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Journal of Common Market Studies Vol. 38, No. 1
March 2000 pp. 93–116
The Adaptation of European Foreign
Economic Policy: From Rome to Seattle*
ALASDAIR R. YOUNG
University of Sussex
Abstract
This article offers an historical institutionalist investigation of the evolution of
the European Union’s (EU) foreign economic policy. Its central argument is
that the EU’s evolving institutional framework structures the member govern-
ments’ choices about co-operating in new policy areas. Significantly, the
impact of this framework has changed over time as the result of judicial
interpretation, which has tended to shift authority from the Member States to
the EU. This process has been particularly pronounced in European foreign
economic policy, where treaty reforms have been very modest and the
European Court of Justice has been very active.
I. Introduction
This article offers an historical institutionalist investigation of the evolution of
the European Union’s (EU) foreign economic policy. Its central argument is that
the EU’s evolving acquis communautaire – the treaties, European Court of
Justice (ECJ) judgments, secondary legislation and the norms and principles
* The fieldwork on which this article draws was made possible in part by a European Community Studies
Association (USA) dissertation fellowship. I am indebted to the Commission, Council and member
government officials who shared their experiences and observations with me. I would like to thank Peter
Holmes, John Peterson, Paul Taggart, Helen Wallace and two anonymous referees for their comments on
earlier versions of this article. All remaining errors are my own.
© Blackwell Publishers Ltd 2000, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA
94 ALASDAIR R. YOUNG
embedded in them – functions as an institution that structures the member
governments’ choices about co-operating in new policy areas. Significantly, the
impact of the acquis has changed over time as the result of judicial interpretation,
which has tended to shift authority from the Member States to the EU. This
process has been particularly pronounced in European foreign economic policy,
where treaty reforms have been very modest and the ECJ has been very active.
This adaptation affects the member governments’ choices about how to partic-
ipate in international negotiations.
I analyse the adaptation of the EU’s foreign economic policy using an
historical institutionalist approach within a multi-level-game framework. Un-
derlying my analysis is the recognition that the EU is both an international
organization and an international actor (Hill, 1993). Consequently, internal co-
operation is often, but not always, necessary for participation in external
negotiations. The EU’s engagement in international negotiations can, therefore,
be conceptualized as being part of a multi-level process engaging national,
European and international levels of governance (Collinson, 1999; Patterson,
1997). I argue that the EU’s institutional framework structures the member
governments’ choices when participating in international negotiations regarding
whether to co-operate among themselves (engage in a three-level – national-
European-international – game) or to pursue unilateral approaches (engage in a
two-level – national-international – game). It is not, however, the sole determi-
nant of co-operation; the member governments still confront a range of important
choices.
Despite relatively minor revisions of the treaty base of the EU’s common
commercial policy, the institutional framework in which the EU’s foreign
economic policy is set has evolved substantially during the past four decades.
This evolution has been underpinned by the way in which the European Court of
Justice has interpreted the treaties. Its interpretation has significantly broadened
the EU’s authority for foreign economic policy. In some instances this process
has curtailed the option of unilateral action and in many others increased the
pressure for co-operation.
A side-effect of institutional adaptation through interpretation rather than
through treaty revision is that there are no formal procedures for such co-
operation as occurs in new policy areas, such as the liberalization of trade in
services or foreign direct investment. Consequently, when the member govern-
ments choose to co-operate in new areas, they tend to agree non-binding
arrangements – what I call ‘soft institutions’ – to structure their co-operation.
After situating my analysis in the literature on the EU’s external economic
relations, I make the case for treating the acquis as an institution. I then contrast
the development of the international political economy with how the acquis has
evolved since the signing of the Treaty of Rome in 1957. I illustrate my argument
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THE ADAPTATION OF EUROPEAN FOREIGN ECONOMIC POLICY 95
with examples drawn from three recent international negotiations: the post-
Uruguay Round negotiations on basic telecommunications; the unsuccessful
negotiation of a multilateral agreement on investment (MAI) in the Organization
for Economic Co-operation and Development (OECD); and discussions of an
EU–US ‘open skies’ air services agreement. I conclude by drawing out some of
the implications of my argument for the study of European integration in general
and the conduct of the new round of multilateral trade negotiations in particular.
II. Approaches to EU External Economic Relations
The EU’s foreign economic relations have long been the subject of study for
economists, lawyers and political scientists. Until relatively recently, however,
much of this enquiry has been descriptive or normative. There have been
relatively few attempts to analyse how the EU’s external economic relations are
formulated or conducted.
In addition, the overwhelming preponderance of the literature has dealt with
policy-making within the common commercial policy (CCP). Although this
focus is understandable given the common commercial policy’s centrality to the
EU’s foreign economic policy and the relatively recent emergence of trade issues
that fall outside the CCP, it tends to oversimplify the impact of the internal
dynamics of the EU on European foreign economic policy.
Until the late 1990s much of the literature on the EU’s external economic
relations essentially fell into one of three strands. One is composed of often
valuable and insightful descriptions by political scientists, economists, lawyers
and practitioners of how the EU performed in a particular negotiation (e.g.
Bourgeois, 1982; Devuyst, 1995; Hyett, 1996; Paemen and Bensch, 1995;
Woolcock and Hodges, 1996); or of its economic relations with a particular
partner, usually Japan or the United States (e.g. Peterson, 1996), or with
developing countries (e.g. Stevens, 1999).
The second strand, composed primarily of political scientists and a few
economists, analyses whether and why the EU is likely to pursue liberal or
protectionist trade policies (Hayes, 1993; Hine, 1985; Pearce and Sutton, 1985).
Reflecting the period in which most of this literature was written, it focuses
almost exclusively on trade in goods, although Pearce and Sutton (1985) discuss
foreign direct investment. This literature tends to reduce the significance of the
political dynamics within the EU to just the impact of the decision rules on
aggregating member government preferences. The third and smallest, but
growing, strand, composed primarily of lawyers with a few political scientists,
is concerned with how the EU interacts with the global trading system (Footer,
1998; Jackson, 1993; Woolcock, 1993).
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96 ALASDAIR R. YOUNG
Although much has been written on the EU and its external economic
relations, it has tended to be mainly descriptive. Recently, this shortcoming has
begun to be addressed in work that explicitly seeks to analyse the politics of EU
external economic relations. The common aspect of this work is to use, either
explicitly or implicitly, Robert Putnam’s (1988) metaphor for negotiations as
two-level (domestic-international) games. Sometimes the EU is treated as a third
level between the international and national levels (Collinson, 1999; Meunier,
1998; Odell, 1993; Patterson, 1997). Sometimes, the EU is treated as the
‘domestic’ level in a two-level game (Devuyst, 1995). Both of these literatures
consider the implications of the EU’s dual character as both an international
organization and an international actor. Some authors look at how this affects the
development of EU policies, both internal and external (Collinson, 1999;
Hanson, 1998; Patterson, 1997; Rhodes, 1998). Others explore how this dual
character affects the EU’s capacity in external negotiations (Meunier, 1998).
Although this work represents an advance, the focus on negotiations on trade
in goods has tended to lead, at least implicitly, to an assumption that EU foreign
economic policy is situated in a three-level game. Some authors who use a multi-
level game approach to discuss non-trade issues (e.g. Hill, 1993, on foreign
policy; Jupille, 1999, on environmental policy; Rhodes, 1998, in an overview of
EU external policy) recognize, at least implicitly, that the member governments
may be engaged in two- or three-level games. I argue that this possibility also
exists with respect to at least some of the so-called ‘new’ trade issues.
How authority (competence in EU terminology) for particular external
policies is allocated between the EU and the Member States is central to whether
the member governments have a choice of whether to engage in two- or three-
level games. Until very recently the issue of competence was the almost
exclusive domain of lawyers (e.g. Bourgeois, 1987; Cremona, 1999; Emiliou,
1996; MacLeod et al., 1996). Rich though this literature is, its focus understand-
ably is on the law and its legal implications rather than on the political forces
seeking to shape the rules and to adapt to them. Attention to these political issues
has begun to increase as political scientists start to grapple with the causes and
consequences of the allocation of competence (Meunier and Nicolaïdis, 1999;
Smith, 1994; Woolcock, forthcoming). This article aims to contribute to this
development.
III. A Framework for Analysis: Adding Structure to Multi-level Games
My approach builds on Robert Putnam’s (1988) metaphor of a two-level game,
deploying it as a heuristic devise rather than implying game-theoretic model-

ling.1The central point of the metaphor is that an international negotiation is the
1 For an explanation of this use, see Evans (1993); Moravcsik (1993).
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THE ADAPTATION OF EUROPEAN FOREIGN ECONOMIC POLICY 97
interaction between the preferences of the negotiating governments, which in
turn reflect the aggregation of their domestic interests. The outcome must be
acceptable to the other governments and to enough domestic constituents to
ratify the agreement. Thus three features emerge as crucial to explaining
government behaviour in international negotiations: (1) the specifications of
domestic politics, including the distribution of domestic coalitions, the institu-
tions affecting their political influence and the ratification procedures; (2) the
negotiator’s preferences; and (3) the international negotiating environment.
Significantly, the two-level game approach assumes that the international
negotiating environment is not structured by rules.
In order to adapt this approach to an analysis of the EU’s foreign economic
relations, three analytical additions are required. The first, and most obvious, is
recognizing the possibility (even probability) of a third (European) level be-
tween the national and the international. The second is to treat the acquis as an
institution and to recognize explicitly how it structures the interactions between
the member governments on the European level. This aspect is the focus of this
article. The third analytical innovation, which I only touch on here, draws on
interdependence theory (Keohane and Nye, 1975, 1989) and posits that the
member governments’ preferences regarding co-operation and their bargaining
power in shaping that co-operation reflect the interaction between their extra-EU
and intra-EU interdependencies. Their intra-EU interdependence has an addi-
tional dimension – what I call ‘legal’ interdependence – because the acquis
prohibits the use among the Member States of many of the policy instruments
normally available to governments to respond to external economic or policy
shocks. Thus, even if a government were able to respond adequately to a direct
external shock, it might be affected indirectly by the shock’s transmission
through another Member State.
The acquis as an Institution
The acquis has three structural elements: the treaties ratified by the member
governments; the jurisprudence of the ECJ; and the accumulation of secondary
legislation and policies agreed by the member governments. Embedded in these
structures are principles and norms. The EU’s acquis thus fits the commonly
accepted definition of an institution: the formal and informal principles, norms,
rules, and decision-making procedures that structure the relationship between
actors (Hall, 1986; Thelen and Steinmo, 1992; and, similarly with respect to
international regimes, Krasner, 1982). The EU’s most fundamental principles
include the ‘four freedoms’ (the free circulation of goods, services, capital and
people), non-discrimination and the right of establishment. The acquis also
incorporates a general duty to ensure consistency in external representation (Art.
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98 ALASDAIR R. YOUNG

C, now 3)2and a prohibition against acting in a way that would jeopardize the
realization of treaty objectives (Art. 5, now 10).
Institutions have profound implications for how governments go about
realizing their goals (Hall, 1986; Krasner, 1982; Thelen and Steinmo, 1992). The
EU’s institutions impose constraints on some forms of unilateral national action,
establish decision rules for some aspects of foreign economic policy, and
facilitate co-operation by providing information. The most fundamental impact
of the EU’s institutions on foreign economic policy is in determining whether the
member governments must participate in international negotiations through the
EU or if they can choose to participate unilaterally (and thus choose between a
two-level and three-level game). In other words, the acquis determines whether
competence for particular issues resides with the EU, the Member States or both.
Where exclusive external competence resides with the EU (as is the case with the
common commercial policy), the member governments cannot pursue unilateral
policies. In such circumstances the acquis establishes clear procedures and
decision rules to facilitate the resolution of the collective action problem of
participating in international negotiations. Where competence resides with the
member governments, they can choose whether or not to co-operate at the
European level in order to influence international negotiations. Competence for
many of the new trade issues is shared between the EU and the Member States.
In such circumstances the member governments cannot participate without at
least some intra-EU co-operation.
IV. The Changing International Economy and Agenda
Between the late 1950s, when the EU was established, and the late 1990s, the
nature of international economic exchange and the breadth of the international
agenda changed dramatically. In the immediate post-war period, the main form
of economic interaction between countries was trade in goods. The initial focus
of multilateral negotiations, consequently, was on tariffs (taxes on imports of
goods), as underlined by the name of the 1947 General Agreement on Tariffs and
Trade (GATT). In the Organization of European Economic Co-operation (OEEC,
the forerunner of the OECD), the focus was also on goods, but steps were agreed
to reduce quantitative restrictions on trade.
Since then, however, other forms of economic exchange have gained in
importance. In constant (1995) dollars, the value of global cross-border commer-
cial services trade increased more than 900 per cent between 1960 and 1995,
while trade in goods increased by just over 700 per cent over the same period
(own calculations based on Griffiths, 1975; WTO, 1997). Cross-border trade,
2 Because the events I discuss largely predate the Treaty of Amsterdam’s entry into force, I use the pre-
Amsterdam numbering of Treaty articles. I indicate, where appropriate, the new number as well.
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THE ADAPTATION OF EUROPEAN FOREIGN ECONOMIC POLICY 99
however, is estimated to account for only half of service trade, much of which
is provided via establishment (investment). Foreign direct investment (FDI) has
also grown sharply. Between 1980 and 1998, the global stock of FDI increased
by nearly 400 per cent (UNCTAD, 1995, 1999). The upshot is that, although
trade in goods remains by far the most important means of international
economic exchange, the economic and political importance of trade in services
and of foreign direct investment have both increased substantially since the late
1950s.
The international trade agenda has also changed – contributing to these
developments and partially prompted by them. After the failure to ratify the
International Trade Organization (ITO), the GATT provided the framework for
international liberalization. The early focus on tariffs was supplemented in the
1970s by greater concern about the impact of quotas and technical barriers to
trade (TBTs) on trade in goods. The Uruguay Round of multilateral trade
negotiations, launched in 1986, brought services, intellectual property and trade-
related investment measures on to the agenda. The agenda of the ‘Millennium
Round’ may be set broader still, the débâcle in Seattle notwithstanding. Table 1
contrasts the core agendas of the key post-war multilateral trade negotiations,
which provide a flavour of how the international trade agenda has changed.
V. High Politics and Limited Treaty Reform
Table 1: The Changing International Trade Agenda
Year Subject
1947 Geneva Tariffs
1960–61 Dillon Round Tariffs
1964–67 Kennedy Round Tariffs Anti-dumping
1973–79 Tokyo Round Tariffs Technical ‘Framework’
barriers to trade agreements
1986–94 Uruguay Round Tariffs, Technical Services,
Intellectual barriers to trade, Agriculture,
property rights Government Textiles
procurement
1999– ‘Millennium’ Rounda Tariffs Technical Services,
Intellectual barriers to trade, Agriculture,
property rights, Competition, Government
Investment Environment procurement
Sources: WTO (1995); Council (1999).
Note: aThe subjects listed for the ‘Millennium Round’ are those on the EU’s agenda.
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100 ALASDAIR R. YOUNG
Despite substantial changes in the international economic environment and to
the multilateral trade agenda, there has been relatively little reform of the treaty
base of the common commercial policy (see Box 1). As a consequence, the gap
between the design of the EU’s principal instrument of foreign economic policy
and the demands placed upon it has widened. The 1987 Single European Act
(SEA), despite providing the institutional impetus for the completion of the
single market, did not amend the common commercial policy, although it did
authorize the EU to enter into international agreements concerning the environ-
ment. The 1991 (Maastricht) Treaty on European Union (TEU) made some
modifications to the common commercial policy, but none, despite the European
Commission’s efforts, that substantially affected its scope (Devuyst, 1992). The
TEU, however, did bestow express external powers on the EU with regard to
monetary policy, research and development and development co-operation. The
1997 Treaty of Amsterdam amended Art. 113 (and renumbered it 133), but only
so far as to establish a mechanism whereby the scope of the common commercial
policy can be extended to international negotiations on services and intellectual
property by a unanimous vote of the Council of Ministers.
The treaty base has changed so little, while the global economy and the EU
have changed so much, for the simple reason that some member governments,
particularly those of the larger states, have been reluctant to cede broader
competence to the EU (Devuyst, 1992; Hayes, 1993; Meunier and Nicolaïdis,
1999). There are several reasons for this reluctance. The new trade issues,
Box 1: Amendments to the Scope of the Common Commercial Policy (Art. 113,
now 133)
1. After the transitional period has ended, tThe common commercial policy shall be based
on uniform principles, particularly in regard to changes in tariff rates, the conclusion of
tariff and trade agreements, the achievement of uniformity in measures of liberalisation,
export policy and measures to protect trade such as those to be taken in case of dumping
or subsidies.
...
3. Where agreements with third countries one or more States or international organisa-
tions need to be negotiated, the Commission shall make recommendations to the Council,
which shall authorise the Commission to open the necessary negotiations.
...
5. The Council, acting unanimously on a proposal from the Commission and after
consulting the European Parliament, may extend the application of paragraphs 1 to
4 to international negotiations and agreements on services and intellectual property
insofar as they are not covered by these paragraphs.
Notes: Struck through and underlined text represent, respectively, deletions and additions made by
the TEU. Bold text was added by the Treaty of Amsterdam.
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THE ADAPTATION OF EUROPEAN FOREIGN ECONOMIC POLICY 101
because they extend ‘behind borders’ into areas of domestic regulation, are more
politically sensitive than the traditional ‘at-the-border’ issues of tariffs and
quotas. The EU–US dispute over hormones in beef is a case in point. Influenced
by public opinion, the EU in the 1980s banned the use of certain hormones in
raising beef, even though the scientific case for doing so was equivocal (Vogel,
1997). In 1998 the World Trade Organization’s (WTO) Appellate Body upheld
the US government’s challenge to the ban under multilateral trade rules. The EU,
however, is reluctant to comply with the judgment, and the US has imposed
sanctions. Ceding competence to the EU through extending the scope of the
common commercial policy would also mean a shift to qualified majority voting
and the potential for member governments to be outvoted on issues of domestic
significance.
At least some of the member governments’ concerns in this regard are
heightened by their view that the Commission cannot be trusted to represent their
interests in international negotiations (Council Secretariat, 1995). For example,
the French government thought the Commission went too far in concluding the
Blair House Agreement without a consensus in the Council, and the Italian and
Portuguese governments objected to the deal the Commission struck on textiles
and clothing during the Uruguay Round (Woolcock and Hodges, 1996). The
German government caused a minor crisis on the eve of the adoption of the
Uruguay Round Agreement because it objected to the Banana Framework
Agreement that the Commission had just concluded, without prior discussion in
the Council, with four Latin American banana producing countries (Agence
Europe, 15 April 1994).
In addition, if competence were ceded to the EU, the member governments
collectively might be unable to reach an agreement while individually they
would be prevented from acting, thus producing paralysis. This scenario is
particularly significant in the areas of trade in services and intellectual property
rights, because a significant degree of authority still resides with the Member
States as European rules establish only minimum common requirements. In such
circumstances, judicious unilateral action may be compatible with the acquis.
As a consequence, during the intergovernmental conference that resulted in
the Treaty of Amsterdam, a number of member governments – including both
predominantly liberal ones (such as those of Germany and the UK) and those that
tend to be more protectionist (those of France, Portugal and Spain) – resisted
extending the scope of the common commercial policy (Johnson, 1998; Meunier
and Nicolaïdis, 1999). The French and, to a lesser extent, British governments
were the most vigorously opposed and resisted all but the modest compromise
agreed.
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102 ALASDAIR R. YOUNG
VI. The Role of Interpretation in Institutional Adaptation
Despite these very limited reforms of the treaties, the EU’s foreign economic
policy acquis has been transformed as the result of a series of ECJ judgments.
Almost all of the pivotal cases in European foreign economic policy (see Tables
2 and 3) were brought (not uncoincidentally) by the Commission. As a result of
these cases, a ‘mutation’ of competences in foreign economic policy occurred,
particularly during the 1970s (Weiler, 1991, p. 2431). This mutation took place
along two dimensions. The first was the extension of the common commercial
policy itself. Because Art. 113 contains only an indicative list of component
policies (see Box 1), the scope of the common commercial policy was (and is)
open to interpretation. In a series of cases – Opinion 1/75 (OECD Local Cost
Standard), Opinion 1/78 (Draft International Agreement on Natural Rubber),
Opinion 1/94 (WTO Agreement), and Opinion 2/92 (OECD National Treatment
Instrument) – the ECJ clarified and extended the coverage of the common
commercial policy. In each of these cases, including Opinion 1/94, the extension
went further than at least the governments of the largest Member States wanted
(see Table 2). Only in its 1976 judgment in Kramer did the ECJ side with the
Council, excluding an international agreement on the conservation of fisheries
from the scope of the common commercial policy.
As the result of this jurisprudence, a wide range of issues has been brought
within the EU’s exclusive competence and subjected to qualified majority
voting. In these areas the member governments must engage in a three-level
game in order to participate in international negotiations.
The second and more profound dimension of the ‘mutation’ was the establish-
ment of parallelism between the internal development of the EU and its exclusive
external competence. The so-called ‘doctrine of implied powers’ was estab-
lished by the ECJ in the 1971 ERTA case. The Court held that, in addition to the
enumerated powers bestowed on the EU in the treaties, the EU’s external power
is co-extensive with its internal powers (Emiliou, 1996). Thus the Court ruled
that:
each time the Community, with a view to implementing a common policy
envisaged in the Treaty, adopts provisions laying down common rules … the
Member States no longer have the right … to undertake obligations with third
countries which affect those rules or alter their scope. (ECJ, 1971, p. 264)
The ECJ confirmed this principle in Kramer and built upon it in Opinion 1/76 (the
Draft Agreement for a Laying-up Fund for Inland Waterway Vessels), in which
it ruled that, despite the absence of internal rules or express provisions, the EU
has the authority to enter into international commitments necessary for attaining
specific objectives created in EU law. Opinion 2/91 (ILO Convention 170)
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