis will be another priority for the Swedes. “The value of the Doha round is heightened in the current downturn, and a deal would be the best possible boost for the global economy,” stressed Björling and Ashton. However, they are both well aware that the chances of reviving the multilateral talks that collapsed last summer in Geneva are limited. Despite repeated pledges made during successive G20 summits, the new US administration has so far showed little enthusiasm for a Doha push and the renewal of the Commission line-up expected by the end of the year will postpone any conclusion until 2010, believe many trade experts. However, positive signals emerged in early June from a meeting organised by the Cairns Group, increasing the chances of progress in Geneva during the summer. Trade negotiators will try to make as much progress as possible this year to prepare the ground for a conclusion of the talks in 2010.

PROTECTIONISM

Stockholm sees free trade as essential to putting the European economy on the path to recovery. It will urge member states to resist protectionist temptations and promote a proactive free trade agenda. “In this present time of economic downturn it is more important than ever to make real progress on a number of important trade issues,” stressed Björling. However, the minister is likely to face fierce resistance from key member states, such as France, Germany or Italy, which are reluctant to open further the doors of the EU market at a time of rising unemployment. Discussions over sensitive issues, such as anti-dumping or trade policy towards China, are likely to be divisive as several important capitals do not share the Presidency’s enthusiasm for open markets.

Aside from the Korean FTA, Stockholm and DG Trade will focus on advancing several bilateral tracks. They hope to make decisive progress with Central America and the Andean countries and will try to give new momentum to the ongoing discussions with the Gulf Cooperation Council, which collapsed during the French EU Presidency, in 2008. The chances of moving forward the strategic FTA talks with India and ASEAN, launched two years ago, are limited. The negotiations with the South-East Asian bloc have been frozen since May and the Commission is now testing a bilateral approach, while talks with New Delhi are moving at a slow pace. The Presidency will also face the challenging task of advancing the controversial economic partnership agreements (EPAs) with the ACP countries.

Background

The main obstacle to an EU-Korea FTA remains the issue of ‘duty drawbacks’, a system by which South Korea allows import tariffs to be returned to companies that use imported materials to make products for export. Seoul argues that the system is authorised by the WTO and is applied by its direct competitors, Japan and China, while the EU has so far refused to include such a scheme in the FTA it has negotiated with other trading partners.