House of Commons - Trade and Industry

Select Committee on Trade and Industry Written Evidence

APPENDIX 16

Memorandum by War on Want

"Forcing poor countries to liberalise through trade agreements is the wrong approach

to achieving growth and poverty reduction in Africa, and elsewhere." Commission for Africa report, March 2005

INTRODUCTION

1. The EU's priorities for the conclusion of the Doha Round of WTO negotiations were agreed by the Council of Ministers in its October 2004 General Affairs and External Relations Council. The Council identified the industrial and services negotiations as the two key areas in which it wished to take forward the EU's "offensive agenda", and instructed the European Commission to pay close attention to furthering this agenda on behalf of EU business interests. At the same time, the Council instructed the Commission to continue its defensive battle on agriculture and to increase the focus on new protectionist measures such as "sensitive products" and geographical indications.[30]

2. The European Commission has taken these priorities forward in Geneva under the framework of the "July package" agreed by the WTO General Council in August 2004. Indeed, the Commission has intensified its efforts over the past year to promote the EU's offensive agenda within the negotiations on non-agricultural market access (NAMA) and the General Agreement on Trade in Services (GATS), while stressing that it is unable to offer any further reform of the Common Agricultural Policy, including the domestic subsidies which lead to dumping of EU produce on developing country markets. Commission officials confirmed once more in July 2005 that in the current round of agricultural trade negotiations the EU can offer only increased market access to imports from developing countries, not action on domestic support.

3. As before Cancún in 2003, the EU's strategy threatens to unbalance and ultimately to derail the Hong Kong Ministerial. While precluding any movement in relation to its own agricultural support regime, the EU has launched a new offensive targeting the industrial and services sectors of developing country economies. The principal features of this campaign are outlined in this submission, which responds to the Committee's brief of investigating the dynamics of the negotiations in the run-up to Hong Kong. Broader considerations of the impact of WTO negotiations on development, poverty reduction and workers' rights are not addressed in detail here, but can be followed up further via documents referenced in the footnotes.

NON-AGRICULTURAL MARKET ACCESS (NAMA)

4. The WTO's non-agricultural market access (NAMA) negotiations were left out of the limelight during the first three years of the Doha work programme. Stalemate in NAMA allowed more immediate debates to occupy the attentions of WTO delegates and civil society alike, while the collapse of the Cancún Ministerial over agriculture and the Singapore issues obviated the need for a showdown on NAMA at that time. Since the WTO's adoption of the "July package" at the beginning of August 2004, however, the NAMA negotiations have shot to the fore, and differences over NAMA now pose a real threat to any pro-development outcome of the Doha Round.

5. The EU identified the NAMA negotiations as a high priority in its joint submission with the USA and Canada just prior to the Cancún Ministerial, where the three members stated their intention to use the negotiations in order "to achieve commercially significant market access improvements" for the multinational corporations whose interests they represent.[31] It is now generally accepted that such gains will come at the expense of small producers and fledgling industries in developing countries, in sharp contrast to the benefits which these countries had been promised in the "Development Round". Opening up developing country markets along the lines proposed by the EU will expose infant industries to overwhelming competition from cheap imports from the world's most powerful multinational corporations, with disastrous consequences. Contrary to suggestions that domestic enterprises benefit in efficiency gains from the stimulation of foreign imports, the empirical record shows that huge numbers simply collapse under the weight of such unequal competition, leading to bankruptcies, mass unemployment and increases in poverty levels.[32]

6. The risks of premature liberalisation are now widely acknowledged, and the UK government has repeatedly affirmed that it will no longer use trade negotiations to force poor countries to liberalise their import regimes. As stated most recently by the Secretary of State for Trade and Industry, Alan Johnson, in his 26 September 2005 speech to the Labour Party conference: "In the past, global institutions have forced the poorest countries to open their markets to Western business before local producers had the capacity to compete. The poor bore the brunt. So we must reject the path of forcing liberalisation on developing countries."

7. In reality, however, the UK and its EU partners are indeed using the WTO's NAMA negotiations to force open the industrial and manufacturing markets of developing countries. The EU has pressed for the most "ambitious" market opening in the current round, rejecting developing country pleas for the flexibility and policy space which would allow them to protect local producers and develop their own industrial base. European Commission representatives have repeatedly castigated developing country delegates in public for resisting EU attempts to open up their markets, and have threatened to block progress on other issues in the round if their ambitions on NAMA are not satisfied.

8. The EU's most recent submissions on NAMA demonstrate how little the EU has been willing to accommodate developing country concerns. Pressing for the most extreme variant of formula for the reduction of industrial tariffs (the "simple Swiss" formula), the EU has attempted to restrict developing country flexibilities still further by requiring them to trade away the special and differential treatment (SDT) provisions granted them under paragraph 8 of the current NAMA framework. Developing countries have drawn attention to the guarantees in the Doha Ministerial Declaration that they should be granted both SDT and "less than full reciprocity" in application of the formula. By contrast, EU Trade Commissioner Peter Mandelson has stated that EU ambitions extend to achieving real cuts in the applied tariffs of developing countries, not just the bound tariffs which are negotiated at the WTO.[33]

9. The EU has claimed that its market access ambitions on NAMA extend to the more advanced developing countries only, and has tried to suggest that poorer countries will not be affected by the NAMA negotiations. Least developed countries and a dozen others with low levels of binding coverage (the "paragraph 6 countries") are exempted from applying the NAMA tariff reduction formula across their non-agricultural tariff lines, being required instead to increase levels of binding and, in the case of the paragraph 6 countries, to reduce their overall non-agricultural tariff average to that of developing countries as a whole.[34] In addition to the concessions which these countries will be required to make, all other developing countries face dramatic liberalisation of their import regimes. And it will be the most vulnerable populations of those countries who will be worst affected—irrespective of whether they live in large economies such as China and India or smaller nations such as Bolivia, Jamaica and Peru.

10. Developing countries have put forward their own proposals for a pro-development outcome to the NAMA negotiations. The proposal submitted jointly by Argentina, Brazil and India in April 2005 (the "ABI proposal") substituted a Swiss-type formula for the "simple Swiss" formula advocated by the EU and other developed countries, endeavouring to factor countries' existing tariff profiles into the equation used to determine how great each country's tariff reductions should be. The proposal submitted by Caribbean countries, and subsequently supported by several other developing countries, built on the ABI proposal by incorporating a range of other factors into the equation, whereby the level of tariff reductions would be determined according to each country's existing circumstances and development needs. This pro-development approach contrasts sharply with the market access ambitions of the EU, USA and other developed countries, which have attempted to relegate development concerns to the margins of the negotiations. Indeed, the EU—despite having been first among developed countries to dub the current round of negotiations the "Doha Development Agenda"—has rejected the ABI and Caribbean proposals as being inimical to the ambitious market access outcomes which it wishes to obtain for its own business interests.

GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)

11. Peter Mandelson, in his speech to the European Parliament's market access symposium on 19 September 2005, stated that obtaining market access for European service providers is "even more crucial" than the Commission's ambitions on NAMA. The EU has used the current round of services negotiations to present 109 other WTO members with a wide-ranging set of liberalisation requests, first seen in full in the leaked copies posted on the internet in February 2003 (see www.gatswatch.org). These have demanded extensive liberalisation commitments from developing and least developed countries as well as from other developed countries, including the now infamous request that 72 countries commit their water services under GATS.[35] As reaffirmed in the EU's 2005 summary of its revised requests, "the principal aim of the services negotiations is to improve market access for European services exporters in foreign markets"—a far cry from the supposed "Development Agenda".[36]

12. In order to create more pressure on other WTO members to deliver on the EU agenda, EU negotiators have regularly talked of a "crisis" in the services negotiations due to a supposed lack of new market access opportunities for EU service suppliers in the offers submitted by other WTO members—although in private many officials concede that this is more a strategy for the deliberate manufacturing of urgency than a true reflection of the state of play. Developing countries have long complained of the intense pressure brought to bear on them by EU negotiators in the context of the GATS request-offer process, which dictates that all such negotiations be held on a bilateral basis and in secret. European Commission negotiators have been reported for bullying developing countries in these secret meetings, and have earned a reputation in Geneva as the most aggressive and persistent demandeurs.

13. The European Commission is now attempting to press forward its GATS agenda by introducing a dramatic new proposal on "benchmarking" to the negotiations. First circulated in a non-paper to selected WTO members in June 2005 and since revised for broader circulation, the proposal aims to overturn the very architecture of the GATS agreement, whereby countries are supposed to determine in line with their own development priorities which sectors they wish to commit to binding liberalisation at the WTO, and on what terms. Instead of this "positive list" approach—which was the only basis on which developing countries agreed to the inclusion of services in the WTO's work programme—the European Commission is proposing a "common baseline" approach whereby all countries would be required to commit a predetermined number of sectors to GATS. This "benchmarking" would apply not only to developed countries but also to developing and least developed countries as well, and would include horizontal disciplines to intensify the liberalisation of sectors committed at the WTO.[37]

14. Several member states of the EU have expressed disquiet with the Commission's aggressive approach to benchmarking—not least because they were neither consulted nor informed of the initiative before the Commission presented it to other WTO members. The UK government has stated that it does not support the Commission's initiative, although it is unclear how far this opposition goes. Interestingly, the EU services industry has also expressed concern at the Commission's new proposal. Representatives of the European Services Forum, the business lobby created at the instigation of Sir Leon Brittan in order to direct Commission policy on services trade, have also expressed disquiet at the proposal—not so much out of concern at the consequences of the liberalisation commitments themselves, but in apprehension that introducing such a controversial initiative at this late stage in the negotiations threatens to hold up and even derail the entire process.

15. The vast majority of developing countries have rejected the Commission proposal on benchmarking, pointing out that it infringes the provisions of GATS Article XIX (reaffirmed in the modalities for the GATS negotiations agreed in March 2001) that all countries are entitled to make their own decisions as to which sectors to commit to binding liberalisation under GATS, and on what terms. There is negligible support from other developed countries, several of which have suggested their own ways in which to complement the request-offer negotiating process. Yet despite the widespread opposition to its new level of aggression from developing countries and civil society organisations alike, the EU's 133 Committee agreed at its 6 September 2005 services meeting that the Commission should take forward the proposal at the WTO.[38]

AGRICULTURE AND THE HONG KONG "DEAL"

16. According to the EU, the "deal" on the table for the Hong Kong Ministerial is that developing countries should open up their industrial and services markets in return for action from rich countries on their agricultural regimes. As stated by Peter Mandelson at the National Press Club in Washington DC on 13 September 2005, "An ambitious deal on agriculture in the so-called `North' is inextricably linked to meaningful market access elsewhere in emerging markets." Elimination of all EU and US farm subsidies which lead to the dumping of agricultural produce on developing country markets would be a clear gain from the WTO negotiations, if such an outcome were conceivable. Yet European Commission officials have repeatedly stressed that they are unable to offer further movement on domestic subsidies beyond that already achieved through the 2003 reforms of the Common Agricultural Policy. While WTO members are already committed to setting a "credible end date" for direct export subsidies by virtue of the "July package", it is now well established that the EU and USA will actually be able to increase the total level of subsidies they pay their farmers if their current proposals on agriculture are carried at the WTO.

17. Absence of progress on domestic subsidies would leave the prospect of increased market access as the only "gain" to developing countries in agriculture. Yet such an outcome is increasingly being seen as of dubious benefit in terms of poverty reduction and development. While greater access to EU and US markets may be a positive prospect at the macroeconomic level for those more powerful developing countries able to benefit from the new opportunities, the reduction of tariffs threatens the interests of African and other poorer nations which have traditionally relied on trade preferences to sustain their own export sectors. This prospect was well expressed in the EU's own internal assessment following the collapse of the Cancún Ministerial, which stated: "In general terms the African countries have more to fear than to gain from the Doha Round. They have almost no offensive interests and, on the contrary, a lot of defensive interests (fear of losing their preferences on the EU markets, wish to protect their infant industries, general problem of supply side constraints)."[39]

18. Even within those developing countries with the supply side capacity to take advantage of new market access opportunities, it will again be the most powerful producers that benefit most. Nor is this a neutral outcome for the poor. The most vulnerable communities risk being driven further into poverty as a result of competition for land, water and other essential resources from the intensified export orientation of their agricultural sectors—as in Brazil, where local War on Want partners reliant on the non-wood products of the Amazonian forest for their own subsistence have seen their livelihoods threatened by the expansion of soy and cattle farming.

19. Yet even if developing countries could be assured a genuinely positive outcome on agriculture, including an end to all subsidies which lead to dumping on their local markets, this is no justification for their having to give up their own chances for development by reciprocating through concessions on NAMA and GATS. As stated in the UK government's 2004 Trade and Investment White Paper: "Clearly, we should not expect poorer countries to pay a `price' for any `concession' on subsidies, tariffs or market opening by a developed country—as trade negotiators too often imply. Instead we should make these reforms willingly, both because they are the right things to do for the developing world, and because they are in our own interests."[40]

20. In this respect, Peter Mandelson's statement to the WTO's General Council in July 2005 that he wishes to see "equality of pain" from developing and developed countries alike is unacceptable.[41] Such an approach fails to recognise the structural damage which liberalisation of industrial and services sectors could inflict on developing country economies, and the long-term poverty this will bring to the most vulnerable communities in the world—a "pain" quite out of proportion to any suffered as a result of reducing agricultural subsidies already targeted disproportionately at the richest farmers in the EU.

CONCLUSION

21. It is widely accepted that the Cancún Ministerial collapsed as a result of EU and US intransigence on agriculture and EU attempts to expand the WTO's agenda into the Singapore issues of investment, competition policy, government procurement and trade facilitation.[42] There is now a significant risk that the Hong Kong Ministerial faces the same threat of collapse as a result of the EU's offensive agenda on NAMA and GATS—an agenda again shared with the USA and other countries. It will be a disastrous outcome for developing countries to leave Hong Kong with any deal akin to that which is currently on the table, while a collapse will be yet another lost opportunity to reorientate world trade rules in favour of development. In fact, it may be the WTO's last chance to show that it can answer the development needs of the poor rather than simply the business interests of the rich.

22. The UK government has a special responsibility to ensure that the EU's aggressive strategy does not lead to another negative outcome for developing countries. Not only does the UK hold the EU presidency at this crucial time, thus chairing all meetings of the EU's 133 Committee and Council, but it also occupies a particularly influential position within the EU bloc as a longstanding champion of trade liberalisation. This hawkish reputation would make UK action to change the EU's offensive agenda far more effective than would be similar calls from the French government, for instance, whose motives would attract obvious suspicion.

23. Yet the UK government has made no secret of its continuing drive to use the WTO negotiations on NAMA and GATS to press for maximum trade liberalisation from developing countries and thereby to open up new business opportunities for British companies in the emerging markets of the developing world. Despite its increasingly pro-development rhetoric on trade, the UK has by its own admission been at the forefront of the EU's "ambitious" market access strategy, rejecting developing country pleas for flexibility in the NAMA and GATS negotiations and demanding instead the maximum possible market opening—especially from those major economies which offer most promise to British business interests. This double game of professing a pro-development creed and yet demanding extensive liberalisation from developing countries at the WTO is a direct breach of Labour's 2005 manifesto affirmation: "We do not believe poor countries should be forced to liberalise."

24. For this reason, War on Want and the other members of the Trade Justice Movement and Make Poverty History coalition are intensifying the pressure on the UK government to abandon its aggressive agenda and change that of the EU. MPs will face another indication of the strength of public feeling on this issue via the mass lobby for trade justice on 2 November 2005, just as the government is even now receiving thousands of written appeals from War on Want activists and others up and down the country. The Trade and Industry Select Committee can fulfil an important role in holding the government to account for its anti-development agenda, and in eliciting from government what plans it has in place to ensure that the EU's negotiating strategy does not lead to the collapse of the WTO Ministerial in Hong Kong.

September 2005