Thursday, November 22, 2007

An Analysis of the E.U.-Asean Free Trade Agreement (F.T.A.) Currently Under Negotiation


November 22, 2007


In 2006, the halt of the Doha Round resulted in a significant attack against the multilateral trading system. Since then the W.T.O. negotiations linked to the development of the Doha Round, which started in 2001 in Qatar, have slowed down and today there is no clear hint about a possible positive outcome of the negotiating process. Following this delay, all around the world there is a spree of negotiations related to the the signing of new and controversial free trade agreements (F.T.A.s). The aim of this paper is to analyze the F.T.A.s that the European Union (E.U.) is presently negotiating in Asia. In particular, specific attention will be given to the F.T.A. that the European Union is negotiating with the Association of Southeast Asian Nations (Asean). In fact, until today Asia has been a sort of missing link in the foreign economic policy of the European Union, which is very active in other areas of the world. The paper shows that it will be very difficult for the European F.T.A. to produce really good results because of the huge political and economic differences among the 10 countries participating to Asean.


In 2006, the halt of the Doha Round resulted in a significant attack against the multilateral trading system. The Doha Round calls for a reduction of trade barriers applied on a most-favored nation (M.F.N.) basis to all the W.T.O. member states. This means that no W.T.O. member state can be discriminated against by another member’s regime. In any case, regional trade agreements (R.T.A.s) are an exception to this specific rule. In fact, under R.T.A.s the reductions in trade barriers involve only the parties of the agreement. This kind of exceptions are allowed according to Article XXIV of the General Agreement on Tariffs and Trade (GATT) with reference to trade in goods, Article V of the General Agreement on Trade in Services (GATS) for trade in services, and the enabling clause in relation to the Generalized System of Preferences (G.S.P.). With reference to the W.T.O. Doha Round, the July 2006 talks in Geneva were not able to reach an agreement about a way in order to reduce farming subsidies and import taxes. Since then negotiation has stalled and a successful outcome of the Doha Round is increasingly unlikely[i]. In June 2007, in Potsdam, Germany, the Doha Round negotiations broke down again following an important impasse between the United States and the European Union, India and Brazil. In specific, in Germany the big issue regarded how to open up the agricultural and industrial markets and how to cut the farm subsidies that rich groups, such as Europe, give to their farmers. As of the end of 2007, the multilateral trading system is facing a big divide between the developed nations on one side (the European Union, the United States and Japan) and the major developing countries on the other side (principally the G-20 developing countries whose most important members are India, Brazil, China and South Africa).           

Already before the impasse of these negotiations, there has been an important increase in the number of F.T.A.s. All across the world many governments have signed, are now negotiating, or are thinking of new bilateral agreements. In general, these F.T.A.s may be considered as transitory agreements toward a global free-market economy, but in reality they are a step back in comparison to the multilateral trading system that should have been negotiated in the Doha Round. In particular,

Apart from the G.S.T.P. initiative, since the stop of the Doha Round in 2006 (but also before) many developing countries have negotiated bilateral or regional integration agreements, which will reduce trade barriers. This tendency may be considered as a blow to the “most favored nation” (M.F.N.) principle that is one of the cornerstones of the W.T.O. South countries when negotiate with developed countries have the expectation of receiving some preferential trade benefits as well other non-trade benefits. In reality, preferential trade agreements especially when involve South countries “can lead to the diversion of trade among partners if imports from an economically inefficient regional trade agreement partner displace more competitive imports produced elsewhere”[ii]

Surely, in a certain way, F.T.A.s can speed up trade liberalization and create higher benchmarks for the multilateral system. In addition to this, it is also important to underline that under the F.T.A. category are included many different kinds of free trade agreements: some discriminate consistently between the parties of the agreement, while some others — principally the agreements negotiated by the United States and the European Union — normally utilize the existing W.T.O. agreements as their benchmarks. Both America and Europe often try to implement stricter rules than those envisaged by the W.T.O. (for instance the United States includes issues regarding services and investment).


Some months after the Doha failure, around at the end of 2006, the European trade commissioner, Peter Mandelson announced the necessity to have a new European policy with reference to F.T.A.s. The framework of the new policy is contained in the document of the European Commission (E.C.) called Global Europe Competing in the World. With this document, the commission recognized that it was possible to guarantee the European competitiveness in the world with a process aimed at removing trade barriers. In practice, it was mandatory to have a new approach to trade policy and to improve the European rules. In particular, the report underlined that the commission still supported the idea that the best way for Europe in order to achieve good results with reference to its foreign and external trade policy was the system of multilateral negotiation and multilateralism.[iii] According to the commission a world trading system based on the W.T.O. standards can provide predictability, stability and other fundamental conditions for global growth. Then, the commission affirmed that in the following months it would be very important to open up markets and to tackle trade distortions both within the multilateral system and with new bilateral initiatives. These general targets are well exemplified with the following bullet points from the document Global Europe Competing in the World:

  • Maintaining our commitment to the Doha Trade Round and the W.T.O. as the best way of opening and managing world trade.
  • Making proposals on priorities in trade and investment relations with China as part of a broad strategy to build a beneficial and equal partnership.
  • Launching a second phase of the E.U. intellectual property rights (I.P.R.s) enforcement strategy.
  • Making proposals for a new generation of carefully selected and prioritized F.T.A.s.
  • Making proposals for a renewed and reinforced market access strategy.
  • Proposing measures to open procurement market abroad.
  • Conducting a review of the effectiveness of our trade-defense instruments[iv].

In particular, the fourth point above is very relevant because it traces a real change of the European strategy putting the accent on the importance of having a new generation of carefully selected and prioritized F.T.A.s. These agreements should be able to improve and strengthen the European competitiveness. Europe has one more than one time restated its commitment to the W.T.O. and the Doha Round, but a very important priority is now given to bilateral and region-to-region agreements in order to get an increased market access. This way of thinking is compatible with the European trade policy dating back to the 1990s, but there are some differences with that policy, which was implemented by the then trade commissioner Pascal Lamy (1999-2004). In fact, before releasing Global Europe, Europe was totally focused on the Doha Round and the advancement of the W.T.O. The approach followed by Mr. Lamy was undoubtedly a globalized one while it researched an increased market access in a context where it was also important to regulate globalization through equity and public legitimacy. But with the new trade commissioner Peter Mandelson, who entered into office on November 22, 2004, things have radically changed. In fact, in 2006 the European Union understood that the Doha Round was stalling with no visible possible outcomes, that other important global players were gaining better positions with reference to F.T.A.s than Europe's and, last but not least, that the old European strategy was less understandable for the Asian countries than the American strategy. The document that defines the way Europe has to change its trading strategy is Global Europe where with reference to F.T.A.s is stated that:  

Free Trade Agreements (F.T.A.s), if approached with care, can build on W.T.O. and other international rules by going further and faster in promoting openness and integration, by tackling issues which are not ready for multilateral discussion and by preparing the ground for the next level of multilateral liberalisation. Many key issues, including investment, public procurement, competition, other regulatory issues and I.P.R. enforcement, which remain outside the W.T.O. at this time can be addressed through F.T.A.s. But F.T.A.s can also carry risks for the multilateral trading system. They can complicate trade, erode the principle of non-discrimination and exclude the weakest economies. To have a positive impact F.T.A.s must be comprehensive in scope, provide for liberalisation of substantially all trade and go beyond W.T.O. disciplines.[v]

In the document, the European Union proclaimed to have the goal of using all its future F.T.A.s (in any case, F.T.A.s are new instruments for the European Union) as an important stepping stone for promoting international multilateral liberalization.   


According to the document Global Europe it is important that:

The key economic criteria for new F.T.A. partners should be market potential (economic size and growth) and the level of protection against E.U. export interests (tariffs and non tariff barriers). We should also take account of our potential partners’ negotiations with E.U. competitors, the likely impact of this on E.U. markets and economies, as well as the risk that the preferential access to E.U. markets currently enjoyed by our neighbouring and developing country partners may be eroded.[vi]

The principal target is to have comprehensive W.T.O.-plus F.T.A.s. Tariffs and quantitative restrictions should be eliminated at least for 90 percent of the tariff lines and trade volumes. In this way, it could be possible to comply with the “substantially-all-trade” criterion included in article XXIV of GATT. In addition to this, it is of paramount importance to get the liberalization of services and investment. In this regard, the European Union would like to go beyond the framework of the W.T.O. in the field of competition, government procurement, intellectual property rights (I.P.R.s) and trade facilitation. An important consideration is also given to provisions related to labor and environmental standards and to the fact that in the new F.T.A.s rules of origin have to be simpler. Last but not least, improved regulatory disciplines and regulatory cooperation will be necessary in order to tackle non-tariff barriers that are the hidden instruments capable of messing up international trade and commerce.

Following this blueprint, this year the European Union has done a selection and has started negotiations in Asia with India, Asean[vii] (an association) and South Korea. The decision to begin negotiations has been taken on a case-by-case methodology on the premises of economic criteria, partners’ readiness for an F.T.A. and geopolitical considerations relevant to Europe. These three partners have high levels of protection with large market potential and in particular South Korea and Asean are very active in concluding F.T.A.s with countries competing with Europe such as the United States. Europe has already opened F.T.A. negotiations with countries in different areas of the world like Mercosur and the Gulf Cooperation Council (G.C.C.), while with Central American and Andean countries there are existing F.T.A.s or preference trade agreements (P.T.A.s). India, Asean and South Korea are the three most important priorities for the European Union. Following this Asian strategy, it is strange not to consider China as a priority. But with reference to China in the document Global Europe was said that the country could meet many of the criteria requested by the European Union in order to start the negotiations for a new F.T.A., but that at the same time China required a very special attention because of the opportunities and the huge risks it presented.

In comparison to many agreements already signed by the European Union, the three proposed F.T.A.s are more reciprocal than many precedent agreements. To give an example, the EuroMed agreements and the Economic Partnership Agreements (E.P.A.s) with the African, Caribbean and Pacific states (A.C.P.s) are not overlapping the W.T.O. template and in particular they tend not to be mutually balanced: It is the European Union that does a lot of concessions not the counterparts. The new three EU-Asian F.T.A.s are closer to the F.T.A.s already signed with Mexico, Chile and Mercosur (but with these three agreements the motivation was purely commercial). The new three F.T.A.s differ one from another. It is not clear whether Europe has the capacity to close these deals. If the European Union wants to close these three new F.T.A.s, there are at least three important issues that have to be addressed.

First, Europe is always trying to export its regulatory practices. The European Union at multilateral, regional and bilateral level tries to promote the adoption of its own standards with reference to product safety, environment, and corporate governance. As a matter of fact, the European Union when is negotiating a trade agreement tries always to connect this to non-trade targets. In doing so, it considerably limits the negotiating freedom of its partners, which in many cases are obliged to accept the European standards if they want to negotiate. Recently, the European Union has added the issue of climate change seen as one of the most pressing concerns in today’s world. Other non-trade targets that Europe is pushing more and more through trade agreements are democracy standards and human rights. Another important aspect that the European Union is trying to export is its own regulation of risk in international trade. In fact, while the United States and the W.T.O. have a very scientific approach to assessing the risks of product standards in international trade (a good tool are the W.T.O. sanitary and phytosanitary measures (S.P.S.s) and the technical barriers to trade (T.B.T.s)), the European Union has a non-scientific approach where different kinds of considerations may emerge. In this way, this non-scientific approach can be used to block trade on the ground of concerns linked to public health and public safety. In other words, it is a sort of hidden protectionism applied by the European Union.

Second, in comparison with the American approach toward F.T.A.s, Europe appears considerably less clear and professional than the United States that tends to subscribe market-oriented F.T.A.s. For the United States, market access should be granted very fast and transition periods have to be very short. The United States tries always to adopt W.T.O.-plus provisions on competition, trade facilitation and government procurement and to force strong disciplines on domestic regulatory discretion. On the other side, the European Union does not use an investor-state dispute settlement and is not able to get strong disciplines on domestic regulation. Similarly, Europe has non-binding provisions in the sectors in which the United States tries to adopt W.T.O.-plus provisions. In this way both, the European Union and its partners are allowed to put aside of the agreements sensitive services sectors and instead put into action weak disciplines in other areas (among the sensitive services sectors which were put aside the most important are often: health care, education, utilities and audiovisual services). Another big difference between America and Europe is linked to the approach toward intellectual property rights (I.P.R.s), labor and environmental standards. Europe wants acceptation of general international standards without obtaining the so-called W.T.O.-plus obligations. The United States instead wants Trips-plus provisions in its F.T.A.s while restricting also short-term capital controls.

Third, another relevant issue is why the European Union is negotiating F.T.A.s with India, Asean and South Korea and not with China and Japan, which are the biggest players in Asia? The last two countries alone comprise 55 percent of all the European potential market in Asia (according to data from the European Commission). Probably, an F.T.A. with South Korea could be considered as a first move in order to conclude in the future another F.T.A. with Japan. But China is out from the European consideration for an F.T.A. despite China's huge economic importance. The reason is that probably the EU fears the Chinese economic competition. Yet, it is true that the European Union with China needs “a much stronger framework for trade-related regulatory cooperation”.[viii] In fact, it is more important for Europe to get results related to concrete issues than just to sign agreements that will be relevant only on paper. The European Union should try to set standards with China for containing protectionism, strengthening bilateral relations and pressing Beijing to move forward with the W.T.O.-plus reforms in order to open up the Chinese economy. 

Of the three Asian F.T.A.s, the only one that has serious chances to bring about a good result is the one with South Korea. This country is very interested in increasing its commercial platform and it has already shown this mindset in negotiating a similar agreement with the United States. With the United States, South Korea agreed on eliminating almost all tariffs on bilateral goods trade and to open up the majority of its services market to American exporters and foreign investors. The European Union would like to use this agreement as a template for its own agreement with South Korea. Brussels would like to remove all Korean tariffs on industrial goods, the majority of the agricultural tariffs and to get major services liberalization, the removal of ownership, the establishment and operating restrictions for European Union investors (in sectors such as banking, insurance and telecommunications). In addition to these requests, Brussels tries to get through the agreement the opening up of government procurement, competition law, state subsidies and less restrictive Korean food-safety standards. In exchange to these points, Europe will abolish all tariffs on bilateral goods trade. Probably not all these subjects will be included in the final agreement, but it is very likely that the F.T.A. with South Korea will be fruitful on both sides. It is clear that there will be some eventual gaps with reference to the Korean agriculture sector, competition law or government procurement rules, but in the end the result will be positive for both the European Union and South Korea.    

The F.T.A. with India is not very understandable. In fact, India has a very light approach toward international trade. All the Indian agreements related to trade are in practice goodwill agreements aiming at developing international relations more than serious trade pacts (India's agreements often lack a commercial substance). Since the beginning of the negotiations, India has stated that its agricultural sector will be exempted by the negotiating F.T.A. On the other hand, giving the strong European protectionism linked to the Common Agricultural Policy (CAP) this is not a big concern for the European Union. Manufacturing and services liberalization offer better perspectives because India since 1990s has progressively liberalized these two sectors (although in the last years no big progress has been achieved in these two sectors). In addition, there is no strong leverage for Europe in order to tackle India’s regulatory barriers through an F.T.A. Almost certainly, with India it could be better to obtain a strong agreement on regulatory cooperation than a very weak F.T.A.            


Between the European Union and Asean there are 30 years of close relations. During this timeframe the European Union has supported Asean integration with approximately €250 million in addition to bilateral cooperation with Asean member states. In specific, the E.U.-Asean relations were established in February 1977 while in 1980 followed the Cooperation Agreement.[ix] Since 2004, the European Union has been negotiating Partnership and Cooperation Agreements (P.C.A.s) with individual Asean countries on the ground of the respect for human rights, democratic principles and the rule of law. It is evident that Asean is an important area for the European Union trade although the E.U.-Asean trade is inferior to the bilateral trade that the union has with China and Japan. Conversely, the European Union F.D.I.s quota in Asean is higher than in any other Asian country excluded Japan. Apart from these considerations, for Europe it will be very difficult to negotiate a strong F.T.A. with Asean as a whole.[x] First of all, Asean countries have been until now more of an association of countries than a real organization like the E.U. Moreover, only four states out of 10, i.e., Indonesia, Malaysia, Philippines and Singapore, can although with some difficulties be considered democratic countries and not authoritarian regimes (with reference to democracy the worst case is Myanmar/Burma). The other six countries are not democratic and often do not respect basic human rights.  

In specific, today for Europe one of the biggest problems in dealing with Asean is the controversial participation of Burma to the Association of South East Asian Nations. Since August 2007 during the meetings between Asean foreign ministers and Javier Solana, the European high representative for the Common Foreign and Security Policy (C.F.S.P.), the latter has expressed his approval for the draft Asean charter , especially because the charter calls for the creation of a human rights body). But while supporting the charter, Mr. Solana insisted that Burma should not be automatically included in the future F.T.A. with the European Union.[xi] Then, following the massive human rights violations in Burma in September 2007 (when unarmed citizens were attacked by the Burmese army and at least 15 people died while thousands were injured) the relations between the European Union and Asean have worsened. The European Union sees with big disappointment the fact that Burma is not able to implement any serious democratic reform and to free political prisoners (among them Mrs. Aung San Suu Kyi, the democratic leader and Nobel Prize winner). In relation to the problem linked to Burma, the adoption of the Asean charter,[xii] which was signed by the member states on Tuesday, November 20, 2007, in Singapore during the 13th Asean Summit is not a reliable solution. The charter has still to be ratified by all the ten countries before it takes effect. The message of the charter is that Asean countries will seek to promote free trade and human rights “but their vision to create an integrated, European Union-style bloc was marred by Myanmar’s snub to democracy.”[xiii] The Burma case is a real menace to Asean political powers. The Asean charter has the goal of turning the organization (created 40 years ago during the Cold War in 1957) into a rule-based entity[xiv]. In fact, the association has been until now an informal group centered on the principles of non-interference and consensus between its members. Under the provisions Asean “can sue and be sued under the charter and will be held accountable for all the treaties and agreements it signs. It will also set up enforceable financial, trade and environmental rules.”[xv] One of the most important outcomes of the new document should be the creation of a regional human rights body but the presence as a full member of Burma reduces the authority of the document. At this regard, already during the meeting in Singapore, the Philippines took a very tough stand versus Burma and called into question the destabilizing factor represented by this country. Notwithstanding this intervention of the Philippines, the other eight members (apart from Burma) remained very reluctant to take a strong position and to confront the Burmese military junta.   
Asean is formed by 10 very different countries, and it is not an integrated economic region. The 10 countries have very different history, political systems, economic and institutional capacities. Singapore has the same development level as Western countries; Malaysia is developing very well and has a lot of economic potential; Thailand is a middle-income developing country; Indonesia has huge economic possibilities but still has not solved all its problems linked to the recurrent political instability; the Philippines is a country with good potential but its economic outcomes are a puzzle yet; Vietnam and Cambodia (two communist countries) although moving forward have very low per capita incomes; Brunei is rich only thanks to its oil revenues and Laos and Burma are in bad economic (but not only) conditions. Among Asean countries trade barriers — especially non-tariff and regulatory measures — are still very high.

The impact of an F.T.A. between the European Union and Asean could be very different according to the different structure of the agreement. The European Union commissioned a study on the economic results of an F.T.A. with Asean[xvi]. The best scenario was with zero tariffs on all goods and 50 percent reduction in barriers to services trade. With this scenario, the European G.D.P. could increase 0.1 percent while the Asean G.D.P. nearly 2.2 percent. The other scenarios are irrelevant for the European Union with reference to the possible economic outcomes. In other words, also with the best scenario there is only a discreet gain for Asean, but there is a very modest result for Europe. Principally, the problem for the European Union is that non-tariff measures far outweigh tariffs as impediments to increase businesses. Only Singapore, among the 10 Asean countries, has very low non-tariff and regulatory barriers. The other nine countries have instead relevant barriers. An F.T.A. could have an interesting perspective if it traced a discipline with reference to non-tariff and regulatory barriers in Asean countries other than Singapore, otherwise it is useless.  

The European Commission has a mandate to negotiate the F.T.A. with the Asean with which it has started (or is thinking  of starting) a P.C.A. (Partnership and Cooperation Agreements) negotiation. Brussels would like to close the negotiation by 2009. For the time being, Cambodia, Laos and Burma/Myanmar are definitely out. Cambodia and Laos have duty-free access to the European market, but Burma is out given the problems linked to human rights in the country under the rule of the generals.[xvii] The problem is that — as confirmed in Singapore during the13th Asean Summit — Asean leaders want to negotiate an F.T.A. with the European Union including all Asean members including Burma. Apart from these political considerations, which are indeed still very important, the European Union wants a transition period of ten years for tariff elimination and commitments in services and investment. In addition to this, the Europe Union could accept a longer transition period in relation to sensitive agricultural products. Brussels desires to guarantee to the less developed Asean countries special and differential treatment (S.D.T.) for a longer period of transition. The European Union requires to have a sort of compatibility with the W.T.O. Agreement on Government Procurement (G.P.A.) “and regulatory cooperation on competition issues”[xviii] while it mentions neither G.P.A.-plus market access commitments, nor binding commitments on competition enforcement.

The perspectives for this kind of F.T.A. to be successful are really scarce. First of all, the existing Asian F.T.A.s – both F.T.A.s between single ASEAN countries and third countries and collective ASEAN F.T.A.s –  have difficulties in trying to overpass tariff elimination on 90 percent of goods trade (Singapore is an exception). The United States tried to get better results with Asean countries, but it succeeded only with Singapore. Secondly, inside Asean for the moment – although the signature of the new charter that still has to be ratified by all the countries – there is no serious common negotiating machinery. Asean is still very good on papers but then when it is time to transform the papers into reality there are always a lot of obstacles (often dilatory procedures). These are the two reasons for which it is probably better for the E.U. to follow different roads instead of signing a relatively trade-light F.T.A. that won’t tackle non-tariff and regulatory barriers. In any case, it should be pointed out that such a trade-light F.T.A. could have a residual political meaning although absolutely no commercial sense for the European Union.

Probably, the European Union should stop negotiating with Asean countries collectively. Probably it could be better a sort of dual approach. A first step could be trying to obtain an improved Trans Regional E.U.-Asean Trade Initiative (Treati) framework for regulatory cooperation with Asean. In fact, Treati since 2004 has been the basic framework for region-to-region regulatory cooperation on trade, investment and trade facilitation issues. Then, this improved Treati framework should be coupled with stronger trade-and-investment regulatory cooperation with the single Asean countries and with a P.C.A. framework. This path would be very close to the one followed by the United States. Right now the only country in the Asean region with which it is possible to reach a valid and serious F.T.A. is Singapore, which is a country strongly in favor of trade. This agreement with Singapore could be obtained very quickly. Instead, the European Union should rethink its strategy with all the other nine states. In fact, also singularly with these countries, it won’t be possible in a short term to sign bilateral F.T.A.s. It is true that Malaysia and Thailand are the best candidates after Singapore, but they lack the Singaporean economic, political and social capacities. In specific, Malaysia is not a transparent country (it is sufficient to think of the actual discrimination in favor of the Malay majority). And Thailand is under the military rule and is not proceeding as fast as it was doing before the military coup of 2006. In that country, protectionist interests are emerging together with strong economic-nationalist rhetoric. The other countries are not in the conditions of minimally thinking of an F.T.A. with the European Union.


Both the European Union and Asean are aware of all the potential benefits that an increased cooperation could bring them.  Probably, right now it is impossible to set up a strong F.T.A. between all the Asean countries and the European Union. At the moment, such an agreement can be achieved only with Singapore. With the other nine countries it is important to continue the negotiations but with different targets: an improved Treati and trade-and-investment regulatory cooperation. In addition to this, it is also necessary for the European Union to rethink its strategy in Asia. In fact, if the European firms are today not very competitive in Asia this is not linked to the presence of  huge barriers that have to be eliminated through new F.T.A.s. This is only a part of the problem. To get a better access to the Asian markets, European firms need to be more competitive domestically in Europe and then with this added value it will be surely easier for them to export to Asia. At the moment of the three proposed F.T.A.s only the one with South Korea is meaningful for the European Union (this because the European Union and South Korea are on similar positions), while the other two proposed agreements, with Asean and India, lack a lot of economic substance. In general, with Asean but also with the other countries in Asia, stronger bilateral frameworks of cooperation are more useful than weak F.T.A.s. And to support this point it is important to consider that Japan and China alone comprise 55 percent of Europe's potential Asian export market and that he European Union does not have and has no intention in the near future to negotiate any bilateral F.T.A.s with these two countries.


[i] In addition to the difficulties between the different negotiating groups, another hurdle may be that in America the broad authority given to the American president under the Trade Act of 2002 expired in July 2007. Any trade pact has now to be approved by the Congress with possibilities of amendments. Consequently, the other countries may be less interested in negotiating an agreement that can be profoundly transformed by Congress.  
[ii] BACCI, A., How to Improve South-South Trade, Sciences Po, Paris, May 2007, in
[iii]This paper argues that there are benefits for the EU’s external action in establishing closer and mutually supportive relations between all the actors involved at both EU and national level. In the short-term, individual actors and institutions may see advantages in the freedom of manoeuvre that comes from exercising their responsibilities in an autonomous way. In the medium and long term, the EU has shown its capacity to help Member States to meet their external policy objectives. The overall effectiveness and therefore the global influence of the EU depend on optimal use of all available leverage in support of external goals. Underlying the practical steps proposed in this paper is the conviction that flexibility, the provision of value-added in external policy, and the building of common approaches among the Member States and the institutions must be at the top of our agenda”, in Europe in the World – Some Practical Proposals for Greater Coherence, Effectiveness and Visibility, Communication from the Commission to the European Council of June 2006, COM (2006) 278 Final, in  
[iv] In Global Europe Competing in  the World, in
[v] In Global Europe Competing in  the World, in
[vi] In Global Europe Competing in  the World, in
[viii] In Global Europe Competing in  the World, in
[ix] In February 1977, the Special Meeting of Asean foreign ministers in Manila proposed that Asean established some ties with the Council of Ministers of the European Economic Community (E.E.C.) and the Committee of Permanent Representatives (Coreper) through which Asean could make representations against the growing protectionism of the E.E.C. countries. Following that event during the same year Asean’s relationships were formalized with the E.E.C. Instead, under the Cooperation Agreement of 1980, objectives for commercial, economic and technical cooperation were established and a Joint Cooperation Committee (J.C.C.) was formed as a mechanism to monitor Asean-E.E.C. cooperation  
[x] SALLY, R., Brussels Looks East, in The Wall Street Journal, November 15 2007. 
[xi] LANDINGIN, R., EU-ASEAN Trade Pact Stalls Over Burma, in The Financial Times, August 2 2007.
[xii] Charter of the Association of Southeast Asia Nations in 
[xiii]ASSOCIATED PRESS, ASEAN Charter Is Adopted, in The Wall Street Journal, November 2 2007.
[xv]ASSOCIATED PRESS, ASEAN Charter Is Adopted, in The Wall Street Journal, November 2 2007.  
[xvi] E.U. COMMISSION, Economic Impact of a Potential Free Trade Agreement (FTA) Between the European Union and ASEAN, Brussels, May 2006, in>
[xvii] This duty-free access is granted to Laos and Cambodia under Everything But Arms package for least developed countries.  
[xviii] SALLY, R., Looking East: The European Union’s New FTA Negotiation in Asia,



Friday, November 16, 2007

Chinese Civil Nuclear Energy


November 16, 2007

ABSTRACT – With 1.3 billion people China is the most populous country in the world and has a fast growing economy. In the last ten years, China’s G.D.P. has grown almost with a two digit rate every year. In order to support this dynamic economy, China requires always additional quantities of electric energy. The aim of this paper is to analyze the actual Chinese development with reference to civil nuclear energy and to explain that an important drive toward an increase of nuclear energy is mandatory for China if the country wants to continue to sustain its economic growth. In particular, it is of clear evidence that all the other sources of energy cannot provide a reliable support for this country, which now has the fourth largest economy in the world (when measured by nominal G.D.P.) and which is predicted to surpass Germany at the beginning of 2008 becoming the third largest economy.

Introduction –   Since the last couple of years it has emerged a trend toward a sort of nuclear renaissance all around the world. According to the International Energy Agency (I.E.A.) in 2005 "5.2 percent of the world's electricity was produced by nuclear plants, compared with 3.3 percent in 1973."[i]


In particular, this trend is principally centered on Europe and on Asia. In the latter, China, India and Russia are undertaking important programs with the aim of building new nuclear reactors in order to increase their nuclear civil capacities. In addition to this, "they are making nuclear energy available to other nations"[ii] and they are trying to develop a new generation of nuclear power plants. In fact, despite a recent increase also in renewable energy sources, like wind and waves power, these account for only a very low percentage of energy generation and cannot guarantee the economic development of any developing country. The tendency to expand nuclear energy is driven by the necessity to have always more and more available energy. In specific, if China and India want to continue in the next decades with the incredible economic growth that they have sustained in the last years, they have to increase the quantity of available energy given their increasing energy demand. In general, the following three big issues contribute together to the advancement of the development of civil nuclear energy:

  • First, the rising prices of commodities. A barrel of oil is around $90 in November 2007.
  • Second, if, on the one hand, oil and gas create problems linked to the high prices, on the other hand, they are found in the so-called “difficult countries” like Persian Gulf states, Russia, countries previously belonging to the Soviet Union, Angola, Nigeria and Venezuela; just to mention the principal owners of oil and gas. On the contrary, uranium is located principally in friendly places like Australia and Canada, which are very stable politically.
  • Third, there exist environmental concerns linked to the fact that the other principal alternatives to nuclear energy, for instance oil and coal, are without any doubt dirtier. Nuclear power-plants are considered in China clean sources of energy — this obviously putting aside the problem of how storing the spent fuel that notwithstanding years of study still persists.

The aim of this paper is to try to photograph the actual Chinese situation with reference to civil nuclear energy and to show that if China wants to continue with its impressive economic growth an increase in the production of civil nuclear energy is a very mandatory step.

1. China’s Energy Panorama It is a matter of fact that China's very rapid economic development has been accompanied by an increase in energy demand. From the beginning of 1990s the Chinese primary energy consumption has risen by more than 70 percent. This increase is mainly due to low energy efficiency and to an impressive economic growth. From one side, it should be noted that according to the Asian Development Bank (A.D.B.), China “uses four times the amount of energy to produce a unit of G.D.P. than the Group of Seven developed countries”[iii]. On the other side, in comparison with Western countries the per-capita consumption is very low with a huge difference between coastal and rural areas[iv].  There is already a tendency to increase the per-capita consumption and this is linked first and foremost to the urbanization and motorization of large groups of Chinese population. The People’s Republic of China is the world’s most populous country (1.3 billion of people) and today it is the second energy consumer behind the United States. Given these two considerations, it is understandable how China’s rising oil demand and oil imports have turned the country into a very important player in world oil markets. The essential dependence on conventional fossil fuels — principally coal and oil, but also natural gas — have already created huge environmental problems at the domestic level, with a very dramatic increase of greenhouse gases. China is today the largest producer and consumer of coal in the world (and it is presumed that China has large coal reserves to be developed yet). In light of the high consumption of coal (probably the most pollutant way to generate electric energy), it is really plausible that in 2008 China will overtake the United States as the world’s largest emitter of carbon dioxide. China also produces a high amount of oil (3,858 thousand barrels per day, 5th producer in the world). In fact, the country has sizeable proven oil reserves. Its most important producing oil fields are mature and production has already peaked, so now the attention is devoted to the internal western provinces and to offshore fields where it seems to be 20.5 billion tons of oil reserves of which 9 billion tons already proven[v].

One relevant issue that contributes to raise problems for the Chinese energy production is the distribution of the domestic energy commodities. In fact, coal and natural gas are located principally in western provinces while hydropower in the southwest. Oil is instead located offshore in the Bohai Sea in the northern part of the country where there are 28 oilfields and 60 platforms[vi]. Energy demand is high in the eastern part of the country along the coast (provinces of Guangdong, Zhejiang and Jiangsu, cities like Shanghai, Beijing and Tianjin). It is of public evidence that in recent years during peak seasons many Chinese coastal areas have sustained severe blackouts. The Chinese government in the last years started to take some actions in order to improve energy efficiency and to push for the development of the so-called clean energies in which it included nuclear energy. According to this target, the present 11th Five-Year Plan (2006-11) states that China has to reduce energy consumption by 20 percent of its G.D.P. by 2010 and to increase the share of renewable energies up to 15 percent of the energy portfolio. Chinese energy development pushes also for a fivefold increase of its nuclear capacity by 2020. And the share of nuclear energy will pass from the actual 2 percent to 4 percent. Compared to some Western countries where the share of nuclear energy is around 15 percent to 25 percent (apart from the 70 percent of France)[vii] this value is still not very high, but considering the huge dimensions of the country it means that by 2020 China will build up at least 30 new nuclear power plants with an investment of $50 billion. In any case, China is already the third biggest nuclear energy producer in Asia after Japan and South Korea and nuclear power is in China the third most-important way in order to generate electricity after coal and hydropower[viii].


2. China’s Nuclear Energy Program and the Related Institutions —   China considers nuclear energy to be part of the group of the so-called clean sources of energy. For this reason, in all the international negotiations China has always pushed for the inclusion of nuclear energy into the Clean Development Mechanism (C.D.M.)[ix]. Its civil nuclear program started in the 1980s. At that time it was first designed and then constructed a 300 MW pressured water reactor (PWR) 100 km southwest of Shanghai, in Zhejiang Province. Then followed the two units, Daya Bay 1 and 2 (with French and Canadian technology), which are located near Hong Kong (70 percent of their power is transmitted to Hong Kong, while the remaining 30 percent goes to  Guangdong Province). These three first nuclear power plants started their commercial operability in 1994. Up to the late 1990s, the development of the Chinese nuclear energy had been very slow. One of the reasons was the Asian financial crisis in 1997. In other words, projects already prepared were put on hold because the economic panorama was not very clear and big investments could be unsafe and not pay back. With the 10th Five-Year Economic Plan (2001-05) the development of nuclear energy was set up again as one priority and in the last seven years eight nuclear plants have been added to the national power grid. Four of these new power plants are located in Zhejiang Province, two in Guangdong Province and two in Jiangsu Province. All these new power plants are situated along the coastline in the eastern part of the country and have the task of providing electric energy to the most developed part of the country.  


Then, according to the 11th Five-Year Economic Plan (2006-11), while China necessarily wants to develop its nuclear power, it now also deems important to start setting up some environmental goals in order to gain always more and more energy efficiency while protecting the environment. Today, China has ten nuclear reactors in commercial operation while unit Tianwan 2 is already connected to the electric grid but it is not commercially active. Four additional units are now under construction while the building of four other units will start by the end of this year. In 2007, the Chinese State Council has approved a plan to increase fivefold the Chinese nuclear capacity by 2020. Instead, by this year, China should be capable of generating units by a total of 23 million kilowatts. If China accomplishes this result by 2020, it will have a total of 40 million kilowatts through nuclear power[x]. Then, in the following decade there will be a three-to-fourfold additional increase in the Chinese civil nuclear power to 120-160 GWe. The country also wants to acquire the necessary know-how to design and build nuclear reactors, as well as to master all the aspects related to the fuel cycle[xi]. In fact, at the moment eight out of the eleven existing nuclear power plants have to import their most important components from France, Canada or Russia. China is now conducting experimental work with reference to develop its fourth-generation pebble-bed high-temperature reactor. The Chinese plan is to become independent of foreign conventional fission technology and by 2017 to build up its first pressurized water reactor in operation. The running projects are nonetheless linked to foreign technologies, in particular with the United States and Russia. In 2006, China and the United States signed an agreement that would permit to Westinghouse Electric Co. to build four nuclear reactors in China. According to this contract, Westinghouse AP1000 (third generation nuclear technology reactor) will be used for four reactors two in Sanmen (Zhejiang) and two in Yangjiang (Guangdong)[xii]. Today there are more than 300 international companies (from Canada, France, Germany, Japan, Russia, Spain and the United States) that are providing technologies and/or know-how to the Chinese nuclear industry.  

In China, the National Development and Reform Commission (N.R.D.C.) decides the targets for energy development and approves all the projects related to nuclear energy. Then, the China Atomic Energy Authority (C.A.E.A.) is in charge of all civil nuclear energy programs and international cooperation. It is the key body for planning and managing civil nuclear energy and for approving all the feasibility studies. With reference to the safety regulations and their compatibility with international agreements the leading center is the National Nuclear Safety Administration (N.N.S.A.), which was created in 1984, at the beginning of the Chinese nuclear energy program. The State Environmental Protection Administration (S.E.P.A.) and the Chinese Environmental Ministry monitor radioactive pollution and also waste management. Several corporations are working in the nuclear field. Among them, the most important is the China National Nuclear Corporation (C.N.N.C.), which was created in 1988. It is involved with research and development, uranium exploration and mining, uranium enrichment, fuel reprocessing and disposal. This state conglomerate for nuclear power produced 22.68 billion kilowatt-hour of electricity in 2006 and has operated very safely Qinshan-1 nuclear power plant for 15 years. Last, China Nuclear Engineering and Construction (C.N.E.C.) is responsible for the construction of nuclear plants.     
3. What Considerations Can Be Drawn in Relation to the Chinese Nuclear Program?     
The trend for China in order increase its nuclear power is totally reasonable. Three are the most pressing contingencies:
  • Environmental concerns
  • Commodities prices (oil and gas)
  • Political instability in the countries where the commodities are located

Summing up, all of these contingencies are pushing China to expand strongly its nuclear civil power. In the past decade, China although it has ratified the Kyoto Protocol, it has seen a massive increase in its domestic greenhouse emissions. The difficult environmental situation derives from a high utilization of coal. In fact, in China there are hundreds of coal-fired power plants often very old and absolutely not environmentally friendly. In 2005, China built 117 government-approved coal-fired power plants. In addition to these power plants, local and provincial governments built other non-authorized coal-fired power plants. According to the International Energy Agency (I.E.A.)[xiii],  five Chinese cities are among the top 10 most-polluted cities in the world and this is directly linked to coal-fired power plants.  The effect of this massive use of coal is already easily visible in the short run. In fact, today one-third of the Chinese territory receives acid falls and one-third of the urban population breathes heavily polluted air. The Chinese power sector is the main responsible for this situation. It releases in the air around 44 percent of sulfur dioxide, 80 percent of nitrous oxide emissions and 26 percent of carbon dioxide. It is a matter of fact that China has to decarbonize its power-generating structure. It is not a question of not being able to comply with the Kyoto Protocol, the environmental problem is real. And for China, pushing only on economic growth without considering the devastating environmental impact may also have negative economic result. In fact, the environmental problems may also slow down the economic growth of the country.[xiv]

With reference to the prices of commodities the problem lies principally with oil. An oil barrel priced over $90 is a huge cost on an economy that is developing so strongly like the Chinese economy. In October 2007, the country’s energy officials had a meeting “with OPEC officials for the first formal meeting in two years”.[xv] According to Chinese policymakers, for China the problem is not anymore how to find crude. China in the last years has put into action a very strategic network of agreements with countries in all the continents in order not to incur in any oil shortage (many agreements have been signed with African countries and in specific with Angola). Instead, the problem for China lies in the price of oil, which is definitely too high (China has access to oil but this is very expensive). If Chinese industries falter, given the lack of broad resources of cheap oil, this could slow the economic growth depressing the financial markets. This event could really undermine the expansion of the Chinese middle class “and could drive the economy into a prolonged slowdown”[xvi] with problems spreading all around the world.   

In addition to the previous two points, it is true that oil and gas are located principally in difficult areas of the world, areas politically unstable like the Middle East, Venezuela and Russia. Instead, nuclear power plants require uranium that is to be found in friendly, stable and democratic countries like Australia and Canada[xvii]. Also on the uranium side, Chinese officials have moved very diplomatically in the recent years. Premier Wen Jiabao has been traveling the world to secure contracts for the uranium needed to power nuclear reactors. At this regard, in 2006, China reached an agreement with Australia. The latter had to procure uranium to China on condition that China would not use it for military purposes. Still in 2006, China and Canada signed agreements in Beijing to develop uranium mines and oil reserves.[xviii] In addition to these agreements, China signed a deal also with Niger. The only problem linked to uranium is that — given all these activities on the international markets — the price of uranium is rising. In December 2000, according to UX Consulting[xix], a U.S. firm that publishes benchmark uranium prices, one pound (about 454 grams) of uranium was $7.1, while in November 2007 it is now more than $90. In general, there exists the possibility that China’s shift to nuclear energy will push up the price of uranium on the international market.     

4. Conclusions — Given all the factual conditions it is absolutely normal and plausible an increase of the utilization of nuclear energy in China. Beijing has to work a lot to improve the efficiency of the energy it produces with all the different energy sources that it currently uses, but nuclear energy is the only viable solution, especially with reference to the huge environmental problems linked to pollution, which China is already facing (the main reason are all its coal-fired nuclear plants). At the same time, it is true that nuclear energy should not be considered as completely clean, because still persists the problem associated with the spent fuel. In order to try to solve this problem, China is organizing in the desert of Central Asia a storage point (a sort of Yucca Mountain in the United States). The Beishan Mountains — this is the name of the Chinese storage place — “are a lonely outpost, with the closest permanent residents more than 60 miles away. The only people who venture here are nomadic Mongolian herdsmen with goats and camels. They move from one small oasis to another in what is otherwise a desolate, gray desert for hundreds of miles around.”[xx] This project is still to be developed and at the moment China is testing the area in order to understand whether these mountains could have the prerequisite to store nuclear spent fuel. What is already sure is that in China the development of nuclear energy has undoubtedly more pros than cons and it is very obvious that the Chinese government will speed up this process more and more in the next years.  

[iii] WISE/NIRS Nuclear Monitor, Development of Civil Nuclear Power Industry in China in Antenna 10,  accessed November 15, 2007  
[iv] A Chinese citizen consumes only one-eighth of the consumption of an American citizen.
[vi]CNOOC Ltd, China's biggest offshore oil producer, plans to more than double production at the Bohai Bay field to more than 27 million metric tons, or about 542,000 barrels a day, in five to six years as new fields come on stream”. In:, accessed November 15, 2007.
[vii]“Of the 30 countries with nuclear power, the percentage of electricity supplied by nuclear ranged widely: from a high of 78 percent in France; to 54 percent in Belgium; 39 percent in Republic of Korea; 37 percent in Switzerland; 30 percent in Japan; 19 percent in the USA; 16 percent in Russia; 4 percent in South Africa; and 2 percent in China”. in Nuclear Power Worldwide: Status and Outlook, in, accessed November 16 2007. Nine countries in the world get 40% or more of their electricity through nuclear power but normally worldwide nuclear power supplies only 17% of the total.   
[viii] In:, accessed November 16, 2007.  
[ix] The Clean Development Mechanism (C.D.M.) is an arrangement under the Kyoto Protocol allowing industrialized countries with a greenhouse gas reduction commitment (called Annex 1 countries) to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries. The most important factor of a carbon project is that it establishes that it would not have occurred without the additional incentive provided by emission reductions credits.
[x] If China reaches this target, it will produce 260-280 billion kilowatt per hour in 2020. 
[xi] In:, accessed November 13, 2007.  In addition, “China has placed great importance on the development of its own technology to build nuclear reactors. The CNP 1000 technology of CNNC will be used to build two 1,000-megawatt reactors in Fangjiashan, not far from the Qinshan project in East China's Zhejiang Province. And China Huaneng Group, the nation's largest power company, also launched the construction of its first nuclear power plant using high temperature gas-cooled reactors. Its Shidaowan plant, located in Rongcheng, East China's Shandong Province, will have an installed capacity of 200 megawatts and require an investment of three billion Yuan. Seventy percent of the technology used in the project will be developed by China.” in, accessed November 16, 2007. Moreover, China has recently been involved in the construction of a smaller nuclear plant in Pakistan and probably this will not be an isolate event but the beginning of cooperation between the two countries in the nuclear energy sector.   
[xii]In:, accessed November 16 2007. This is probably the reason for which the Japanese industry Toshiba in 2006 spent $5.4 billion to acquire Westinghouse Electric. The idea is that China in the next 20-30 years – although its will to develop an autonomous nuclear technology – will have to use a lot the expertise of Westinghouse that is one of the most important players in the field of civil nuclear energy.  
[xiii]International Energy Agency (I.E.A.),, accessed November 16, 2007.   
[xiv]SAIGET, R., J., China’s Coal Addiction Causing Environmental Disaster, in Agence France Presse, in, accessed November 16, 2007.       
[xv]REUTERS, Oil Prices Are Too High, China Tells OPEC, in International Herald Tribune,, accessed November 16, 2007.
[xvi]McINTYRE, D., A., China Oil Crisis Could Cripple World Economy, in 247Wallst,, accessed November 16 2007.
[xvii] China has its own uranium resources in western China but needs to import relevant resources from other countries.
[xviii]DELANEY, R., McKINNON, I., China, Canada Agrees On Oil, Uranium Development, in   From The Wilderness,, accessed November 16, 2007.
[xix]UXC:, accessed November 16, 2007. 
[xx]CHA, A., E., China Embraces Nuclear Future, in Washington Post, May 29, 2007.