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European Standing Committee C Debates

European Standing Committee C

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European Standing Committee C

The Committee consisted of the following Members:


Mr. Martin Caton

†Cunningham, Tony (Workington) (Lab)
Davey, Valerie (Bristol, West) (Lab)
†Dobbin, Jim (Heywood and Middleton) (Lab/Co-op)
Havard, Mr. Dai (Merthyr Tydfil and Rhymney) (Lab)
†Henderson, Mr. Ivan (Harwich) (Lab)
†Hesford, Stephen (Wirral, West) (Lab)
Jack, Mr. Michael (Fylde) (Con)
†Luke, Mr. Iain (Dundee, East) (Lab)
Murrison, Dr. Andrew (Westbury) (Con)
†Smyth, Rev. Martin (Belfast, South) (UUP)
†Swire, Mr. Hugo (East Devon) (Con)
†Wright, Mr. Anthony D. (Great Yarmouth) (Lab)
†Younger-Ross, Richard (Teignbridge) (LD)
Geoffrey Farrar, Committee Clerk
† attended the Committee

The following also attended, pursuant to Standing Order No. 119(5):

Alexander, Mr. Douglas (Minister for Trade and Investment) (Lab)
Brazier, Mr. Julian (Canterbury) (Con)
Murphy, Mr. Jim (Lord Commissioner of Her Majesty’s Treasury) (Lab)
Quinn, Lawrie (Scarborough and Whitby) (Lab)

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Thursday 10 March 2005

[Mr. Martin Caton in the Chair]

Generalised System of Preferences

2 pm

The Minister for Trade and Investment (Mr. Douglas Alexander): I begin by apologising for any inconvenience caused by the debate taking place today rather than earlier in the week. Suffice it to say that I welcome the opportunity to debate the proposed regulation, which would apply a generalised system of preferences, or GSP as it is known, across the European Union.

The debate is timely, given the need for reconstruction following the Indian ocean tsunami and the focus on Africa under our presidency of the G8. As we set out in the White Paper on trade and investment last July, the Government believe that increased trade is a necessary but not sufficient element in addressing the challenges faced by the developing world. The EU is an important market for developing countries, with more than 40 per cent. of EU imports coming from the developing world.

The document before the Committee lays out proposals for a revised GSP scheme. The current scheme—it is the most extensive preference scheme in the world—is due to expire at the end of this year. The regulation will introduce a replacement scheme for the next three years and beyond. Before we get into the technicalities of the document before us, it may help to lay out some of the objectives of the scheme that the Government fully endorse.

The scheme needs to be stable and predictable. We need to give a secure framework for exporters in developing countries and for importers in the EU that will give them the confidence to enter into long-term contracts and relationships with each other, without fear of sudden or unforeseen changes.

The scheme needs to be objective and World Trade Organisation compatible. The Committee may be aware that an element of the current scheme—the special incentive scheme for drug-producing countries—was subjected to a successful challenge in the WTO. Under the WTO dispute ruling, the EU must reform that special incentive scheme by July. We must make sure that this scheme does not end up on the wrong end of another WTO dispute.

Finally, the scheme needs to be simple. Excessively complex arrangements may impose considerable compliance costs on exporters and deter them from making full use of the available preferences, resulting in increased costs for EU importers and, in turn, higher prices for consumers.

The Commission has made a number of welcome simplifications in the scheme, including changing the basis on which countries are graduated from the
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scheme when they are competitive without support from preferences. Those changes, considering a wider range of products when considering competitiveness, should ensure that some of the unfortunate graduations that we have seen in the past of smaller and more vulnerable countries will not happen under the new arrangements. That, of course, is to be welcomed.

That higher-level approach to graduation will be good news for many of the countries affected by the Indian ocean tsunami on Boxing day last year. For example, Thailand and Indonesia have had preferences removed for their fishery and footwear industries respectively. Under the new scheme, they will regain preferential access to the EU market, giving their economy a welcome boost when they both face significant economic challenges in the wake of the tsunami.

Part of the simplification in the new scheme is the replacement of three special incentive arrangements—for labour standards, environmental protection and combating drug production and trafficking—with one special incentive regime for sustainable development and good governance, which is known as GSP+.

GSP+ will give additional preferences—close to full, tariff-free access—to those small and vulnerable countries that ratify a number of key human rights, labour standards and environmental conventions. It is appropriate that the EU encourages developing countries towards sustainable development and good governance through increased trade in that way. Sri Lanka, one of the other countries severely affected by the tsunami, stands to benefit from GSP+, along with a number of central American countries.

Two important elements of the GSP scheme are not revised in the regulation. The first is the special incentive arrangement for the least developed countries, known commonly as the “Everything but Arms” arrangement, which gives tariff and quota-free access to the EU market for all exports from least developed countries. Some have called for the scheme to be reconsidered, particularly in the light of EU enlargement, to slow down the liberalisation of the EU sugar regime. We have resisted those calls strongly, and will continue to do so.

Secondly, the rules of origin that determine the provenance of products, and therefore determine which products are eligible for preferences, are not part of the regulation. They are contained in another regulation. That, too, is now being revised. The current rules of origin, in the Government’s opinion, are excessively restrictive, and we have been working to simplify and to liberalise them to increase the uptake of the GSP. We will continue to do so.

Overall, the new scheme proposed in the document before the Committee will be targeted at the smaller and poorer countries, will be simpler than the existing arrangements and will enhance the preferential access to the European Union market for developing countries.

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The Chairman: We now have until 3 o’clock for questions to the Minister. I remind hon. Members that those should be brief and asked one at a time. There is likely to be ample opportunity for all Members to ask several questions.

Mr. Julian Brazier (Canterbury) (Con): To what degree, if any, have the new GSP+ proposals been drawn up as a result of negotiations with the countries themselves, or discussions with non-governmental organisations working in the region?

Mr. Alexander: There have been innumerable discussions on the new GSP+ arrangements. There have been discussions with the countries themselves. Several countries have been identified. I was involved in a series of discussions with the Government of Pakistan on my visit to the country earlier in the Session, and had the opportunity to meet both the Prime Minister and the Trade Minister, who were pressing extremely hard for the scheme. That is evidence of the sort of bilateral contact on the GSP+ scheme that there has been with European capitals and the European Commission.

Although Pakistan entered into the predecessor of the GSP+ scheme because of the challenge of drug production that it faces, we drew up the new GSP+ arrangements with a number of international conventions in mind, not least as a way of ensuring that Governments who could be eligible for GSP+ complied with the conventions. There have been several discussions.

I assure the Committee that trade policy in general and the role of GSP+ in the wider trade rules environment are the subject of continuing dialogue with NGOs in the United Kingdom and with civil society elsewhere.

Mr. Anthony D. Wright (Great Yarmouth) (Lab): Will the Minister explain the relationship between the GSP+ proposals and the European Commission’s reforms of the sugar beet sector, which are due to come into force in July 2006, and if they will have an effect on the GSP+ proposals?

Mr. Alexander: I am grateful to my hon. Friend for that question. Reform of the sugar regime, which is probably the single most protectionist element of the common agricultural policy, will be a high priority for the UK when it adopts the presidency of the EU in the second half of this year.We should recognise that there has been substantial reform of the CAP in the past couple of years, but further reform is necessary, although that will be a matter of contention among other member states.

As I said, sugar is one of the most highly protectionist areas, but we are determined to ensure that the GSP+ proposals, which are to be discussed at the European Council meeting this Wednesday, can be advanced in a way that does not prejudice the work that is being done on sugar reform.

Richard Younger-Ross (Teignbridge) (LD): Page 2 of the document states that the impact of the GSP has been reduced because of World Trade Organisation
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agreements and bilateral and regional free trade agreements. Will the Minister expand on the relationship between GSP and regional trade agreements? I wonder whether the GSP scheme puts countries under pressure to have bilateral trade agreements. As we are well aware, some of those free trade agreements are detrimental to some third world and underdeveloped countries.

Mr. Alexander: I am grateful to the hon. Gentleman for that question. First, let me say something about the place of bilateral trade agreements in the EU. I shall then talk about their interaction with the GSP scheme. It is fair to say that there is no pressure whatever on countries to sign up to economic partnership agreements that are the successor to the Cotonou agreements, which, again, have not found favour with the WTO.

The hon. Gentleman is right to identify the considerable concerns voiced by the NGO community in the UK on the role of the economic partnership agreements. Discussions on the EPAs are at a very early stage, but are continuing between the Government and the European Commission as we discuss our position with the Commission and between the Government and the NGOs.

The negotiating mandate for EPAs has been agreed with African, Caribbean and Pacific Governments. Although it is fair to say that they have a wide remit, a number of steps must still be taken to define the exact terms and shape of the EPAs. The UK Government have been greatly heartened by the recent statements by the new Trade Commissioner, Peter Mandelson, in which he made it clear that he meant to honour in effect as well as intention economic partnership agreements’ purpose of stimulating and supporting development.

As to the interaction with GSP, a concern for greater simplification and clarification within the scheme at present has been raised. When I meet members of the Governments of developing countries, I learn that they are concerned about negotiating capacity. There is much to be gained by improving clarity about the routes by which developing countries can gain access to European markets. Having said that, most African, Caribbean and Pacific countries who would be affected by the economic partnership agreements presently choose to trade with the European Union through the Cotonou agreements rather than the GSP scheme. In that context, the question will arise of the shape of the GSP scheme and whether it will be increasingly attractive to developing countries.

There are several aspects to the matter. First, we are replacing the Cotonou agreements with economic partnership agreements, discussions on which are at an early stage but continuing. Secondly, the Cotonou agreements are increasingly used by African, Caribbean and Pacific countries, rather than GSP, and we think that there is merit in arguing for bilateral trade agreements rather than GSP as a way towards interacting with ACP Governments. Thirdly, as to our work on GSP, we are determined to engage
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constructively with developing countries, and that is what we have been doing as the process has developed. That will go to the European Council on Wednesday.

Jim Dobbin (Heywood and Middleton) (Lab/Co-op): What will the Government do during their chairmanship of the G8 and the EU to promote fair trade?

Mr. Alexander: That is an apposite and topical question given that we are now in fair trade fortnight. It is fair to recognise that the G8 group, which will gather in Gleneagles from 6 July to 8 July, will not be the determining body on trade policy. Ultimately, those decisions rest principally either with the European Union, as in the case that we are discussing involving the GSP, or with the Doha development round of the World Trade Organisation.

That said, we regard the Gleneagles summit as an opportunity to shape the context in which decisions will be taken at the next ministerial meeting of the World Trade Organisation in Hong Kong later in the year. This week, with the publication of the Prime Minister’s Commission for Africa report, there will be an opportunity to begin to set the terms of discussion at Gleneagles, and to recognise some of the challenges that we have discussed today.

I mentioned the fact that the Committee documentation does not deal with rules of origin, but I should be surprised if those do not feature prominently in the Commission for Africa report, as they have, in many people’s eyes, become damaging to south-south trade in Africa as well as trade between Africa and the European Union.

Rev. Martin Smyth (Belfast, South) (UUP): I appreciate the Minister’s general line, but I want to return to the subject of sugar. The concern among NGOs has been mentioned, but the Commonwealth parliamentary delegation that is here this week is also concerned because in Guyana and Jamaica hundreds of thousands of people rely for their livelihood and their country’s prosperity on sugar production. Can the rights of those people be safeguarded? We should bear in mind what happens when individual jobs are lost in our constituencies, and think about the impact on those countries if hundreds of thousands of people lose their jobs.

Mr. Alexander: Let me first pay tribute to the hon. Gentleman’s work. I know that the subject is of some concern to him.

The proposed European Union reforms to the sugar regime aim to reduce European prices, whether over one step or two, to a level at which less developed countries will not swamp the European market. Several member states that oppose deep reform of the sugar regime have sought the support of less developed countries for reviewing the “Everything but Arms” agreement that I spoke about. We are not convinced that that would help. I shall try to explain how interaction with “Everything but Arms” is affecting the sugar reform approach.

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Sugar, as hon. Members will be aware, is a highly managed market regime, which maintains European prices at three times world levels at present, and which employs a system of national and, indeed, ACP quotas, to match supply and demand. Without reform, when less developed countries get quota-free access to the European market in 2009, there will be a huge supply response if prices remain considerably above world levels. That would inevitably produce a disequilibrium between supply and demand, calling into question the quota structure that has been put in place.

I have spoken directly with officials in the Department for International Development and across Government on the issue, and can assure the hon. Gentleman that there is an awareness of the need to provide assistance as restructuring takes place in the non-dollar banana-producing ACP countries, which have traditionally benefited from the quota system. We are of the view that the quota system does not offer the best way forward over the longer term, but we recognise that there can be considerable challenges, particularly in fragile island economies, such as those that he mentioned. That is why we are keen to continue working with them, to establish what assistance can be put in place to ensure a far more effective system in the European Union that better reflects world prices, but at the same time recognises the great needs of the farmers whom he mentioned.

Mr. Iain Luke (Dundee, East) (Lab): In the regulation, reference is made to Myanmar, or Burma:

    “Due to the political situation in Myanmar, temporary withdrawal of all tariff preferences in respect of imports of products originating in Myanmar should remain in force.”

People involved in the issues affecting that country are aware that there may have been access to the European Union through back-door methods, thus avoiding tariffs on products from that country imported into the UK or other member states. Myanmar is a military dictatorship that oppresses its people. We have taken a strong line against it. Will the Minister undertake to ensure that any bypassing of the tariffs is countered as strongly as possible?

Mr. Alexander: Let me begin my answer by again recognising the work that my hon. Friend has done on the issue over the years since his arrival in Parliament. With both the Burma Campaign UK and the all-party group on Burma, he has been a tireless campaigner for the human rights and interests of the Burmese people.

Burma is suspended from the GSP because of human rights violations by the current military regime and will remain suspended under the new scheme. The Government, of course, support that position. If the human rights problems in Burma are resolved, restoration of preferences through the GSP scheme will be considered.

Mr. Brazier: Bearing in mind that the old GSP arrangements made allowances for tackling drug production, human rights and labour rights issues, and environmental concerns, why has the list been expanded so much? Does the Minister really believe
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that providing good governance requires all 27 of the conventions to be signed up to, with all the expensive consequences that that brings?

Mr. Alexander: All the conventions do not need to be signed up to. Some are mandatory, but others are up to individual Governments, depending on the circumstances. The general aim of clarifying the EU’s expectations of those enjoying preferences under the GSP scheme is to be welcomed. There has been considerable discussion with the countries affected. The broad reach of the agreements, whether covering environmental sustainability, human rights or labour law, is to be welcomed. The balance between ensuring that those regulations have reach and retaining sensitivity to individual circumstances is about right.

One country with which, notwithstanding its considerable efforts in that regard, the Government support continued work is El Salvador. Because of the constitutional arrangements for ratifying such conventions in El Salvador, it has not signed up to the requisite number of conventions, notwithstanding the fact that the country has considerable needs. Many of us in the EU would welcome the opportunity for countries such as El Salvador to enjoy such preferences. That is why there are continued discussions with the Government of El Salvador. I hope that we will be able to find a means by which the requisite ratifications could take place.

It is fair to say that the GSP+ scheme gives greater benefits to recognise the additional range of conventions. In that sense, the incentives, in terms of preferences, are clear for the countries in question.

Tony Cunningham (Workington) (Lab): Following on from the hon. Member for Belfast, South (Rev. Martin Smyth), let me say that I am a former member of the ACP joint assembly, and I have some experience on this issue. I have two quick points. First, we are told that we are encouraging competition. When I was in the Caribbean talking to banana producers, one of them told me, “We can compete against anyone, including Ecuador and the big American companies. It’s not a problem. All we have to do is increase the amount of chemicals we spray, use child labour, get rid of the trade unions and halve the wages that we pay people. Is that really what you want?” Of course it is not.

Secondly, we are supposed to be encouraging diversification, but bananas are the only things that many Caribbean islands can produce. Bananas can be produced within six months, so if a hurricane comes along and destroys everything, they can have a crop within six months. They cannot do that with anything else, so the idea of diversification is not applicable to the Caribbean. Is the Minister fully aware of those concerns?

Mr. Alexander: I am grateful to my hon. Friend for that question. I can assure him that the ACP countries and Governments, as well as the NGOs that represent their interests in Britain, regularly make careful representations to us. However, let me make a general point before I try to answer the specific question that was put to me.

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The case that my hon. Friend outlined strongly supports the argument that the Government wish to uphold. Notwithstanding our efforts as regards the GSP and the European Union, our principal ambition in trade policy at the moment is to achieve a successful conclusion to the Doha development round. Only then will we address some of the broader issues that currently affect not only individual countries, but a range of countries.

For example, significant progress was made in Geneva in July, when the European Union and the American trade representative reached an agreement to remove export subsidies to agriculture over time. That was one of the developing countries’ principal demands. That gave us the momentum to get back on track after the disappointment of Cancun, but there is still a long way to go before Hong Kong in December, when the World Trade Organisation will have its next meeting.

Therefore, the best hope for a genuine pro-poor development round, which is the Government’s aspiration and, I am glad to say, the aspiration of Peter Mandelson, the Trade Commissioner, is for us to work hard not only on agriculture, but on non-agricultural market access and services, looking ahead to Hong Kong.

Let me now say a word or two specifically about the banana regime. As I sought to show earlier, the regime is not included in the GSP arrangements for the specific reason that preferences are granted according to the sensitivity of the product, and, for the reasons that we have discussed, bananas are excluded because of their sensitive classification.

For many years, the European Union has operated a banana regime for the African, Caribbean and Pacific countries, and ACP bananas have had free access under a quota system. As I am sure my hon. Friend is aware, that system was challenged at the WTO and the EU undertook to implement a tariff-only regime by 2006. The EU has recently announced that the tariff will be €230 per tonne. There is currently a great deal of discussion with the least developed countries about how to achieve exactly the outcome I mentioned earlier—one that is sensitive to the fragile nature of many of these island economies, yet meets our obligations under the WTO following its ruling.

Richard Younger-Ross: Paragraph 21 of the revised partial regulatory impact assessment refers to consultation with the Small Business Service. It says:

    “Initial contact with the organisations above has indicated that small firms are unlikely to suffer any significant impact. However, if as a result of formal consultation we identify any as yet unidentified or unintended impacts for small firms, we will consult further with the Small Business Service.”

Will the Minister outline further what form the consultation will take? The list of organisations consulted refers to

    “the Federation of Small Businesses, Forum of Private Businesses, Institute of Export, Asian Business Federation, British International Freight Association, Confederation of British Industry, British Chambers of Commerce, British Exporters’ Association, Asian Trades Link Association, SITPRO and British Importers’ Bureau”.

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The one organisation that will say that the provisions will have an impact on its members is the National Farmers Union. Will the Minister say what other organisations will be consulted? Will organisations such as the NFU be part of the consultation?

Mr. Alexander: Let me first say a word about how the regulations will impact on business generally. Because they deal with goods rather than services, any number of British businesses could be affected by the increase in trade between the countries that I mentioned and the United Kingdom markets. I understand that there has been a full public consultation, in which the NFU was involved, but I shall be happy to confirm that in writing to the hon. Gentleman.

All business sectors that rely on imports of these products, or which produce similar products in direct competition to GSP producers, will be affected by the proposals. The CBI was one of a number of key organisations and trade associations that responded on behalf of its members to the consultation. It was clear from the consultation that many UK businesses will benefit from the more focused graduation mechanism in particular, and from increased product coverage. As consumers of industrial parts, UK businesses will also benefit from the lower costs. However, it is also clear from consultation responses that a number of manufacturers, including some small and medium-sized enterprises, have based production and sales decisions on the later implementation date of 1 January 2006. The United Kingdom and other member states have pressed the Commission to extend the transition period to 31 December 2005 in order to address the issue of early graduation.

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