Commercial Realism and EU Trade Policy

Competing for Economic Power in Asia and the Americas

Katharina L. Meissner

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351047623
• Edition: 1
• Topic: Politica e relazioni internazionali
• Subtopic: Politica

The European Union (EU) is at the forefront of engaging in external trade relations outside of the World Trade Organization (WTO) with entire regions and economic powerhouses. Understanding why and how the EU engages in one of the most active fields of external relations is crucial.

This book fills a gap in the literature by analysing motives on the modes – bilateralism, inter-regionalism, or multilateralism - of EU external trade relations towards regional organizations in Asia and Latin America outside of the WTO. In particular, it examines why the EU turned from interregional to bilateral external trade relations towards these world regions – a question that is, to date, under-researched. By developing and testing an original approach rooted in realist theorizing coined 'commercial realism', it examines systematically the explanatory power of commercial realism against liberal-institutionalist approaches dominant in the literature on EU external relations through five in-depth case studies.

This book will be of key interest to scholars and students in EU Politics/Studies, EU external relations, inter-regionalism and more broadly to International Relations and International Political Economy.

Part I

Theory, hypotheses, and process-tracing

1 Introduction

Designing European Union trade policy

The European Union (EU) is a pioneer of ambitious trade liberalization and advocates multilateral institutions to regulate the global economy. Part of its advocacy of multilateralism is to organize external trade relations with entire world regions through interregional relations. Like in Europe, these world regions have active regional organizations that pursue economic integration in the form of free trade areas or customs unions. It is in the EU’s long-standing interest to support regional integration within these world regions especially within those that are not fully industrialized (Söderbaum 2015). Interregionalism, therefore, is part of the EU’s principles on external relations (Hettne and Söderbaum 2005). The EU’s preference for interregional relations also finds expression in its external trade relations through which it negotiates trade agreements with regional organizations. In these negotiations, the EU has declared interest in comprehensive agreements that (de-)regulate investments, services, and regulatory standards next to trade in goods and agriculture (Commission 2016).

At the same time, however, the EU, along with other powerful actors such as China or the United States (US), more and more frequently engages in negotiations with single countries in conducting external relations. Through bilateralism, the EU maintains economic and political relations with economic powerhouses, emerging economies and developing countries. Next to ten Strategic Partnerships, the EU has a dense network of comprehensive, sectoral, and issue-specific trade negotiations of various forms with key partners of world regions. In tackling these key partners, the EU makes use of Association Agreements, Economic Partnership Agreements, free trade agreements (FTAs), sectoral or issues-specific agreements, and most recently Strategic Partnerships. Some of these relations are selective by targeting a specific issue, like trade in goods, while others are comprehensive by targeting also non-traditional issues such as non-tariff trade barriers, investments, and services. Although the EU has a declared preference for comprehensive, interregional trade negotiations, its modes of conducting external trade relations vary considerably in the inclusion of different issues and the scope of partners.

The EU has varied external trade relations in these two dimensions not only across but also within certain world regions. Next to multiple layers of multilateral, interregional, and bilateral relations with the same world regions, this variation is both synchronic and diachronic. Synchronic variation describes the EU’s conduct of different modes of external trade relations towards various world regions. One example for synchronic variation across regions is negotiations on a selective, issue-specific FTA with the Gulf Cooperation Council (GCC) while negotiations on an Association Agreement with the Mercado Común del Sur (MERCOSUR) are comprehensive. Diachronic variation describes the EU’s conduct of different modes of external trade relations towards the same region over time. With single countries of several regional organizations, the EU turned from interregional negotiations to a bilateral mode of conducting external trade relations of both a selective and a comprehensive nature. With the Association of Southeast Asian Nations (ASEAN), the EU swung from an interregional to a bilateral mode in negotiating a comprehensive FTA. With MERCOSUR, it added to the interregional negotiations on a comprehensive Association Agreement a bilateral Strategic Partnership with Brazil that tackles investments and regulatory standards. Diachronic variation in these two cases is surprising given that with both regional organizations the EU has long-lasting interregional relations and considering that it provides financial as well as technical support to regional integration therein.

In view of this synchronic and diachronic variation, the obvious question is why the EU has such varying modes of external trade relations with world regions? For the purposes of this book, the EU’s different modes of external trade relations raise two sets of questions about the motives that drive EU external relations and world regions with which it maintains relations. First, why has the EU turned from interregional to bilateral modes of external trade relations with key partners of regional organizations such as Brazil and Singapore? Given the EU’s long-standing interest in interregionalism, what is the relationship between these bilateral relations and the EU’s overall framework of region-to-region engagement? What actors have an impact on the EU’s modes of conducting external trade relations bilaterally or interregionally? Second, why does the EU restrict some of its relations to specific issues while other external trade relations are comprehensive by targeting investments, services, and regulatory standards next to trade in goods and agriculture? Given the EU’s preference for comprehensive trade relations, what drives the European Commission (hereafter Commission) to conduct these relations issue-specifically? What is the role of actors internal to the EU and those external to Europe in these decisions about the design of external trade relations?

Theoretical rationale

The question of whether domestic, internal, or external factors, rooted in the international system, drive an actor’s external relations is among the oldest and yet most contested topics in the international relations literature and it has gained importance in the literature on EU external trade relations over the last decade (see, for example, Aggarwal and Fogarty 2004; Sbragia 2010; Zimmermann 2007). For international relations scholars, the analytical distinction between domestic and systemic factors is one of the dividing lines between the two grand schools of thought that are liberalism and realism. Next to the importance owed to absolute and relative gains, liberalism generally locates explanations at the domestic level while realism pays special attention to factors located at the international level. Despite the abundant research on the impact of these two levels of explanatory factors as well as a combination of the two, scholarship has found no definitive answer to what level has greater weight (Chaudoin, Milner and Pang 2015; Gourevitch 1978).

Over the last decade, an increasing number of scholars have approached EU external relations from a realist perspective, shedding light not on the Union’s inner-institutional characteristics but on systemic determinants rooted outside of Europe (for example, Hyde-Price 2006; Ross Smith 2014; Zimmermann 2007). For those scholars, factors located in the international system have an important impact on EU external relations both in the intergovernmental realm of foreign and security policy (Hyde-Price 2006) as well as in the supranational realm of external trade policy (Zimmermann 2007). Although they do not neglect the crucial role of inner-institutional factors, that is interest groups, questions of identity as well as the EU member states, their view is that realist theorizing offers valuable insights into EU external relations. Nicholas Ross Smith (2014), for instance, argues that Europe’s identity, based on its liberal democratic norms, mediates the EU’s economic and security interests. The impact of international system factors on EU external trade relations and their relationship to inner-institutional characteristics is an underexplored terrain (Jørgensen 2015).

In this book, I present and test a theory on EU external trade relations, its varying modes and the role of economic power that draws largely on core features of realist theorizing. Although the empirical subject of the book is the EU and its external relations, the theoretical approach used for the analysis relies on general international relations theorizing, and its assumptions and hypotheses may extend beyond the external relations of Europe to those of other global actors such as China or the US. More specifically, the book presents a theory coined as ‘commercial realism’ that draws on realism’s core assumptions of “groupism” (Wohlforth 2008, 133), implying autonomous state-like entities, the common ‘egoistic’ interest of such an entity, its fear of losing security based on international anarchy, relative gains in international relations, and the primacy of power (Kirshner 2010, 55 ff.). Borrowing from Andrew Moravcsik’s (1997) reformulation of liberal international relations theory, commercial realism presents a non-ideological reformulation of realist international relations theorizing into a rigorous form with positive explanations and testable hypotheses. Commercial realism is parsimonious, coherent, empirically accurate and specific about multi-causal consistency (Chapter 2), complying with the standards of alternative theories on EU external relations that are commercial liberalism (Moravcsik 1997) and the principal-agent framework (Pollack 2003).

Scrutinizing realist international relations theorizing, commercial realism builds on the pioneering work of Edward H. Carr (1939), Albert O. Hirschmann (1969), Robert Gilpin (1987) and partly also Rawi Abdelal (2001) on external trade relations. Their contributions share two characteristics on the role of economics and an actor’s quest for power to which commercial realism is traceable. First, an actor’s power is multi-faceted and economics is one crucial feature of it. Economics is more than just commerce as these scholars argue, economics and politics intertwine. Second, the common interest of a state-like entity regarding external trade relations is more than the pure aggregation of domestic preferences (Abdelal 2001, 39). ‘Economic nationalism’ as this perspective is coined by Gilpin (1987) and further developed by Abdelal (2001) presupposes that external trade relations are run by state-like entities in the service of common (that is quasi-national) purposes. Although originally formulated in the context of nation-states’ external trade relations, I argue that the assumptions and conjectures of this scholarship are applicable to the EU as a unitary actor with a common, that is European, interest in external trade relations.

In this book, I scrutinize this realist scholarship by reformulating and adapting it innovatively to the EU in international trade governance. Applying realist theorizing to the EU as an actor and to economics as a subject of international relations might seem, at first glance, counterintuitive. There are good reasons, however, to treat the EU as a unitary actor in external trade relations and to treat economics as one feature of power. The EU’s actorness in external trade relations relies on the highly communitarized common commercial policy (CCP), of which the Commission is in charge (Drezner 2007). Several scholars provide empirical evidence for the EU’s formal, by treaty provisions, and informal, de facto, actorness in the negotiation of external trade agreements (Elgström and Frennhoff-Larsén 2010; Meunier 2007). In exercising external trade relations, the EU relies on its trade or market power (Damro 2012; Meunier and Nikolaïdis 2006) in such a way that it externalizes Europe’s regulatory standards and enhances the European economic position in the global economy. Economic power is crucial for the EU for two reasons. First, the EU has the status of a market power (Damro 2012) through which it engages with world regions. Second, state-like entities have interests other than security, namely economic or prestige goals, when physical security appears to be given (Kirshner 2010, 55). This is a real situation among great powers, the EU, the US, or China, in the twenty-first century that do not have to fear for their territorial integrity or sovereignty. Their focus has therefore been redirected towards economics, which is just one facet of power (Mastanduno and Kapstein 1999, 5, Schweller 2006, 13).

Making use of these assumptions, I attempt to generate and test hypotheses about the modes of EU external trade relations towards world regions and the impact of factors rooted in the international system on these relations. For the purpose of this book, I test these hypotheses against competing theories rooted in liberal-institutional international relations theorizing that are commercial liberalism and the principal-agent framework. In order to identify the scope conditions of realist theorizing, I test a respective set of EU external factors derived from commercial realism against a set of EU internal factors that are interest groups and EU member states. This research design is most appropriate to the discovery of strengths and weaknesses of realist theorizing in explaining EU external trade relations and it increases the internal validity of commercial realism. For the purpose of analysis, I distinguish each case study in the empirical chapters (3, 4 and 5) into two sub-sections of testing hypotheses.

First, I examine the extent to which EU external factors have an influence on the modes of its external trade relations. The EU, I argue, reacts to changes in the global economy when making decisions about its external trade relations. The different modes the EU applies in external trade relations are a result of Europe’s attempt to secure its economic and regulatory power vis-à-vis rival actors in other world regions and those regions’ varying degree of cohesion, or team spirit. More specifically, where rival actors, that are the US and China, have broad trade relations with a world region that is highly cohesive, the expected outcome of the EU’s modes would be comprehensive interregionalism. Where rival actors have broad trade relations, the EU attempts to mirror these relations in a way that maximizes its economic and regulatory power in a world region. This requires the EU to choose a comprehensive mode that covers trade issues that rival actors also cover in their trade relations. Where the respective world region is highly cohesive, where there is strong team spirit, the EU needs to turn to an interregional mode in order to maximize the likelihood of achieving an agreement with the region. An interregional agreement is most likely to be successful with a highly cohesive world region, while a bilateral agreement is more likely with a world region with less team spirit. From the perspective of commercial realism, therefore, we would need to observe varying trade relations of rival act...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of figures
• List of tables
• Acknowledgments
• List of abbreviations
• Part I Theory, hypotheses, and process-tracing
• Part II World regions in European Union trade policy
• Part III Comparison and conclusion
• Index