Memorandum submitted by Rt Hon Peter Mandelson,
EU Commissioner for External Trade and Competitiveness: Answers
to written questions submitted by the International Development
Committee
THE IDEA
OF A
DEVELOPMENT ROUND
In its last trade report, Learning the lessons
from Cancún to revive a genuine development round, [HC
92, Session 2003-04] the International Development Committee said
that the components of a genuine development round were:
(a) development friendly agreements on a
range of specific issues;
(b) effective participation by developing countries;
and
(c) development-friendly rules.
Oxfam argue that a development round should:
(a) reform northern agricultural policies to
end dumping,
(b) provide developing countries with sufficient
policy space, and
(c) increase access to rich country markets
for developing country farmers and industry.
1. What, in your understanding, would the
outcome of a "development" round look like?
A Development Round needs to put trade at the
service of development.
Three key goals: first, use new market access to
increase trade for developing country exports, which generates
new revenue—without developed countries asking for the same
market access in return. This applies in agriculture, but also
in industrial goods and services. And crucially, it must mean
developing countries providing new market access to each other—"south-south"
trade. Developing countries pay more and much higher tariffs to
each other than they do to the developed world, and they do most
of their trade in industrial products, not in farm goods. While
many in developing countries subsist as farmers, for geographical
reasons they may not have the capacity to trade their way out
of poverty as farmers, especially not in competition against highly
advanced farm exporters in the developing world like Brazil and
Argentina.
Second, end the subsidisation of agricultural production
and export in the rich world when it effectively excludes developing
country products from our markets or even from their own markets.
Third, recognise and act to change the structural
barriers to effective commerce in much of the developing world,
especially sub-Saharan Africa. That means new trade facilitation
rules to improve the way customs services work together and to
reduce the potential for corruption. It also requires big new
commitments to "Aid for Trade"; development funding
targeted at building the roads, bridges and ports that are necessary
for trade, and helping developing country exporters to meet the
high health and safety standards for exports that we apply in
the developed world. Note that Europe, which already spends more
on Aid for Trade than the rest of the developed world combined,
has now pledged to spend almost three billion euros a year by
2010.
2. How far do the outlines of what is currently
on offer meet these criteria?
I have noted some progress already made. One
important achievement in Hong Kong was the extension of partial
duty-free quota-free market access for least developed countries
by developed countries and advanced developing countries. It is
regrettable that the US, Canada and Japan were unable to match
the EU's duty and quota free market access for all products from
all least developed countries at this stage—but we will
continue to exert pressure for this.
Similarly, we made progress in Hong Kong on cotton
subsidies, which is a very focussed development issue but absolutely
central to West African development. However we need to maintain
pressure on the US to reduce domestic subsidies to cotton producers
that are collapsing international prices.
Let's use the Oxfam criteria as a template. As it
is currently being negotiated the Doha Round comes very close
to Oxfam's three criteria, at least in terms of the EU approach.
Consider:
The EU has agreed to end all export subsidies by
2013 and dramatically reduce trade-distorting farm subsidies by
70%. Thanks to our 2003 CAP reform almost 90% of direct payments
to farmers are already non-trade distorting. We are now looking
for equivalent commitments from others in the developed world.
The EU has clearly said that it respects the need
for "policy space" in the developing world—either
to continue subsidising agriculture for food security or social
welfare reasons, or to shelter growing industry from tariff cuts
in manufactures. The EU's requests for new market access in industrial
goods apply only the a handful of emerging economies like China
and Brazil with strong and growing industrial sectors—and
even here we have offered substantial flexibility to exclude and
shelter industry from tariff cuts. From the rest of the developing
world the EU has asked for commitments based only their own assessment
of their capabilities and from the poorest Least Developed Countries
the EU has asked for nothing.
The EU has offered substantial tariff cuts in both
agriculture and industrial goods, including removing our tariff
peaks and tariff escalation. Remember that the EU already has
the widest, and most widely utilised, preference arrangements
for developing countries in the global economy. All products from
the 50 Least Developed Countries already enter the EU duty and
quota free. More than 90% of the exports of the ACP countries
already enter the EU duty free. 97% of all developing country
exports to the EU enter our market at preferential reduced rates.
So even before we start cutting MFN tariffs our market is already
the most open in the world to developing country exports.
Nevertheless, tariff reduction is vital to creating
new trade, but as a development mechanism it has to be weighed
against the effects of the preference erosion that it implies.
New market access in agriculture will be quickly snapped up by
a handful of producers like Brazil and some of the poorest countries
in the world rely on their preferential access to be competitive
in the EU market. So reductions have to made gradually, and carefully
flanked with measures to help adjustment in the countries affected.
That is what the EU has proposed.
Tariff reduction also cannot be limited to developed
countries and should not be restricted to agricultural trade,
for the reasons I have already suggested. Not only is some three
quarters of developing country trade in industrial goods, but
so are the bulk of the tariffs they pay—most of which they
pay to other developing countries. Likewise, services trade can
provide a vital means of transferring expertise between developed
and developing countries, and when it brings investment with it
is an important way to build the transport, communications and
banking sectors that are the backbone of a growing economy. Obviously
in the Doha Round, many of these decisions to liberalise will
remain discretionary for many developing countries, but we should
nevertheless emphasise some of the potential gains that exist.
3. What would need to be done now—before
April—and again before July—in order for the Round
to be able to live up to its nomenclature?
There has been some progress since Hong Kong,
with intensive work in Geneva and a series of productive bilaterals
at the Ministerial level.
Our objective remains to ensure that all participants
contribute according to their capacities, and in particular that
developed and advanced developing countries contribute to a significant
outcome in industrial goods and services.
We have been pushing hard to get full recognition
of the value of our agricultural offer of 28 October 2005 and
to push other developed countries to make matching efforts in
agriculture, notably the US on domestic support, non-emergency
food aid and export credits and Canada and New Zealand on state
trading enterprises.
We need to ensure that with much effort focussed
on ensuring an agreement on modalities for agriculture and industrial
goods, that services and rules negotiations do not get left behind.
We just had an informal Ministerial gathering hosted
by the EU in London with the EC, US, Brazil, India, Japan and
Australia. The objective was to lay the basis of a first approximation
of the end-of April package. We didn't expect any breakthroughs
and none were made, but there was progress in some areas and we
have continued to try and close the gaps between us and send a
positive signal to the wider membership in Geneva that an ambitious
agreement is possible. The timetable is tight, but we have to
remain ambitious and committed to the April deadline.
4. Should the EU, as an act of good faith
towards developing countries, indicate how far it would be willing
to go in agriculture, if the relevant offers from advanced developing
countries in NAMA are forthcoming?
The EU has already made a very substantial offer
in agriculture and has worked hard to explain the new market access
it offers. The value of the offer has become much more widely
recognised, which is why you no longer hear calls for further
unilateral EU moves on agriculture. There seems to be growing
sympathy for our argument that there needs to be balance across
the board of the Round, and a realistic outcome on industrial
goods and services. And that these are development goals.
Any further EU margin of manoeuvre in agriculture
could only even be considered if other key partners make act to
balance the negotiation by making offers on manufacturing trade
and services, which is not yet the case, although there have been
useful bilateral signals.
Again, the structure of global agricultural trade
means that Doha's chief development gains will not come in agriculture,
and especially not from simple farm tariff cuts. There is ample
research (World Bank, Carnegie Endowment) that suggests that new
market access in farm goods will be snapped up by a few highly
competitive farm traders like Brazil. Our development bona fides
are reflected in: our commitment to addressing preference erosion;
our commitment to boosting aid for trade and improving trade facilitation;
our commitment to special and differential treatment for developing
countries; our commitment to Round for Free for Least Developed
Countries; our commitment to providing policy space for developing
countries to nurture farming and small industry; our commitment
to ending export subsidies in agriculture and dramatically reducing
trade-distorting farm subsidies. All of these things are already
on the table.
5. Was the Doha Round premature?
The simple answer is: consider the alternatives.
The Round is important for the simple reason that if we were not
having a multilateral negotiation then we would be having bilateral
negotiations, and these do not necessarily work in favour of developing
countries—in fact the size asymmetry of many bilateral trading
relationships between the developed and developing world often
makes them extremely difficult. There is no practical prospect
for broad and deep agreements which could really contribute to
enhancing South-South trade for example—particularly to
the advantage of small economies with little negotiating weight—and
it is here where so much development potential is currently locked
up.
Without Doha, G20 countries would lose the same possibility
of improved market access opportunities to developed country markets—notably
the EU agricultural market access offer: the most important offer
ever made by the EU in this field. They will have to wait a long
time before seeing anything comparable in a bilateral deal.
As to G90, ACPs and LDCs, which are less competitive
than the G20 in many regards and fear to lose out on current preferential
access to our market, they will actually miss a much greater long
term opportunity of a wider of access to all WTO member states,
and especially to other developing countries.
Countries exposed to preference erosion would be
compensated if preference erosion takes place in a multilateral
framework; on the contrary, they would have to endure it with
no compensation/adjustment if their tariffs will be eroded by
bilateral agreements in which they have no role to play.
Finally, all developing countries and the G90 countries
in particular, will miss the opportunity to get substantial "global"
Trade Related Assistance package, notably in the field of trade
facilitation, which would help them to increase customs revenues,
decrease costs to consumers and business and mean fewer delays
for traders.
6. Has the Doha Round tried to include too
many issues for which, in some cases, the implications are not
yet fully researched?
I don't think so. We certainly have to guard
against the simplistic assumption that trade is a magic wand for
development. If anything, the Doha Round sometimes seems to have
shed too much in terms of a sophisticated wider debate on the
value of progressive but grqduqted liberalisation for development.
The focus on agriculture is deceptive from a development point
of view, and there is still too little appreciation of the role
of services and industrial trade in a successful development outcome.
The same could be said of the benefits locked up in a successful
trade facilitation negotiation. The wider impact of liberalisation
on existing preferences is well recognised in the wider WTO membership
and must be reflected in the final outcome.
7. Given the assumption that nothing is agreed
until everything is agreed, and given the relative lack of capacity
in developing country delegations to fully understand everything
in final agreement, how could the EU reassure the developing countries
that they will not lose out in this round?
Obviously we are working with all our WTO developing
country partners to ensure that the final deal is shaped in a
way that reflects their needs and their vulnerabilities. In the
final analysis, the poorer developing countries will simply not
sign up to a deal that does not. I mentioned our development commitments
above—I have made these clear to our G90, G20 and LDC partners.
8. What can be done to reduce the percentage
of products designated as sensitive within the EU?
(Roger Liddle told the Committee that "if
you cut agricultural tariffs too fast, some of the biggest losers
will be the poorest countries who get access to our markets through
preference schemes." The World Bank, and others, have argued
that the losses incurred by net food importers would be more than
offset by the gains to food exporters. Alan Winters told the Committee
that the LDCs are only a small part of world trade. They are not,
and should not be, the focus of EU trade policy because this would
distort trade too greatly for the rest of the developing countries
who are much more numerous.)
This remains an element of our offer that could be
returned to in the context of substantial new commitments from
others in other areas.
Remember that designating a product as sensitive
does not shield it from tariff cuts but applies reduced cuts.
All products finally designated as sensitive will be subject to
tariff rate quota expansions.
Beef, for example, is likely to be an EU sensitive
product but we calculate that our offer will see 800,000 new tones
of beef imported to the EU every year—that's the same as
the total beef exports of Argentina. Seven billion new hamburgers
a year.
9. Did the developing countries accept the
EU defence of slower agricultural tariff cuts in Hong Kong?
So far the Doha negotiations have been driven
by the demands of competitive agricultural exporters for further
agricultural tariff cutting by the EU. In eliminating its export
subsidies and trade-distorting domestic support, reducing its
highest tariffs, the EU is already offering to bind into the WTO
substantial changes in agriculture, so that all developing countries
can exercise their comparative advantages from farm liberalisation,
both in subsidies and tariffs.
However, if US tariff reduction demands were accepted,
this would wipe out between half and two thirds of the preferential
agricultural trade between Europe and the poorest developing countries.
Do they recognise this? I think they do. Our offer is calibrated
to offer our steepest ever farm tariff cuts while respecting the
burden of pain bearable by European farmers and farmers in the
developing world dependent on our preferential arrangements. I
think this is recognised by our ACP and LDC partners.
10. How can the WTO system best ensure that
the developmental needs of the poorest are not sidelined in discussions
between the powerful?
Trade is good for development—but it is
not a simple cause and effect. Trade opening has different effects
on different countries. Brazil is not Burkina Faso. Mauritius
is not China. The different interests of developing countries
have to be recognised in the DDA and the WTO system.
Hong Kong brought out these divergences. Between
the LDCs and those other DCs who want LDC privileges (as if being
an LDC is a privilege!). Between the rapidly emerging economies
without tariff preferences and the G-90 with them; between those
who want aggressive liberalisation—in agriculture, at least—and
those who need a greater comfort zone to adjust gradually to global
trade, increased competition and reduced preferences. Indeed,
between countries who seek development in order to maximise wealth
for a few and those who want to spread the benefits of trade across
their people.
Recognising these differences is about recognition
of special needs. This is what the "special and differential
treatment" set out in the Geneva Framework Agreement in 2004
is all about. The EU is committed to a WTO that works this way.
One of the more positive outcomes of the Hong Kong
ministerial was that everyone agreed to keep negotiating, despite
limited progress. The implication of this is that the multilateral
system, upheld by the WTO, while imperfect, may just trump the
alternatives.
March 2006
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