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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 68-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE International Development Committee
The European Union's trade agreements with African, Caribbean and Pacific countries
Monday 7 February 2005 RT HON PETER MANDELSON, MR ROGER LIDDLE and MR CLAUDE MAERTEN Evidence heard in Public Questions 51 - 103
USE OF THE TRANSCRIPT
Oral Evidence Taken before the International Development Committee on Monday 7 February 2005 Members present Tony Baldry, in the Chair Mr John Battle Hugh Bayley Mr John Bercow Mr Tony Colman Mr Quentin Davies Tony Worthington
________________ Witnesses: Rt Hon Peter Mandelson, Commissioner for Trade, Mr Roger Liddle, Member of Cabinet, and Mr Claude Maerten, Head of Unit, Directorate General Trade, the European Commission, examined. Q51 Chairman: Commissioner, thank you very much for agreeing to come and give evidence before the Committee this afternoon. That is very much appreciated. As this Committee knows from the work that we did on Cancun - and I mean this seriously - you are an incredibly powerful person, because, as we know, you single-handedly negotiate on trade imports for the whole of the European Union. Our fundamental concerns about all of this are that, at the same time that least developed countries are having to negotiate on the WTO, they are also having to negotiate on economic partnership agreements and on this agenda: Doha Development Round, clear statement evinced by international community that they would seek to help the development of the least developed countries in the WTO. What are you able to say about the help that you are going to give to the least developed countries under the reforms to the Cotonou Agreement, its economic partnership agreements? The real concern is that the bottom line seems to be that, if least developed countries want to have any access to European Union markets, they are going to have to open up their markets in a way which could well undermine their trade, their capacity. How are you going to ensure that these agreements reflect the weakness of many least developed countries and ensure that this also enhances their development and does not undermine their development? Mr Mandelson: Principally, by not making unfair and unreasonable demands which they are unable to meet. These are not classical, conventional, hard-nosed trade agreements that we are pursuing, of the kind that you would attempt to negotiate between developed countries. In that sense, the very term "trade agreement" is a misnomer. If we wanted simply to rely on classical instruments, we would rely on our generalised system of preferences, which offers pure market access arrangements; it is a unilateral instrument - we decide what is in it and others have to take it. The EPAs are entirely opposite; they are properly negotiated, nothing is imposed, nothing is unilaterally declared and then passed down like a tablet of stone. Secondly, and I think more importantly, they are genuine development instruments, in that they are designed not simply to arrange market access. They are designed to enable ACP countries to acquire, to expand the capacity that they have in terms of their governance, their infrastructure, their productive supply side, to enable them to participate in the trade opportunities that are being created. Lastly, they will, once they are negotiated, once they are agreed - and that is some time off. They are described by some as if they already exist. A member of the Government recently described them - I cannot remember the minister's name, unfortunately - as some sort of squalid waste, as if they already exist. The BBC referred to them today - incidentally, not as economic partnership agreements but as European partnership agreements - and said that Kofi Annan had already condemned their impact on developing countries. The amount of misinformation and misrepresentation, I am afraid, is rather extensive, but the key point is that they will be negotiated not unilaterally but bilaterally. Any market opening will be entirely asymmetrical and thirdly, any market opening will be progressively introduced over a considerable amount of time, as befits the needs and the rate and pattern of development of the ACP countries themselves in their particular regions. So you will see, Chairman, how different they are from the sort of trade agreements that people might instinctively rebel against in the case of countries which are amongst the weakest and most vulnerable of developing countries with whom the EU deals. Q52 Mr Bercow: In your recent speech to the ACP Civil Society Dialogue Group you stated that there is no fixed timetable for liberalisation - a very important statement - and furthermore, that there will be what you call a high level of asymmetry between the European Union and the ACP. Can you tell us at the outset how that approach can be reconciled with what I think is the common interpretation of Article XXIV, which assumes both a ten-year transition period and, I think, the inclusion of 90 per cent of trade? In other words, who will decide the timetable, where does the buck stop, and indeed, who, for that matter, determines the level of asymmetry? Mr Mandelson: That is a matter for negotiation. It is not something decided by us and unilaterally passed down for others to take or leave. It is a matter of negotiation. Each of these partnership agreements has to be properly analysed, prepared, negotiated, between the EU and ACP countries, and all the issues that you have identified, quite rightly, are amongst those which are central to that negotiation. You rightly highlight a broader point about the WTO. The specific point that you are picking up concerns Article XXIV, concerning regional trade agreements, and the ten-year time limit which that Article suggests or imposes as the period for transition. What you are saying to me is supposing our transition arrangements want to stretch longer, and that is something that concerns me and, as I said when I was being questioned in the European Parliament last week, one of the rule changes that I want to promote in the WTO is a more flexible interpretation and application of Article XXIV in order to accommodate the sort of progressive, step-by-step market opening that is envisaged in these agreements, but the broader point, if I may, that your question illustrates is this: that the WTO in my view, is seeking to support and underpin a rules-based international trading system, something which I certainly support, which I believe is in the interests of developing countries, because I think that rules, as long as they are drawn up properly, interpreted well and applied flexibly, tend to help the weak against the strong. If you did not have rules, you would have the law of the jungle, in which circumstances the strong would prevail almost always against the weak. So I am a great supporter of rules in the international trade system but those rules have to become more sophisticated. They have to reflect, for example, our desire within the Doha development agenda to develop a concept of special and differential treatment between developing countries. There is not one stock, standard category of developing countries. They have different states of development, different priorities, different interests, different needs, a point I often make, sometimes in an unwelcome way, to some more advanced developing countries for whom I do not think many of the benefits and privileges of what we are negotiating in the Doha Round should be extended to in the way that they should be concentrated and targeted at the least developed countries. At the moment, the WTO, as I say, does not have that flexibility and does not have that sophistication that we need to accommodate that concept of special and differential treatment, even though that treatment is central to the fulfilment of the development goals of the Doha Round. So your narrow point illustrates a wider point, where we need to bring change to the WTO, and that is one of the areas which I am exploring and which I will seek to develop in the context of the Doha Round. Q53 Mr Bercow: I think it is quite important to have a sense of what level of political pressure, or indeed, executive initiative on your part is needed, simply because a lot of people's fate hangs in the balance on this very important question. Interestingly, Commissioner, you said in relation to the Article - and I noted it carefully - what the Article "suggests or imposes", and that in a sense is the nub of the matter. Can I take it that, if it is merely a suggestion contained within the Article, as you have interpreted it, you will, frankly, think better of that rather unwise suggestion but that if it is an imposition that is involved, then frankly, you will seek formally a revision of the Article? Mr Mandelson: Yes. Q54 Mr Bercow: You will seek a revision of the Article if necessary. That is very helpful. Finally, if I may, you talked about the asymmetry of the arrangement. I think it is fairly common ground amongst people concerned with, for want of a better term, what one could call trade injustice that the objective in pursuing a Doha Development Round and successful EPAs must be to maximise access for poor countries' products to EU markets and, so far as possible, or at least for an appreciable period, to minimise access for unfairly subsidised European produce into developing countries' markets because of all the damage that does to local farmers and all the rest of it. Can you therefore tell me, if we take as a broad yardstick this figure of 90 per cent of all trade, what are the exceptions to the principle of ACP access to EU markets? Are those exceptions based on genuine health and safety concerns or do you share the cynicism of some of us, probably greying prematurely, ageing before our time, who think that really, it is just a protectionist racket to stop cheaper, efficiently produced and potentially popular products getting into our markets because our vested interests will shout rather loudly? Mr Mandelson: I think it is important that proper protection of European citizens does not slip into protectionism against developing country products, and I of course have no evidence whatsoever that that line has been crossed, nor do I assume that it has. However, I do think that there are concerns in this area which we have to take seriously. We are talking, Chairman, about the sanitary and phytosanitary standards that the European Union operates in order to maintain the health and the wellbeing of all of us in Europe. I know some argue that these standards, in their stringency and their desire to minimise any amount of risk to the European citizen, even down to the possible threat to the wellbeing of one in a billion citizens, perhaps go a bit far and that perhaps they are having unforeseen side effects which are acting to the detriment of developing country producers, and that if we were to look again at these standards and these regulations, they could perhaps operate in a fairer and more just way, without any undue or unreasonable harm or risk being posed to the European citizen. I know some make that argument, and I have heard the argument, and I think it is a debate that the European Union should join. I hope you appreciate the care with which I have answered that question. Q55 Mr Bercow: I have noted it, and I feel sure it will be recorded for posterity. Mr Mandelson: Can I just say as a postscript that, when I made my last public utterance on this subject, I attracted considerable criticism from those who thought that my aim was to put the health of Europe's citizens in grave danger and jeopardy and a metaphoric tonne of bricks was emptied over my head. I am sure that will not be the case now, given the care with which I have answered you, but you do need to be aware - we all need to be aware - that this is a very sensitive subject indeed, and there are strong European interests who think that, beyond all else, the health and wellbeing of Europe's citizens should come first. We have to bear that in mind as well. Mr Bercow: Indeed. Thank you. Q56 Mr Battle: Commissioner, could I add a word of welcome to the Committee? You are the first Commissioner to give evidence, and a special welcome as a Trade Commissioner because, if we focus on aid, and we need more aid, and we focus on debt and cancelling debt, I suspect that fair trade will be the key in the 21st century to tackling poverty; it will be the key agenda. I just want to press you a bit further, because there have been efforts in the past to liberalise and open up the markets vis-à-vis the north and the south. The structural adjustment policies, for example, that affected Ghana. The Committee visited Ghana, and we visited a tomato farm where they had just managed to get a water system to irrigate their tomatoes, and as we drove away, we passed a closed down tomato processing factory. Why had that factory been closed down? The answer was that Italian tomato paste was being dumped on the Ghanaian market as a result of the structural adjustment liberalisation policies. So I am very nervous to ensure that we have fair trade, that opening up is not one way and kills off efforts locally. I would just like to ask you, how would the Commission ensure that the opening up of trade under the EPAs, the economic partnership agreements, does not lead to EU products actually flooding ACP markets and undermining their agricultural sectors? Mr Mandelson: I do not think there is any possibility of this happening. I am now becoming increasingly aware of the tomato situation in Ghana because I was questioned about it on "Newsnight" on Friday, much to my amazement. I was questioned about it again on another BBC politics programme on Sunday, by which time my answer had still not fully recovered from the shock of being asked it in the first place, and this is the third time I have been asked to address this issue. I can assure you that the moment I get back to Brussels tomorrow I shall be making inquiries about the circumstances in which Italian tomato paste came to be dumped, as you put it, on Ghanaian markets. Unfortunately, over the weekend I have been unable to acquaint myself with the details, but I will do when I get to Brussels. I think the serious point as well, if I may, is to understand that market access in the partnership agreements that we are talking about comes well towards the end of this process of economic and trade capacity building, after regional integration has kick-started growth, because, of course, as you know, one of the main features of the agreements that we are seeking to create with our ACP partners is a regionalisation of markets so as to create trading opportunities in the first place for protected regional markets which it would be much easier to gain access to and where regional comparative advantage will be easier to develop, and where regional markets will be easier to grow for the benefit of the ACP countries themselves in the first instance, long before any consideration comes on to the horizon of access to those markets by European producers, and after, it is important to say, Europe has invested aid and support in these LDCs' capacity to trade. That is the important point, Chairman, and transitional periods need to be - just going back to Mr Bercow's original question - long enough for that investment, for that use and application of that aid, for the use of that trade-related assistance to kick in, for that regional integration that we are seeking to occur, for regional markets to grow, for comparative advantage to be exploited, long before we get to the question of market access for European producers, and that flexible timetable depends on each region's progress. There is no blueprint; there is no one model that is devised centrally and rolled out to every ACP region. We are really about strengthening the ability of ACP countries to tap into market opening and that means that extending their capacity, has to come first and that is again, what makes these partnership agreements so different from any other concept that we have ever tried to develop. Q57 Mr Battle: Just to be clear - and I welcome that answer - are you saying then that ACPs will themselves be able to decide on the extent and the timetable for liberalisation, for example? Mr Mandelson: What is agreed must be acceptable to the ACP countries themselves. Q58 Mr Battle: So if we went then through to the process, you very helpfully suggested you would build in a review to see how it was going after the process, the agreements are signed up, as it were. In that review, could it possibly be that, if they are not going well, the process could be held up, and will the review just be linked to disbursement of support, as you suggested, or could it also be about the scope, the pace and the impact of trade liberalisation? In other words, will you keep the whole conversation as open after the signed agreement in the review as you are suggesting you may do now? Mr Mandelson: The approach is comprehensive. The package we are trying to devise is comprehensive, and therefore the conversation that we keep having has to be comprehensive. What we are therefore monitoring and keeping under review is the effectiveness of what we are doing, the effectiveness of the agreement that we are seeking to operate. If it is not effective, by which I mean the development assistance, the aid, the capacity building, the regional integration, the market growth is not taking place in the way that was originally envisaged, and therefore the market opening has to be correspondingly slowed down, that is something that we will look at and keep under review in the round but, as you also know, because I have been concerned that the EU's development assistance should properly, genuinely, be rolled out in the way that was originally envisaged so that the two things do not get out of synch, I have decided that a new monitoring mechanism will be introduced, and I have agreed this with my colleague, Commissioner Louis Michel, and that machinery is currently under design to make sure that we know that is happening, that we do not simply create a nice canvas, agree that it is all hunky-dory, press the button, retreat and do not bother to look again at how it is actually operating in practice. That is not going to be our approach. Q59 Mr Battle: Can I finally suggest that one of the things that the ACP countries in negotiations now have been asking to have considered is what is called technically GATS mode 4, about the mobility of labour and the temporary movement of labour. I would just like to ask you what plans, if any, the Commission has to explore the possibility of including GATS mode 4 in the economic partnership agreements. Are you open to that or have you really said, "Keep it out for now. We have got too much on our plate"? Mr Mandelson: I am open to that, because it has a basis in the WTO, it has a basis in the negotiations, the talks that are currently under way in the Doha context, so I see no inconsistency or no incompatibility between our Doha agenda approach and our EPA approach in respect of mode 4. Q60 Mr Davies: Commissioner, the ACP countries were originally promised by the Commission that if they did not want to sign up to an economic partnership agreement, they could have an alternative, which would provide no worse market access for them to the EU market. Does that promise still stand? Mr Mandelson: It does still stand, but I would just make two observations. One, the ACP countries do want to negotiate the economic partnership agreements; none has decided that they do not. Each has agreed with us that this is the path they want to go along. That is the model they have opted for because, secondly, they realise and acknowledge that these are genuine developmental and trade packages, rather than simple market access devices which the alternative presents. What we are taking on is more ambitious, it is more sophisticated, it has more content. It requires, incidentally, more integration of what we are doing to the WTO's own rules, which, as I have already explained, is a challenge in itself, but I think that they and we are agreed that we want to maintain this level of ambition for what we are trying to do, rather than, as I say, opt at a premature stage, before we have even pursued the negotiations sensibly and rigorously, for something which is second best. Q61 Mr Davies: I am not actually contesting what you are saying. I have actually been very much struck by the enthusiasm which has been shown for these EPAs, despite the out-pouring of indignation on the part of many NGOs, who felt that they were doing an advocacy job for LDCs, saying that this was a very bad idea. In actual practice, as you say, the governments concerned seem to have shown great interest in it. Nevertheless, you have used the comparative; you say you want something that is better or more sophisticated and so forth. That implies that there is something to compare the EPA with. What is unclear to me, and I suspect is unclear to the ACP governments concerned, is exactly what that alternative would consist of. For the poorest countries, the LDCs, it would presumably be the Everything But Arms deal, which is not actually quite so advantageous on rules of third party origin and so forth, but what about the non-LDC ACPs? What is the alternative that they might be offered? Mr Mandelson: The alternative is the GSP, the generalised system of preferences but, like Everything But Arms, and if I can just quickly define, Everything But Arms says to LDCs, least developed countries, that they can export anything they like tariff-free, quota-free to European markets but arms, and it is as open, general and all-encompassing as that, and that is the approach (a) that we are going to introduce over the next five years but of which, of course, in the context of Doha, we want the United States, Japan and Canada to adopt as well, as a unique 21st century contribution to meeting the needs of LDCs. But the alternative is, as I say, second best. It is either an EPA arrangement, which is simply a market access arrangement, with no developmental content or dimension, or it is a generalised system of preferences, which, likewise, is a market access, a unilateral - unilateral by Europe, I might say - system of preferences to gain market access, again, without any developmental dimension or content. That is why in my view, ACP countries opted for the more ambitious and more sophisticated model because of its developmental nature. Q62 Mr Davies: Yes, indeed. As you set out Everything But Arms, it sounds a very attractive alternative. In practice, it is very striking that all these countries prefer to go the economic partnership agreement route. If you look at the Everything But Arms, it does not have quite the same features. It is not as permanent, it is not contractual and of course, it does not have as favourable terms in terms of third party, third country content and so forth. But I come back to my point: are these countries really able to choose between two alternatives, both of which are quantified and both of which they fully understand so that they can make a fair comparison? Have you spelt out what the nature would be of a generalised system of preferences, a GSP alternative, supposing that a country - it may be unlikely, and I am not contesting that - wanted to know what the alternative was before they signed up to or committed themselves to an economic partnership agreement? Mr Mandelson: They have that alternative now. Q63 Mr Davies: Have you spelled it out for them? Mr Mandelson: Yes. They have that now. They take advantage of the generalised system of preferences now. Q64 Mr Davies: Have you given them the detail? For example, what would the rules be on third country content in the case of a GSP? Mr Mandelson: That leads us on to the system known as rules of origin. If I can just make two points, one about the GSP and the other about rules of origin, I am seeking to revise and simplify both. Q65 Mr Davies: So you do not have a definite, concrete offer to make. The countries concerned do not know what the details would be of a GSP deal that they might have as an alternative. Mr Mandelson: It exists already. It is of long standing. It is just that I am trying to improve it. The revised and simplified GSP, it was intended, should be introduced in July of this year. In the wake of the tsunami disaster, because of the benefits from the GSP of the tsunami-affected countries, I have proposed to the European Council and to the European Parliament that we should accelerate the revision of the generalised system of preferences, bring in the new simplified and revised version in April rather than July so as to advance the benefits from the system that will be enjoyed by Sri Lanka, Indonesia, and Thailand notably. Secondly, in respect of the rules of origin, what I am doing there, again partly, not entirely in the light of the tsunami disaster, is to encourage my colleagues in the Commission to review the operation of the rules of origin more speedily than they otherwise intended to do, using, in my view, the urgency created by the tsunami, so that we can get more benefits out of the GSP so that we could get those preferences more activated, performing better, in the interests of the developing countries concerned. Revising the rules of origin, unfortunately, is not my direct responsibility. It belongs to my colleague Mr Kovács, with whom I am cooperating very closely to try and speed up the simplification of our rules of origin so as to benefit the very countries that you are concerned about. Q66 Mr Davies: So we have established the fact, Commissioner, that at the present time the ACP countries are not in a position to make an informed choice. They do not have the details of the GSP alternative. What you are telling the Committee is that in a few months' time you hope, with good will, with the cooperation of your colleagues in the Commission and so forth, that there will be a new, revised form of detailed GSP offer and they will therefore be in a position at that time to make an informed definitive choice. Mr Mandelson: Yes, but you are not comparing like with like, with respect. Believe me, the GSP, useful and advantageous as it is for LDCs, rules of origin, and necessary as it is to revise those, this is in no sense comparable to the sort of partnership agreements which are developmental tools rather than simply market access tools. Q67 Mr Davies: I accept that entirely, Commissioner, but you will accept as well, I think, that any responsible individual negotiating on a fiduciary basis, whether on behalf of a business or a country, needs to know the details of all the alternatives that are on offer before he or she makes a decision. I think we have established this afternoon that the ACP countries do not at the present time find themselves in a position where they can make that informed decision because they do not know the details of all the alternatives. The alternatives are not entirely comparable, for the reasons you mention. They may well end up preferring the economic partnership agreement - and I do not in any way wish to contest that that may be the best deal, certainly the fullest, most elaborate, most comprehensive deal, but nevertheless, they obviously need to have the full picture before they make a choice. It would not be sensible to push them to make a choice before they have those details. Mr Mandelson: I do not accept that proposition, no, and the reason I do not is because they know only too well what the GSP is and what Everything But Arms is, and they know that they are simply market access arrangements. Q68 Mr Davies: But they do not know the revised one. Mr Mandelson: I can assure you that, however improved the GSP may become, and however simplified the rules of origin may become, they are simply market access, pure trade instruments. They bear no comparison at all to the developmental instruments that we are trying to create through economic partnership agreements, which is why the ACP countries, having seen the alternative, have opted to negotiate the partnership agreements rather than rely simply on the GSP with its rules of origin component. Q69 Mr Davies: Commissioner, you are like a car salesman who says "This particular car is far and away the best model. It has everything you may want in it," and the customer could actually afford another car that is about to come out or may come out in a few months' time, and you are telling the customer "You don't need to wait for this one. You can make a choice today." I do not think that is very realistic. I think that everything you say about the inherent advantages of the EPAs may be absolutely correct, but it does seem to me irresponsible to expect countries to make a definitive choice before they know the full range of the alternatives and the details of those alternatives. I hope that you will be in a position to show them those details, to offer them a full and informed choice of that kind within a fairly short timescale. Mr Mandelson: It is a choice between a motorcar and a bicycle. They are opting for the motorcar, which is under construction. It is not we who are seeking to delay any comparison; it is the ACP countries themselves that have asked us to delay the promised review or examination of the economic partnership agreements currently under negotiation because they want more progress to be made in their negotiation. Q70 Hugh Bayley: The US equivalent, if I can call it that, of Everything But Arms, the Africa Growth and Opportunity Act, has had greater take-up so far than the EPA because it is more flexible and more liberal on the rules of origin. Does the Commissioner agree with me that one of the advantages of incorporating into Everything But Arms the same flexibility for developing countries to source their raw materials from the most competitive market as exists under AGOA would have a benefit, an immediate trade benefit, for least developed countries, who, after all, we are committed to helping in the Doha Round, but would also foster the principle that free trade is in everybody's interests, that they, a least developed country, would be able to source their raw material, maybe the cloth to make into clothes, from the cheapest market, and that that in itself is a compelling argument that ought to make the Commission willing to have rules of origin that are at least as liberal as those under the American Africa Growth and Opportunity Act. Mr Mandelson: I do not want to portray the American alternative, the AGOA, as an inferior model to anything that we have created or are creating between ourselves and ACP countries, but I think one needs to bear in mind some of the painful lessons and painful experience of some African countries which have benefited from some simple textile transformation rules under the American market scheme. As a consequence of their participation in this scheme, they got some fairly footloose investment to process imported material at the expense of investment in vertically integrated regional cotton processing, and then along comes the end of the Multi-Fibre Agreement and the elimination of quotas, as happened at the beginning of this year, as well as, no doubt, other factors, and these countries have seen a fast withdrawal of that footloose investment that they thought was a great panacea when they first signed up to the AGOA system. Lesotho, if I can just offer one illustration, has lost, I think, in the region of 12,000 jobs in January alone. So whilst I am not for one moment condemning the entire American scheme - far from it; perish the thought - I would simply suggest that all that glistens is not necessarily gold and that in this sort of territory, Heaven knows it is complex, with very, very difficult rules, design, challenge, to make sure that it is those very countries who you want to help most who are genuinely benefiting rather than being piggy-backed on by others who are getting their supply materials into these countries covered by these rules of origin in order to get preferential access to European markets, not for the benefit of the LDCs who we want to help most but in order to help the originators of the inputs, who, because of their state of development, would not qualify for that preferential access if left to their own devices. So it is a really complex area here, and I am finding that working with my colleagues to simplify rules of origin, it is a bit like a Russian doll. No sooner have you removed one that you find another problem or potential beneficiary you do not actually want to advantage sitting there inside the doll, and so it goes on. That is what we are trying to tackle. All I am saying is that I do not think the American system has yet found the perfect answer or solution. Q71 Mr Bercow: First of all, Commissioner, I think we are all pretty clear and do not need to be persuaded of the limitations of the Everything But Arms agreement, because since it came in, Mozambique, Ethiopia and Malawi alone have sustained losses of about $238 million because of restrictions to market access. I am sorry to push you again, but I was just a bit perturbed by the exchange that you had with my colleague, Mr Davies, because you made a really rather graphic point about the comparison between a motorcar and a bicycle, and it did seem to me to be fast becoming an example of a dog and a bone, and you were the latter and my colleague was the former. Mr Mandelson: That is one of the nicest things that has ever been said about me really. It is one of the nicer descriptions that has been attached to me. It is nice to be back! Q72 Mr Bercow: Forgive me. It did seem to me that you were making slightly heavy weather of your answers to Mr Davies when you were in general terms on very strong ground. Mr Mandelson: I was trying to make a simple point. Q73 Mr Bercow: You were trying to make a simple point but, unfortunately, it transmuted into something rather more difficult to understand, or certainly, at any rate, to accept. Presumably you agree that we need to start work on these fully fleshed out alternatives to the EPA and to make sure that they are in place. Mr Mandelson: Yes, because market access alone is not enough to prevent the marginalisation of LDCs and to enable them to bring about the growth of their export capacity. Simple market access is not enough, and the bicycle that I was trying to describe is a limited market access bicycle, and these countries need more. Q74 Mr Bercow: You are in the happy position of agreeing with the Secretary of State for International Development. Mr Mandelson: That is a great relief. Q75 Mr Colman: Singapore issues, trade facilitation, investment, competition, government procurement. Cancun largely failed because your predecessor, Commissioner Lamy, was pressing this. They were largely dropped by Commissioner Lamy last July in order to move the agenda forward. What we hear is that you are now insisting that they be brought into EPAs. Obviously, you can comment whether that is true or not and whether perhaps we can have a different way forward, which is in fact to allow them to be negotiated on the basis of a specific ACP region rather than, if you like, being imposed blanketly by yourself. Mr Mandelson: I am not insisting. It has been agreed that they should come within the purview of the EPA negotiations, so I am not insisting, but what I want to see is that we return to these issues and try and find a way of incorporating in a more development-friendly way than arguably was the case at the time of Cancun, and that I accept. These issues - and we are talking, of course, about rules governing investment into developing countries, transparency of public procurement, trade facilitation and competition policy. I will tell you why I do not want to lose sight of them, and that is because I think that they are essential parts of successful economic governance. I want those countries to succeed, not fail. I want them to provide a framework, a climate of growing confidence and of predictability which will encourage private investors to invest in these countries rather than stay away. I have been struck by the number of developing country ministers - two, actually, to be precise; I am not going to exaggerate - from two different countries who have said to me in the last month or two that the reason why they wanted to see off the so-called Singapore issues in the context of Cancun is not because they were inherently wrong or onerous but because they just did not have the negotiating capacity to take them on, deal with them, along with the rest of the whole negotiating agenda which was confronting them in the Doha context. One said to me, "We desperately need better rules on public procurement. We desperately need better rules, and we need transparency. There is an awful lot of waste, an awful lot of inefficiency, and, frankly, corruption going on. It would help us to have these rules applied," but the task for us is not to come in in some sort of aggressive way, lay down the law, saying, "These are the rules that operate in our countries. They are good enough for us and they will certainly be good enough for you." That is not the right approach. Faced with that, the drawbridges will simply come up and people will not want to know, not least because they will think that the aim is not to help them, but to settle for terms which are entirely beneficial to foreign direct investors. That is not the aim. However, that impression might be created, the perception might exist, and so our job, I think, in the context of the EPAs, is to create a framework in which these issues can be addressed, as I say, in a development-friendly way, and that is our aim. Q76 Mr Colman: Would you be willing to step back from requesting that the issues be included in EPAs but for them only to be there if in fact an ACP region requested them? Mr Mandelson: Yes. They have to be agreed. Q77 Mr Colman: No. I am saying something slightly more precise, which is that the EU would not introduce them into the discussions, but if the ACP region wished to do so, they would be able to do so. Mr Mandelson: It has already been agreed that they should be introduced into the discussion. That is agreed, and yes, I will seek to promote these issues because I think they are in the interests of developing countries, but I am not going to do so aggressively; I am going to do so within a framework which is development-friendly, and I am not going to impose something which ACP countries either do not have the capacity to negotiate or do not have the ability at this time to take on, but I do think they are important, and I think that we do a great disservice to developing countries in suggesting that, just because something has the tag of private investment or foreign direct investment or rules pertaining to competition or public procurement in the way that we might seek to operate them in Europe means that they are ipso facto inherently inappropriate for or unacceptable to developing countries. I think that is a great disservice to developing countries. Q78 Mr Colman: Perhaps I can press you for the last time. Clearly, there needs to be evidence demonstrating, if you like, that by bringing in the Singapore issues, it is of benefit to ACP countries. Have you in fact managed to get new evidence? Are you working on new evidence? You mentioned the two ministers concerned. I think there need to be on the table more examples of how this is to benefit the ACP countries before, if you like, Hong Kong can adopt or can feel that this is in fact an issue they would wish to take forward. Mr Mandelson: It is ruled out as far as Hong Kong is concerned. I am not seeking to reintroduce these issues into the Doha Round. I am only seeking to examine, pursue them in a development-friendly way in the context of the EPAs, not the Doha Round. Q79 Mr Colman: New evidence? Mr Mandelson: Apart from trade facilitation, which I think was agreed originally and would remain part of the Doha Round, the other Singapore issues are excluded. Q80 Mr Colman: Is there new evidence, if I could press you, to demonstrate that if these were included within an EPA, it would be of benefit? Mr Mandelson: For me, the best evidence is the observation made to me by relevant ministers in the developing countries concerned. I think this is another area where, if I may suggest, the NGO agenda regarding EPAs does not entirely overlap with or correspond to the agenda being pursued by ACP countries themselves. Q81 Hugh Bayley: I would like to go back to the car and bicycle, and I should declare an interest as a cyclist. I hope you would agree with me, Commissioner, that both cars and bicycles have advantages and disadvantages. Cars are fast and technologically advanced, but they are also expensive and they pollute the atmosphere, and bicycles are cheap and cheerful, maybe not as comfortable but more energy-efficient, and in many fields in developing countries they are more appropriate technology. Least developed countries, when deciding whether to sign up to a EPA, will have to choose between that and the EBA, Everything But Arms, which of course gives them, as you described yourself, unlimited, tariff-free market access into the European Union, which is something which the economic partnership agreement will not give. Therefore, I would like to ask whether the Commission has plans to facilitate... Mr Mandelson: Sorry. ACP countries will be no worse off once the EPAs kick in from Everything But Arms. That is very important. We are asking for EBA plus not EBA minus. Q82 Hugh Bayley: I am pleased to hear that but does the Commissioner envisage special treatment therefore for least developed countries within economic partnership agreements to make sure that that is the case, and will it be an issue which the EU seeks to address within the WTO to guarantee that, for the least developed countries who will benefit from the EBA, all the benefits of EBA will be maintained? Mr Mandelson: This is a very important issue, a very important aspect - it goes back to the exchange I had with Mr Bercow - and that is to make sure that the WTO's rules and their application reflect that special differential treatment, that sophistication of our approach that we are seeking, through the partnership agreements, and I am increasingly aware of this. We are being increasingly vigilant about this, and it is something that I am discussing with my service at the moment. It would be really poor if we were to try to seek to negotiate something through the EPAs which was WTO plus only to find that the WTO framework of rules did not support the house we were building, as it were, and it is a discussion on this very point that I was having with all the Commonwealth High Commissioners this morning at a seminar organised at Marlborough House by the Commonwealth Secretary General, and they were raising precisely these points. But we are talking about something which is in addition to and on top of Everything But Arms, and I think, Chairman, it is worth recording that more than 97 per cent of LDC exports to the EU have been admitted duty-free. I think that is quite an achievement for the European Union. The EU imported from LDCs in 2003 goods worth €12.5 billion, which is more than the entirety of the US, Canada and Japan imports from LDCs put together. So our record is pretty good, and is a very solid platform on which to grow. That is one of the reasons why we want to improve the rules of origin, and why we are working on that proposal, because it will get more LDC imports into European markets and it is as crude as that. But if I may just come back lastly to your bicycle, I know the point you are making, that the technology is perhaps more appropriate, more manageable, more learnable, less likely to go wrong, requires fewer spare parts which might be expensive. I could go on and on as to why a bicycle might be more appropriate than a car, but the reason why I want to start with designing a car is because I think we need a level of ambition for ACP countries. Let us be blunt about it: the arrangements between ACP countries and the European Union to date have not resulted in any growing share of ACP exports. Frankly, the current arrangements, the preference arrangements, have locked ACP countries into a bit of a cul-de-sac. They are not even on the highway, let alone the motorway, as far as trade is concerned and that is why a new approach is called for. Yes, more adventurous; yes, more ambitious; yes, more in trade terms technologically challenging but not, I think and I hope, unmanageable. Q83 Hugh Bayley: I am very pleased to hear the Commission saying that it will ensure the least developed countries do not have to choose between an economic partnership agreement or the benefits they currently get under Everything but Arms. One of the reasons advanced by some people at least of the benefits of an economic partnership agreement is that it is contractual rather than unilateral. I wonder whether the Commissioner would consider binding Everything but Arms in the WTO so as to create a more secure and predictable environment for the least developed countries. Mr Mandelson: It is something that I would consider but I do not know whether it is possible to do that. I would have to consider the requirements of the WTO and whether I am permitted to pursue that. Q84 Hugh Bayley: Thank you. Finally, to go back to rules of origin, will the Commission consider altering the rules of origin so as to allow least developed countries to choose the most competitive supplier of raw materials? You have said that you intend to review the rules of origin but are you intending to review them to make it possible for least developed countries to gain the benefits of Everything But Arms even though they source raw materials or components for things they manufacture from outside least developed countries? Mr Mandelson: That is a very thorny issue. It is not my responsibility. Frankly, that is not a matter that is either easily resolvable or has been resolved between myself and my colleague responsible. Q85 Tony Worthington: Can I turn to the contentious issue of sugar? If I can quote what you said in Guyana, you said sugar reform in the EU is necessary and unavoidable but it requires from us two things vis-à-vis ACP producers: that we maintain preferential access for their imports and that we accompany this with a robust local adaptation process, so that we have a system at the moment that is unjustifiable in terms of European sugar prices but which the poorer countries benefit from. We have got to get rid of that, because it is unjustifiable, for the reasons you have said, but we are going to maintain preference. How do you do it? Mr Mandelson: With some difficulty, but I do think it is possible. The Commission's reform proposal, as you know, flows from the unsustainability for European sugar consumers of paying for their sugar at three times the world price and because we have been successfully challenged and we have to become WTO-compliant. So there is an internal and an external dynamic which is causing us to bring forward these reform proposals. The proposal will not be brought forward in its final form until later this year. We are awaiting the outcome of a further WTO Panel, as you know. We appealed against the initial decision. I think I am right in saying that a further Panel is due to report in April, and I would envisage that the Commission's reform proposal is brought forward on the basis of that second Panel by about June. It is based on a combination of, first, a significant price reduction which I accept will affect detrimentally ACP sugar exporters to European markets but I will come back to that in a moment. Secondly, a reduction of quotas. Thirdly, decoupling payments presently made to EU sugar beet farmers to come in line; 70 per cent of payments made I think to EU farmers at the moment is not linked to production. Some people have assumed that the price of sugar will be brought down so dramatically as to make it level with that of world prices. That is not our proposal. It is currently envisaged to bring down the price of European market sugar by about a third, and that would mean it remains substantially above the world level and therefore there would remain a substantial incentive to ACP producers to export to European markets. However, that in turn depends, frankly, on their efficiency, their productivity and their ability to face greater competition than is the case at the moment, which would follow from the reduction of quotas. That is why it is very important indeed that the European Union accompanies its sugar protocol reform with an action plan backed by substantial amounts of cash, to help ACP sugar producers both diversify within their sugar industries but also diversify away from their sugar industries, and that is what we are currently discussing with ACP countries, and those discussions on that action plan will continue over the coming months. Q86 Tony Worthington: You refer to substantial amounts of cash. From which budget would that come and for what purpose? It could not simply be cash. Mr Mandelson: It is budgeted within the financial perspectives of the Commission, it is displacing - if that is the point of your question ---- Q87 Tony Worthington: That expression you used, "the financial ....."? What does that mean? Mr Mandelson: It is the budget, I am sorry. It is a technical term for the EU budget. Q88 Tony Worthington: Right. Mr Mandelson: There was an issue, which need not detain us because it has been resolved, about a six month funding gap before the new stream of funding kicked in, and there was a slight difference of opinion between the Trade Commissioner, the Agricultural Commission and the Development Commissioner as to how that shortfall should be met and out of whose budget. I am pleased to say that the money has appeared from an alternative source altogether, so the entire thing, the moment the action plan kicks in, will be fully and adequately funded from EU sources. Q89 Tony Worthington: I am still not clear what the cash is going to be used for. Mr Mandelson: It will be used to enable sugar industries within ACP countries affected by the reform to carry out processes of adjustment, like diversification into alternative products which would find a readier market, or to diversify away from beet production in the first place. There are a variety of different ways contained in the action plan which can and should help sugar producers in ACP countries, and that is what we have signed up to do and what my two colleagues and I discussed with ACP ministers at a joint EU Agricultural Ministers and ACP Ministers meeting the week before last, and which we will carry on doing in the coming months. Q90 Tony Worthington: It is very, very vague. Mr Mandelson: It is vague because it has not been published, the action plan. It is not vague in content and in fact, but it has not yet been published. I can assure you, this action plan, which has not been my responsibility, which has been drawn up by the Development Commissioner and his service, is ready for presentation to ACP countries. Q91 Tony Worthington: So the money may not go into the agricultural sector of those particular countries but might be more of a general subsidy to that country? Mr Mandelson: No, it will be targeted at the structural change and transitional needs of the sugar producing sectors of those ACP countries. What we want to do obviously, first of all, is ensure the reform is carried out in a way, or designed in a way, which does not put ACP sugar producers out of business. Q92 Tony Worthington: So it is targeted at the sugar producers? Mr Mandelson: Yes. Q93 Tony Worthington: It is something directed to them rather than to the general economy? Mr Mandelson: If you take, for example, the sugar sector in Guyana where I was at the beginning of the year, I am not saying the sugar sector is the economy of Guyana but it is a very large portion of it and sugar is not just an economic mainstay, an economic lifeline for that country, what that industry does, what it produces, how it organises itself in the communities from which people are drawn to work in that industry, makes it the foundation of Guyanian society. That is why many of these industries and their circumstances are so fragile and that is why the reform has such huge implications both for the economies and the societies of the countries involved. We have to tread very carefully in making sure that the transitional assistance, the restructuring assistance, that we offer, takes account of that fragility, takes account of the fact we do not want to run those industries out of business but instead makes them more competitive, more able to compete with oftentimes larger scale suppliers which enjoy economies of scale, which enable them to diversify their products, as I have said, and find a more ready market for those products, but also gives social help to the people who are affected by these changes. That is what the action plan aims to do. It will be rolled out on the basis of a country by country assessment, it is not some sort of generalised plan, a single blue-print, take it or leave it, it is a plan which will be based on the assessment of the countries concerned, specific studies will be launched to evaluate the impact of the reform country by country. The first financial assistance, I think I am right in saying, to be rolled out under the action plan will be at the beginning of next year, the beginning of 2006, so we are not allowing the grass to grow under our feet, as it were. In a sense, we are further ahead on our action plan than we are on the agreement of the reform proposal itself within the Commission, but that of course is because we decided to appeal and go back to the WTO Panel. Q94 Chairman: I know how contentious sugar is and we could spend a whole day just discussing sugar. Perhaps, when we have had more of a written briefing on this from you, we could come back with some written questions? Mr Mandelson: Yes. Could I say that the reason it is important is because the EPAs are a means, a vehicle, for incorporating our response to this situation for the ACP countries concerned. Chairman: It is important because there are so many ACP countries who are largely dependent on sugar. Many of the Commonwealth countries and countries in the Caribbean are dependent on sugar. Q95 Mr Colman: The London Sugar Group have said they would like to see, amongst other things, a ten-year transitional programme and that price cuts should bite for the ACP countries in 2016. The very first question by Mr Bercow was in terms of flexibility but Article 24 talks about a ten year transition period. Are you intending a ten year transition period for the ACP countries, ie that the cuts in prices will not come until 2016? Mr Mandelson: I am not envisaging that. When I say "I am not", I should correct myself and say that my Agricultural Commissioner colleague is not envisaging that. We are, however, envisaging a two-stage price adjustment to enable the transition to be properly phased. We are not proposing to do this in one go and we are not proposing to do it overnight. Q96 Mr Colman: But a ten year benchmark? Mr Mandelson: I cannot give a commitment to a ten year transitional period for the introduction of these changes, but the reform proposal has yet to be finalised and will not be put to the Council I think until June of this year. Q97 Mr Bercow: I would like to come back to the whole rationale behind the trade, justice and development agenda and the rationale on which, I hope, we can all explicitly agree. It is not about us, it is not about the European Commission, it is not actually about ACP countries, it is about giving the poorest and in some cases the most destitute people on the planet a chance to compete and to grow. I do not know, Commissioner Mandelson, just how far your tentacles can be expected to spread. I do not know what the furthest reaches of your crusading zeal will prove to be but I wonder if --- Mr Mandelson: I do not know where this is leading you but anyway! Q98 Mr Bercow: I know exactly where it is leading me! Mr Mandelson: I want absolutely nothing to do with campaigning zeal, thank you very much! I had my first taste of campaigning zeal on the Today programme! Q99 Mr Bercow: Surely you are not losing your appetite for that now. We would be very distressed if you were. Mr Mandelson: Appetites can change with age! Q100 Mr Bercow: On the wider trade agenda, if you take some of those countries which are not principally concerned about sugar but, for example, cotton, and you reflect on the debacle of Cancun, you will recall Benin, Burkina Faso, Mali and Chad depend on cotton for something like 30 to 40 per cent of their export earnings, and they were frankly presented with the height of arrogance by the United States. Mr Mandelson: The United States. Q101 Mr Bercow: To what extent can an agreement of the kind you have been describing this afternoon significantly atone for the terrible damage that was done to the living standards of farmers and others in those countries by the grossly protectionist trade policies being pursued by the United States, and are you going to try and do something about them? Mr Mandelson: I do not want to attribute motives to the United States, nor do I necessarily accept your characterisation of the US in this. It is more of a mixed picture, to be fair to the United States. Your real question, I think, goes back to the original exchange we had, and that is just how ambitious and how sophisticated can we be without overloading the system and being so smart that we never get it to the launch pad so when we light the blue touch paper and attempt to send it up, it is just too overloaded, it does not get off the pad. I think my response to that is best expressed in this way, that without seeking to export or thrust the EU model down anyone else's throat - heaven forbid - we in Europe have benefited a great deal from regional integration, we have benefited a great deal from building a very competitive regional market - not competitive enough in my view, which is why I am such a strong supporter of economic reform and measures to promote competitiveness in Europe, which is why I so strongly support the Commission's revamped Lisbon Agenda, I am pro growth in Europe, I am pro competitiveness in Europe, just as I am pro the poor in the world, and, incidentally, I do not think you can be one without the other. A more competitive, better performing Europe means we can be more generous and more forthcoming in what we can do with and for the rest of the world. I think it is an interesting model. I think that one of the hallmarks, one of the chief features, of the partnership agreements which I find most attractive - apart from their overall development dimension and character - is this very essence of regional integration, enabling ACP countries, groups of ACP countries, to create and grow regional market arrangements that offer them initially better protection as well as better market opportunities and a better chance to realise the comparative advantage that they would have if they were simply struggling in isolation and apart from their regional neighbours. I think the European model does have something to offer in that respect. I think that we can use regional integration, growth of regional markets as a way both of multiplying the effects and the impact of the aid and development assistance we apply, but also multiplying the attractiveness to foreign direct investors to come into those markets. It is a very different proposition if you are saying to an investor, "Come and invest in my country and we will do this, that and the other for you" from saying, "Base yourself in my country, you will have the opportunities and advantages of knowing that based in this country you will be able to multiply the effect of your investment around an entire region and not just in the country alone." It is the same principle on which we attract foreign direct investment into Europe's single market. I think it is an attractive principle, it is a good principle, it is why I am pro-European, and it is why I would like to see the benefits and advantages of our model, albeit redefined, recalibrated, retailored, to the needs and interests of some of the weakest and most vulnerable countries in the world, and that is the ACP countries. Q102 Chairman: Commissioner, thank you very much for coming and giving evidence this afternoon. I think we will read and study all you have said because you have said quite a number of new things this afternoon. You have been described as a second-hand car salesman, and I was not quite sure whether you were described as a dog or a bone, but I hope you will explain to Commissioner Michel, who is coming to give evidence to us, that in the House of Commons they are terms of endearment and nothing else. I hope that the Committee might be able to tempt you back in the autumn to come and talk to us about the WTO and Hong Kong. As you know, we have taken a very considerable interest in the WTO, we produced a report both before and after Cancun. We are very grateful to you for coming today because I think we all thought cotton and ACP and these negotiations had been rather forgotten and we are grateful to discover they are not. Mr Mandelson: Chairman, thank you very much. I would be delighted to return in the autumn, when we will be that bit nearer Hong Kong and that bit nearer either a famous milestone or a disaster looking us in the face, but I am optimistic. In the meantime if any of your members have not heard sufficient from me or about my views, perhaps I could leave you a copy of a lecture which can be duplicated and circulated to the Committee which I delivered at the LSE last Friday entitled "Trade At The Service of Development". Q103 Tony Worthington: We have it! Mr Mandelson: You have it already! Chairman: Thank you very much. |