The European Union and the Evolving Architectures of International Economic Agreements

Trade and investment are part of cultural exchanges. They are shaped by, but also have tremendous impact on cultural activities. At the same time, cultural activities and diplomacy actively pursue long-term and sustainable objectives in the field of trade and foreign investment. This contribution explores the understanding of culture and the role assigned to it in the context of international economic relations, and the ways in which economic agreements address cultural matters. It also reflects on the ways in which culture is conceptualised and instrumentalised in international agreements for its economic and extra-economic values, and on the complexities involved in separating the two perspectives.

Preferential Trade Agreements (‘PTAs’) are, at their core, an expression of cordial relations between States. After all, States rarely engage in PTA negotiations with enemies. Nonetheless, PTA negotiations, even amongst allies, have become lengthier and increasingly arduous. This is because modern PTAs, with their extensive coverage in terms of sectors and market regulation, are not just complex, but also bring to the fore concerns from domestic groups about potential impacts on their respective business sectors’ competitiveness, and from other domestic groups over possible changes to fundamental standards in areas like health and safety and animal welfare, among others. This chapter explores the politics of interstate competition at play in PTA negotiations. It argues that geoeconomic competition has become an increasingly important consideration in modern PTAs, and points to some novelties in European Union (‘EU’) and United States (‘US’) PTAs that reflect this concern with ensuring their own competitiveness, in particular elements of the USMCA (‘US- Mexico-Canada PTA’) and the EU-United Kingdom (‘UK’) Trade and Cooperation Agreement (‘TCA’).

Tracing the shift in the EU’s international trade strategy through the lens of its negotiations with ASEAN and its member countries discloses interesting insights on increasing competition to shape the rules of international trade and the limits of the EU’s market power. The chapter argues that the shift in global economic power to the Asia-pacific, particularly China, and the need for the EU to stay competitive in the region vis-à-vis its economic peers such as the US and Japan, has prompted the EU to move from a bi-regional attitude to a bilateral approach towards FTAs, with limited outcomes. This perhaps points to the retreat of the EU’s influence as globalisation suffers a body blow and regionalisation becomes the driving force for trade and investments.

The global investment system is currently based on liberalisation grounded in market access and investment protection, aiming to create a cross-border competitive environment. A reform of the system is under discussion, particularly at the United Nations Commission on International Trade Law (‘UNCITRAL’) largely upon a proposal by the European Union (‘EU’), comprehensively focusing on procedural issues and the possible establishment of a Multilateral Investment Court. This paper argues that such an approach is fundamentally flawed, as it overlooks the main issue that the global investment system currently faces, that is, the necessity of greening investment. The paper claims that a comprehensive reform of the investment system should first address substance, particularly the clash between, on the one hand, green commitments under the UN Framework Convention on Climate Change (‘UNFCCC’) and the Paris Agreement and, on the other, investment protection under bilateral and multilateral investment agreements. Priority rights and duties should therefore be envisaged for carbon-neutral investment, adjusting the fair and equitable treatment (‘FET’) standard on climate grounds. On this basis, the procedural reform of the investor-State dispute settlement (‘ISDS’) system should be tailored to address substantial developments focused on sustainability, or at least include them adequately.

The regulatory measures that States takes in areas of public interest may have an impact on the rights of foreign investors, which are protected by international investment agreements (‘IIAs’) from expropriation and unfair and inequitable treatment. Provisions establishing the State right to regulate without compensation vis-a-vis foreign investors have been inserted into IIAs, particularly post-2010. They aim to recalibrate the conflicting interests of the State with investors’ rights. Often drafted generally (with general and security exceptions), such provisions are becoming more and more specific to certain areas, including corporate social responsibility, the environment, and most recently even climate change. In the light of sustainability, the conditions of the implementation of the right to regulate and the limits encountered in its interpretation by arbitrators reveal the importance of a better drafting of relevant provisions, reflecting the scope that the parties wish to give to such clauses.

In response to emerging national security risks in global trade, screening of foreign investment has become an important autonomous tool for States in international economic regulation. The European Union (‘EU’) is a latecomer in the field in comparison with its trading partners such as the United States (‘US’) and Australia, due to its more liberal stance towards free movement of capital among the four fundamental market freedoms. This chapter analyses the EU foreign direct investment (‘FDI’) screening mechanism and vertical and horizontal relations within this legal framework. It reviews its key aspects in relation to the EU internal constitutional framework and external obligations under trade and investment agreements with third countries. Due to the specific nature of involved competences under EU law, the EU’s FDI regulatory framework does not lead to harmonisation but to primarily procedural coordination of national screening mechanisms, leaving to the Member States the final decision on the admission of FDI into their territories. Nevertheless, placing the EU mechanism within the Common Commercial Policy should give to the European Commission more leverage in carrying out the EU’s external trade and investment agenda.

At the multilateral level, the General Agreement on Trade in Services (‘GATS’) seeks to create a competitive playing field for international trade services just as the General Agreement on Tariffs and Trade (‘GATT’) does for goods. However, the liberalisation of services does not simply rely on removing barriers at the border, but requires much deeper efforts at smoothing out behind-the-border technical barriers. Mutual Recognition Agreements (‘MRAs’) for professional qualifications are an important enabling framework that help to liberalise international trade in services. However, very few provisions of World Trade Organisation (‘WTO’) agreements deal with such mutual recognition frameworks. For this reason, regulation is mostly found in bilateral and regional preferential free trade agreements (‘FTAs’), with the notable exceptions of the EU and the Australia-New Zealand Closer Economic Relations Trade Agreement (‘ANZCERTA’) frameworks. The EU has been engaged in separate FTA negotiations with Australia and New Zealand for the last few years, with the former now reaching its conclusion, and the latter inked in June 2022. Both the European Union (‘EU’) and ANZCERTA having very ambitious and far-reaching frameworks for the recognition of professional qualifications, it may be expected that similarly ambitious provisions might be struck in the context of their FTA negotiations. While this does not appear to be the case, this contribution examines these negotiations, and the parallel negotiations each of these parties have with the United Kingdom, as useful examples to contrast different approaches to the recognition of professional services, and explore what a broader professional qualifications recognition framework may look like in the future—how is regulation evolving in areas such as accountancy, health and legal services, and what, if any, is the impact of the divide between common law and civil law countries on the mutual recognition of qualifications?

The challenge of squaring effective climate policy and its attendant costs with the realities of international trade has driven several novel solutions. Among them, Carbon Border Adjustment Mechanisms (‘CBAMs’) have emerged as the preeminent option, evening the trading environment by quelling the problem of emission ‘leakage’ via trade from less ambitious to more ambitious States. As the European Union (‘EU’) finalises the implementation of its CBAM, pushes ahead with its Green Deal, and continues to write so-called ‘climate clauses’ into its free trade agreements (‘FTAs’), the question of CBAMs as a matter of international law is rapidly growing in importance and relevance. This contribution analyses and contrasts EU practice with that of other States and argues that, though so-called ‘climate clubs’ are emerging among major economies, the customary development of CBAMs is still in its relative infancy as a matter of universal practice. It will ultimately fall to the momentum of other major economic actors, among them the United States (‘US’) and the so-called ‘BRICS’ economies of Brazil, Russia, India, the People’s Republic of China (‘PRC’), and South Africa, to meaningfully solidify this fledgling custom.

The European Union (‘EU’)-United States (‘US’) Trade and Technology Council (‘TTC’) is a key element of current global law-making in trade and technology, however imperfect it might be. Its soft law structures and formulations contrast considerably with certain developments in EU data governance, but it aligns well with broader new regimes in international economic law. This chapter considers the relationship between bilateralism and multilateralism in the field of trade and technology taking place in light of the new EU-US TTC recently taking effect. It considers a history of transatlantic failures in cooperation, the history of law and governance in EU-US relations in trade and technology and the evolution of the TTC, followed by a series of conclusions. The TTC raises the question as to the place of bilateralism and multilateralism in the complex transatlantic relationship spanning many decades. It forms a unique study of considerable global law-making ambitions and objectives in contemporary times, against a fraught backdrop of complex transnational cooperation. Yet the context of transatlantic relations, itself a rich tapestry of innovations in the area of data transfers between two of the largest global players in trade and technology, may lend the case study of the TTC more gravitas and significance than other forms of bilateralism.

Intellectual property (IP) privileges are one of the most contentious areas of international economic regulation. This chapter uses the example of pharmaceuticals to consider the question of balance in patent policy and how this is impacted by international trade negotiations. It reviews key provisions in TRIPS from the contrasting perspectives of inventors of new medicines and users of such medicines. A critical issue identified is the breadth of privilege granted to patent holders and the removal of prior social safeguards in TRIPS. Evidence from recent trade treaties and their negotiation shows how the interests of patent holders often prevail against the interests of patients and society. Closely related to patent privileges for pharmaceuticals are privileges regarding the use of clinical trial data to obtain marketing approval for medicines. Such privileges are also provided in TRIPS, and subsequent treaties, for agricultural chemicals. An interesting aspect emerging from the comparison of data protection privileges for these two product categories is that treaties embody protections to protect unnecessary testing on animals but not on humans.

The chapter explores the expansion of compulsory licensing during the Covid crisis. Arguably, such an approach has not been effective within and outside the EU, especially because flexibility may prove insufficient to transfer underlying technology. Despite these drawbacks, the availability of compulsory licences may have some merit, as keeping pressure on pharmaceutical companies high may convince recalcitrant patent owners to lower prices or grant generics’ producers voluntary licences, with further implications for bilateral and multilateral trade agreements that the European Union is signing with different countries.

This chapter considers a specific issue of the impact of the European Union (‘EU’)’s Free Trade Agreements (‘FTAs’) on third countries, with a focus on geographical indications (‘GIs’). It assesses the hypothesis of the crowd-out effect—when an EU GI-protected product listed in the EU FTAs is the same as product names exported from athird country, the EU producer will exclude third-country exporters from using the same name. The chapter first explains the conditions and limitations of the crowd-out effect, then uses EU-South Korea FTA’s GI list which includes 19 cheese names to examine to what extent the crowd-out effect exists in a real world case. It concludes with key findings, future research directions, and the need for a systematic solution to the crowd-out effect.

Although the existing network of double tax agreements, the Model Tax Information Exchange Agreement (‘TIEA’), and the Multilateral Instrument (‘MLI’) co-exist, they indicate that the evolutionary process of tax treaties is heading towards different directions. Today, more than 3000 double tax treaties exist, most of which follow either the Organisation for Economic Co-operation and Development (‘OECD’) or United Nations (‘UN’) Model Tax Convention. Traditionally, the system of international taxation consists of a network of tax agreements, which are bilateral in nature. Thus, the current framework of the double tax agreements represents the status quo. Despite the widely known advantages of the multilateral approach in the evolution of tax treaties, the first noticeable development took place in 2016 with the adoption of the MLI as a result of the Base Erosion and Profit Shifting (‘BEPS’) project. Although the MLI is the first step, it is a beacon to a shift towards multilateralism. From the point of reference of the current network of bilateral double tax agreements, the adoption of the MLI is a step forward. In 2002, following the OECD’s efforts to address harmful tax practices, the OECD formulated the Model TIEA. In contrast to bilateral double taxation agreements—which govern the taxation of various aspects of cross-border transactions—tax information exchange agreements regulate the aspect of the exchange of information only. They are special agreements with a limited scope. The existence of TIEAs is justifiable; however, from the point of reference of the current network of bilateral double tax agreements, they represent a step backward. This chapter also analyses the bilateralism versus multilateralism dichotomy in the light of recent European Union (‘EU’) transfer pricing case law. The chapter, in particular, refers to the Apple case. The EU courts have used treaty law to solve matters related to EU law. Their approach creates an opening to a fertile dialogue between the EU and third countries. It also results in the recognition and incorporation of some internationally accepted principles into positive law. The next step towards multilateralism is to incorporate these principles as binding parts of the MLI.

Digitalisation has triggered a profound transformation in the global economy, spanning investment and trade, intellectual property (‘IP’) rights and taxation. Whilst, on the one hand, it facilitates the automatic functioning of the business chain, on the other, digitalisation triggers concerns about privacy and security. This chapter explores the challenges raised by the digitalisation of international economic transactions and how to harmonise regulation. Considering data protection a human right within the European Union (‘EU’) under the EU Charter of Fundamental Rights has led to the adoption of a heightened regulatory framework that is more protective than that of third countries. Arguably, this translates across into international economic agreements, with the EU prompting the adoption of extensive trade-restrictive data protection exceptions via horizontal clauses in bilateral and multilateral international economic agreements. Such a regime has the potential to create a disparity between domestic and cross-border data flows and between data flows among different countries, potentially in conflict with the most-favoured nation (‘MFN’) and national treatment (‘NT’) principles under the General Agreement on Trade in Services (‘GATS’). The clash can result in either improving cross-border data protection worldwide or lowering data protection in cross-border transactions involving data transfer from and to the EU.

Accommodation of fundamental rights in the architecture of international economic agreements (‘IEAs’) is generally rather modest and limited to specific issues. In this context, the European Union (‘EU’) stands out as an early innovator in the promotion of human rights, democracy and the rule of law—and thus a power for good in the global arena—by harnessing its considerable economic clout. The chapter develops this idea in four parts: (1) meaning of and rationale of fundamental rights clauses in economic agreements; (2) presence of fundamental rights clauses in current IEAs; (3) the EU’s innovative ‘essential elements’ clause; and (4) criticism and challenges to the EU approach and implications for the architecture of IEAs.

In 2019, the United Nations (‘UN’) Convention on International Settlement Agreements Resulting from Mediation (‘Singapore Convention’) was opened for signature. It aims to enshrine a simplified procedure for the enforcement of international settlement agreements resulting from mediation in commercial matters, along the lines of the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘New York Convention’, 1958). This chapter attempts to analyse the provisions of the Singapore Convention and to evaluate some European Union (‘EU’) perspectives on ratification. The contribution points out some concerns of a formal and substantive character for the ratification of the Singapore Convention by EU Member States, including the order of ratification, the correlation with existing EU instruments, the expanding ‘juridification’ of mediation, and the absence of accepted uniform mediation standards. The authors argue that such concerns can be overcome, however, and that it is indeed suitable for EU Member States to ratify the Singapore Convention.