Institutional Change Caused By EU Embeddedness In The WTO
In this section, empirical findings on institutional changes in the EU caused by its embeddedness in the WTO will be presented.^ The empirical research covers the overall European institutional changes within the different issue areas of the WTO (GATT, Trade Related Aspects of Intellectual Property Rights (TRIPS) and the General Agreement on Trade in Services (GATS)), including its dispute settlement system, as well as the discussion about the involvement of civil society in the WTO s decision-making and its effects on the EU. The ‘ordnungspolitische’ debate on civil society involvement was especially selected to show changes within our third institutional dimension, that of concepts of legitimate order. Institutional change in formal organization when talking about institutional change in formal organization we have to look at the distribution of competences on trade issues in the EU and its development. Issues affecting internal European Community (EC) legislation confer exclusive competence on the EU — especially the common commercial policy (CCP). In this case member states are prohibited from acting independently.
Although the European Court of Justice (ECJ) has constantly expanded the scope of the CCP (see Weiler 1991; Meunier 2000), this clear distinction of competences has been eroding since the mid-1970s owing to the increasing rate of mixed agreements, where the EU as well as the member states possess competence. Cremona judged that this increase in mixed agreements could serve as a characteristic of EC external economic relations in the 1990s (Cremona 1998: 71). In addition to the increase in bilateral agreements, one of the causal factors of this tendency from exclusive to mixed competence in the mid-1990s can be seen in the development from the GATT to the WTO in 1995. Because of this change the first question was who should sign the agreements of the Uruguay Round and who should be a member of the new organization. The second question concerned the addition of new issue-areas. The WTO added a number of new agreements to the old GATT. Most important were the areas of services (GATS) and intellectual property (TRIPS), which were not covered by the EU treaty.
Institutional change within established routines
In terms of how institutional changes occur as a result of involvement, there are clear changes within the routines of decision-making in WTO issues. Already in its 1/94 judgment the ECJ had pointed out that in order to cope with the WTO challenge there should be a new co-operative type of coordination between the EC and member states instead of a clear-cut competence. This kind of development can be observed by investigating the WTO dispute settlement mechanism. WTien the GATT was transformed into the WTO, the dispute settlement (DS) was reformed to a great extent. In general it can be said that it has moved from non-binding arbitration in the GATT to a more court-like system of mediation between the disputing parties in the WTO. In more detail, the following major changes had an effect on EU decision-making:
1. The whole procedure of establishing a panel, which means bringing a case to ‘court’ has been strengthened. The defendant can no longer block the establishment of a panel and thus no longer control the case-load. This means there is a high risk of being overwhelmed by increasing numbers of complaints, because everyone is inclined to establish a panel, or to apply to the Appellate Body or use countermeasures if need be. This means that there is great pressure to seek negotiated compromise solutions. The empirical findings point to the fact that the pressure to negotiate a solution is not only great before consultations or before a panel is established but also during the panel procedure. In fact, in all WTO agreements negotiated solutions have been found within the procedure. Especially in TRIPS, disputes are largely solved before the DS procedure has officially ended. Within negotiated solutions, the Commission plays an important role. To carry out the solutions, the Commission needs a broad ‘mandate’, and at the same time has to be assured of member state compliance according to the mandate. If, for example, the EU wins a case, according to the new DS system the winning party can decide upon countermeasures against the accused state. If the case falls under shared competence, the Council of the EU has to decide upon changes, for example, in customs by unanimity.
Therefore, the Commission, while negotiating within the dispute settlement system, always has to take into account the reaction of the member states within the implementation phase. As a result, the routines of the consultation and information policy of the Commission towards the member states are more elaborate than previously under the GATT. This process began with special arrangements in the negotiations in services (GATS) and has now become standard behavior. First, even if the overall policy is to limit participation, member states or representatives of the Presidency can accompany the Commission in informal meetings within the WTO, whereas before this would not have been permitted. Second, consultation and information are provided to the Commission within the Article 133 Committee, which consists of national experts. The habit of consultation and information has been strengthened within the realm of shared competence; for example, the consultation frequency between the Commission and the Article 133 Committee has increased.^ This procedure was applied to the area of exclusive competence within the GATT part of the WTO, and to all parts which have become exclusive in the meantime.
2. The second major change in DS procedure is that cases increasingly show patterns of high complexity both in terms of law and facts. Disputes may entail a number of complicated regulatory measures and may be of a highly technical nature involving complex scientific fact-finding and assessments. In consequence, administrative resources are required to ensure a quick and professional management of dispute settlement. Most of the time the technical expertise of the member state is not enough. In quite a large number of cases there is a need for external consultants, which the member states cannot afford. For example, in the case of foreign sales co-operation with the US, the Commission used external consultants because of the need for extensive knowledge of US tax law which only an insider can provide. The budget for this kind of external consultation is provided by the Commission. Thus, the Commission also exercises a co-ordination and financing function for required expertise. This kind of co-ordination and management function has become especially important because of the rigid and tight schedule of the dispute settlement procedure within the WTO.
3. In addition, the new Trade Barrier Regulation (TBR) has changed old routines. The TBR was established with the founding of the WTO and replaced the New Commercial Policy Instrument (NCPI). It aims at identifying and removing barriers to EC exports to third countries, not accepting protection of their domestic production. It gives Community enterprises and economic interest representatives the ability to lodge formal complaints and to request that the Commission investigate third-country practices when they feel that they are adversely affected by a third-country infringement of multilateral trade rules. The Regulation explicitly identifies as international trade rules ‘primarily those established under the auspices of the WTO and laid down in the Annexes to the WTO Agreement’ (CR 3286/94, Article 2.2), as a reference point for the EC’s new approach to its international trade relations. Thus, there is a strong linkage between the TBR and the WTO Agreements. One of our interview partners stressed the point that the founding of the WTO in 1995 opened a window of opportunity for the establishment of the TBR (see Hellmann 2004). With the TBR, the direct linkage between enterprises or industry associations and the Commission already existing within the NCPI was strengthened and widely accepted, while member states play only a minor role. The representatives of the EC industry or enterprise are the ones to lodge a complaint. They initiate the process by bringing forth prima facie factual and legal evidence of damage by the practice of a trading partner and requesting the Commission to take up their case. The Commission, Directorate-General (DG) Trade, examines the complaint to assess its validity and the prospects for its delegation to the international dispute settlement.
Member states’ representatives are de facto only involved through the Article 133 Committee (see Hellmann 2004). The TBR is more widely used than its predecessor, the NCPI (Cottier 1998: 359). Of twenty complaints under the TBR procedure between 1994 and 2004, none was launched by a member state, thirteen were brought by European industry associations, seven by national industry associations and three by individual companies. In the literature it was speculated that this will limit the discretionary power of the Commission. De facto, the Commission is gaining some power through direct contacts with individual firms or their associations. Thus, the TBR serves as a case of circumventing the member states. Institutional changes in the concept of legitimate order With regard to the dimension of ‘guiding ideas’ of legitimate order and institutional changes by supply we will have a closer look at the case of bringing civil society into European decision-making on trade issues. This theme was discussed at the international level and especially within the WTO and has found its way into the EU institutions. Thus, the notion of ‘interlocking arenas’ can be applied to point to the interlocking of discourses between the European and international arenas. This process can be observed in both directions: discourses at the international level find their way to the European level, and EU actors try actively to introduce their guiding ideas into the WTO context.
There have been two important events at the international level concerning the discussion that influenced the EU’s position towards civil society involvement: (1) The protest of business and civil society actors against the Multilateral Agreement on Investment (MAI) starting in 1998, and (2) the opening conference of the WTO in Seattle 1999 (see Walter 2001). In reaction to these two events DG Trade started a consultation dialogue with civil society. The discussion on consultation of civil society in the issue-area of foreign direct investment (FDI) and the discussion on civil society involvement in the WTO after the Seattle conference will serve as a case of interlocking discourse arenas and institutional change by supply and involvement. FDI is recognized by the European Commission as a key factor in economic growth and wealth and is thus a central issue for DG Trade. Starting in the 1960s with bilateral agreements, international rule-making on investment was discussed in two main multilateral arenas: the MAI, which started negotiations under the aegis of the Organization for Economic Co-operation and Development (OECE)) in 1995, and the WTO, which set up a working group on the relations between trade and investment in 1996. The purpose of the MAI was to provide a comprehensive framework of rules for the liberalization and protection of foreign investment. Initially involving only OECD countries, the MAI negotiations were eventually opened to other countries as well.
CONCLUSION
When analyzing the effect of the international context, especially the WTO, on the institutional setting of the EU, research has thus far focused exclusively on the delegation of trade authority and thus on the formal organization of the decision-making process in the realm of trade (see e.g. Meunier and Nicolaidis 1999). This paper has presented a broader framework for explaining institutional change caused by the embeddedness in an international environment. The formal organization of the policy process and the distribution of political power among the relevant actors could explain only parts of the political reality. Governance is in addition determined by the governing principles and ideas of ‘good’ and legitimate governance. At the same time. Successful strategies and routines have been established, which also leave their imprint on European governance in trade. As shown above, we can state that institutional change caused by the international embeddedness of the EU has taken place in all three dimensions: the organization of politics, established routines and guiding principles. The question now will be how to evaluate the overall direction of institutional change.
It is assumed here that the institutional change of the EU caused by its international embeddedness demonstrates the tendency to centralize policy-making in the EU. We will conclude with some preliminary thoughts, but in order to prove this assumption a more rigorous examination needs to be carried out. One argument supporting this assumption is that in this case institutional change is characterized by competition among the different parties involved. This can be shown by examining the debates about the distribution of competence. In them the Commission sometimes plays an active role and presents itself as a driving force; for example, in overstretching its competence, as has been shown by the example of enlarging competence to include the GATS and TRIPS dimensions of the WTO. In addition, the functional need for a coherent performance at the international level provides a strong argument for a greater say on the part of the Commission. An example is provided by the Kennedy Round, where the Commission negotiated with international partners as well as reaching a common position across the six members states and thus had to perform flexibly and show its talent for improvisation. Thus, centralization would provide a good argument for efficiency and effectiveness of European trade policy. Second, in the institutional competition on power, capabilities such as organizational and informational resources as well as legitimacy are of great importance.
Here also, community institutions showed their superiority in resource capacities while at the same time being under pressure to increase legitimacy. The analysis of the participation of civil society showed that owing to this pressure the WTO and especially the EU changed their concept of legitimized order towards a more participatory model – even if there is still a lack of institutional conversion. Third, the organization of the Commission’s administration offers what intergovernmental administration cannot: it creates and manages know-how. Overall, the institution of the Commission fulfils this function. Puntscher- Riekmann stresses the point that the Commission is authorized by Article 213 of the Treaty to gather information from member states (1998). It was shown here that to a great extent the administration gathers information from external sources as well. Especially in attempts to ensure compliance, communication plays an important role (see Neyer 1999: 395). The European administration through a well-organized dialogue could gain advantage in acting according to its own interests (see Bogdandy and Makatsch 2000). All in all, the Commission could produce knowledge by linking to international epistemic communities.
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