Examination of Witnesses (Questions 40-59)
RT HON
PETER MANDELSON
AND MR
PETER THOMPSON
23 JANUARY 2007
Q40 Hugh Bayley: I think you are
right to challenge the WTO doctrine that nothing is agreed until
everything is agreed. If you do not get a deal on the WTO agenda
as a whole you have been floating this idea of agreeing a development
package. What would it contain and will that be supported? Will
that actually happen?
Mr Mandelson: No, it has not been
to date by a number of my colleagues in the developed world. Even
among some developing countries they were sceptical of my raising
this at the time because they feared that it would be, as it were,
an alternative to a full tariff-cutting, liberalising round which
they regard as being most in their interests as developing countries.
I was not proposing an agreement to a development package as an
alternative to a proper liberalising trade round so the developing
countries do not need to be so defensive towards my proposal on
that basis. All I was saying was that for LDCs, the least-developed,
for whom liberalisation is not an early answer, let alone a panacea,
there are aspects of our negotiation on which we have reached
tentative agreement, like duty-free, quota-free access for LDCs.
Obviously, there is a difference between ourselves and the Americans
and the Japanese and the Canadians on that. We in Europe are virtually
100%, we are for every product in every country, save for sugar
until 2009. The US says, "We cannot go that far. There are
a number of products where we cannot extend to full duty-free,
quota-free", Japan the same, but that is an example of where
I believe that during the suspension of the negotiations we can
continue to talk, to make progress and to see whether we could
not edge the United States and Japan further along that route.
As it happens it was not possible. They would not continue with
that negotiation during the suspension as a whole. Another aspect
where I wanted to continue to make progress was Aid for Trade,
where again the European Union has made an €800 million commitment
from the member states, rising to a billion by 2010, and getting
that framework in place for the use of that Aid for Trade and
getting commitments raised from the rest of the developed world
was another activity which I thought usefully could continue during
the period of suspension, and in that case it has continued. I
am not looking to a development package as an alternative to an
overall outcome of this Round which by definition is a development
outcome, but there are particular measures we can target at the
least-developed in addition to the overall outcome of the Round
which are important and which we in Europe have been sustaining
and keeping in place during the period of suspension to some good
effect but not with the complete effect that I would like to have
seen had the US felt able to engage further in the detail of the
duty-free, quota-free proposals for the least-developed countries.
Q41 Chairman: Given the complexity
and the details of delays and now the time pressures I am sure
you have got your eye on the ball but is there any danger that
we could break the deadlock in Europe and the USA and then find
developing countries rejecting it, simply saying, "You have
not given us enough on development", and bringing the house
down?
Mr Mandelson: Do you mean the
least-developed countries or do you mean developing countries
as a whole?
Q42 Chairman: Given that everybody
has to agree, yes, as a whole. Can the US and the EU break the
logjam? Is there any danger, do you think, of somebody outside
that doing so?
Mr Mandelson: The only danger
would be if some developing countries in the G20 and the G33 group
thought that I had gone too far and conceded too much on agricultural
liberalisation. If they thought I had gone too far then they would
pull the plug on it, but for Brazil and others the sky is the
limit, they are so competitive. Forother developing countries
they will be very disappointed, to put it mildly, if they think
I am conceding too much to the US on agricultural liberalisation.
Q43 Mr Singh: You mentioned the budget
for Aid for Trade and the European Union's budget. What do you
see that budget being spent on and why is Aid for Trade in the
EU being linked to the Economic Partnership Agreements? What are
those linkages? I am not very clear about that.
Mr Mandelson: Because in the Economic
Partnership Agreements the emphasis we have is increasingly the
ability and capacity to trade of some of the poorest countries
in the world, the ACP countries. The point of the Economic Partnership
Agreements is the recognition that trade liberalisation alone
is not an answer or a panacea to development needs in those countries
and that what we need to do is other things. We need to put in
place local and regional customs union and trade opening arrangements
amongst those countries so that their markets grow, their opportunities
for trade with and amongst ACP countries within those regions
will be increased and that new rules and conditions for investment
will lead to higher inflows of foreign direct investment to those
developing countries. This is very important because the thing
that is principally holding back the development of ACP countries
is not market access to Europe. They have full market access to
Europe but, depending on those preferential trade arrangements,
the rather classic, traditional approach to freeing up trade I
am afraid has not led to the development of those countries' economies
and indeed their share of trade is shrinking, not growing, so
that clearly indicates the need for different and better policies
to be put in place, both, as I say, those that grow their regional
markets to promote trade but also to put in place conditions for
investment that will increase FDI[18]
flows into those groups of ACP countries. This requires policy
reform and change, which is not always welcome and where there
is not always a consensus or unanimity amongst those governments,
so you have a hard struggle overcoming the policy resistance that
reformers in those ACP countries encounter. I could name you any
ACP country where the governments and the political leaders are
divided into reformers and progressives, as it were, who see that
the existing arrangements are not delivering and need to be changed
and those of a more conservative disposition who perhaps have
a particular vested interest in the status quo, who do not want
to see trade liberalised or markets regionalised and opened up
to greater intra-regional trade. This is hotly debated within
these countries but I have no doubt at all that, in addition to
putting in place those conditions but also making available the
development aid and assistance through Aid for Trade and through
the 10th EDF from which considerable aid will be forthcoming,
they should be using that aid to invest in infrastructure, better
governance, more efficient customs organisation, whose failures
at the moment are preventing those ACP countries from taking advantage
of the opportunities for trade that exist but which at the moment
they are foregoing or being cut off from because the capacity
to produce more intra-trade to take advantage of those opportunities
does not exist. What we have to do in Europe is make sure that
we have the right policy mix— trade liberalisation, conditions
for investment, development assistance—that will provide
adequate investment in the capacity of those countries to enable
them to grow their share of world trade rather than see it continue
to shrink as it is doing at the moment.
Q44 Joan Ruddock: It all seems eminently
sensible but, of course, the ACP countries are saying they need
more time and the EPA discussions are obviously taking longer
than was anticipated. One of the issues that we have heard could
be significant in this is the argument that there is no extra
money, that the money that is being spent already is not going
to be sufficient to enable them to make the kind of transition
that you are recommending.
Mr Mandelson: If I thought that
extra money would do the trick, and indeed would be spent on development
programmes and the causes to which it is dedicated, I would be
very happy to go to our member states and argue for more. At the
moment the sums available for the implementation of these agreements
within the 10th EDF are more in my view than ACP countries have
the capacity to use.
Joan Ruddock: Really?
Chairman: Are you talking about infrastructure?
Mr Mandelson: Be under no illusion.
From the 9th to the 10th EDF there will be a massive increase
in development assistance from €13 billion to €22 billion.
Q45 Joan Ruddock: So it is political?
They are dragging their feet?
Mr Mandelson: And that is before
the Member State money, which is separate from the 10th EDF, can
be added on top of that. Believe me, if there is an issue of funding
it has been used for reasons other than funding. It has been used
for political reasons.
Q46 Joan Ruddock: So they are saying
they need more time. Are you going to consent to more time? Is
the Commission going to consent to more time?
Mr Mandelson: It is not within
my power to give that consent. The WTO has given a waiver until
the beginning of 2008 for these new arrangements to be negotiated.
That is our cut-off point and it is not within my power to extend
that period of negotiation, so those ACP countries who think that
if they procrastinate or filibuster or drag their feet until the
end of the year because they are against the ideas and the principles
of changing those trade arrangements (in my view unquestionably
in a favourable way) they will then get an extension of a number
of years, they are going to be sorely disappointed, and if they
do go back to the WTO for a further waiver it will not come for
free. There will be pain in further erosion of their tariff preferences
because the rest of the WTO membership will say, "Look: we
gave you seven years to negotiate this. If you cannot get it done
in seven years then it is the will that must be lacking, not the
means, and what you want to do is to free ride on the rest of
us in the WTO with preferential trade arrangements with the European
Union which we said you could only have in their present form
until the end of 2007, and you want a waiver simply because you
want to increase your privileges which are not available to the
rest of us in the WTO." The WTO membership are not going
to turn round and say, "You can have as long as you want".
Q47 Joan Ruddock: If there is going
to be an extension, which you think might not happen, but if there
was to be an extension, are you saying that the existing preferences
with the EU would definitely end?
Mr Mandelson: They would not end
but they would pay a price for further erosion, which would involve
the ACP countries in significant trade loss and economic loss.
Q48 James Duddridge: I am interested
in the level of differentiation that you think is permissible
within EPAs and specifically I am mindful of the SADC[19]
countries and that the big difference is between South Africa
and other SADC countries.
Mr Mandelson: You cannot treat
South Africa in exactly the same way as LDCs within that regional
grouping. South Africa entered the WTO as a developed country
economy. It cannot suddenly convert itself into an LDC operating
the same conditions and access as amongst the poorest in Africa,
so that is an issue that has to be resolved. I think that with
goodwill on all sides, South Africa and the European Union and
other SADC countries, we will be able to do that but we must find
a solution for that.
Q49 James Duddridge: Where is that
solution going to come from? I am unclear as to the negotiating
position of South Africa within the SADC countries and the SADC
negotiating position with the other global negotiators.
Mr Mandelson: What will be the
effect on it, do you mean? What will be the effect on their wider
trade relations?
Q50 James Duddridge: What is the
process and who are involved, both from the South African perspective
and the SADC perspective?
Mr Mandelson: They are involved
within that regional grouping. We have to find a solution that
is acceptable to all. South Africa is a very big economic elephant
within that grouping and we have to find a route around that elephant
without excluding South Africa from the grouping or the benefits
of having that relationship. Remember that South Africa already
has a privileged trading arrangement with the EU. We have a free
trade agreement operating between the EU and South Africa so there
is no question of South Africa losing out. They already have considerable
benefits.
Q51 James Duddridge: You seem to
be saying to me in different ways that we need to find a solution.
What I am trying to get an indication of is what your view or
the Commission's view of that solution might be.
Mr Mandelson: The solution I would
like to see is a single trade regime governing our trading relationship
between the EU and all the SADC countries but there would be some
limited exceptions to that trade regime for a limited period which
we would have to negotiate with SADC.
Q52 Chairman: But that does imply
that some of the SADC countries outside South Africa would effectively
be having their markets opened up more quickly than they would
otherwise be if they were just being treated as a comparable developing
country. They are almost being penalised for being part of a region
with South Africa.
Mr Mandelson: Is that so? Why
would that be the case?
Mr Thompson: The implication of
"can form an agreement" means that they would have to
open up just like any of the other EPA countries.
Mr Mandelson: Do you mean because
they have South Africa amongst their number?
Q53 Chairman: Yes. I do not know
but the implication of what our briefing tells us is that they
are being put under pressure to liberalise as if they were South
Africa, and obviously they are saying, "A lot of us are not
as rich as South Africa".
Mr Thompson: But that is a question
of negotiating amongst themselves in that case because it is to
do with what they do with their own regional market vis-a"-vis
us.
Q54 Mr Davies: The question is whether
the EPA is going to impose differential requirements, not just
on the EU and the Africa partners but also within the Africa partners.
Mr Mandelson: But their nervousness
is that as part of the EPA they would be opening up within the
sort of regional trade and customs regime that would lead to them
being swamped, as it were, by South African goods. That is what
they are principally nervous about and I understand that and that
is why we have to negotiate that in a particular way and in a
different way from the other EPA groupings.
Q55 Mr Davies: There would be double
asymmetries here, not just an asymmetry between the EU and the
EPA but within the EPA. That is the unique feature of this EPA?
Mr Mandelson: Yes.
Mr Davies: I have got it.
Q56 Richard Burden: The implication
of what you were saying a little earlier on is that if, say, you
took the so-called Singapore issues, a lot of what is in there
would be of benefit to a lot of LDCs.
Mr Mandelson: Not LDCs so much
but certainly the more competitive developing countries. I do
not think the LDCs quite have the condition or platform to take
on those commitments in the way that other more competitive developing
countries do.
Q57 Richard Burden: Okay; if we take
those over to EPAs then it has been the Commission's position
that the Singapore issues would not be included in any of the
EPAs unless they were specifically requested to do so?
Mr Mandelson: I would want them
voluntarily taken on, negotiated and tailored to the development
conditions of those countries and progressively implemented over
a fairly long period. The reason I say that is that until and
unless they put in place conditions for investment, for competition,
for governance, for procurement and trade facilitation they are
not going to utilise the full trade benefits of the greater opening
that they would be taking on, but none of this anyone is imagining
can or will be done overnight. We are talking about lengthy implementation
periods, but without question in my mind developing countries
are the losers from the removal of the so-called Singapore issues
from trade negotiation, because for development they need investment
and they need flows of foreign direct investment. What conditions
those flows is the operation of rules that affect that investment
in the countries and the economies concerned. If you think of
yourself as an international investor, and capital now is more
mobile internationally than it has ever been in our existence,
are you going to go to a country or an economy where your investment
is going to be legally unsound, unprotected, not governed by any
agreed governance or rules operating in those countries? Of course
not. You are going to take your investment where it is going to
be properly protected. You only have to see the flight of African
capital from Africa to understand the effect of these conditions
and if you do not have proper rules for investment then investors
will take that capital elsewhere. The best illustration of that
is in Africa itself and I am talking about African capital.
Q58 Chairman: When you get these
arguments about different groups saying, "We are not convinced
we are getting a fair deal. We are being asked to give up things
and we are not going to get enough back", is it coming from
them? Are they being wound up by NGOs? To what extent are there
cross purposes in this debate based on misapprehensions or misperceptions?
Mr Mandelson: It is a mixture
of things. It is an apprehension about the colossal and fast-moving
changes that are taking place in the global economy and an ambivalence
towards those changes, and that ambivalence consists of an attitude
on the one hand of, "God, the world is changing, it is changing
fast, we have got to be part of the action. Let us join the world
and not be left behind", and another attitude which is, "Join
that world and we are going to sink without trace. Let us erect
some protective walls and shelter from what is going on in the
global economy".
Chairman: But that may be a fair perception
in some instances.
Mr Mandelson: It is, but it is
also not going to alleviate poverty or bring about development
or economic growth in those countries. My view is this, that you
do not want to encourage developing countries to isolate themselves
from the international economy. You want instead to find the right
policy mix and the sensible moves that you can assist with by
which developing countries can step-by-step move towards and become
integrated into the international economy. Different developing
countries and different conditions of development will do so in
different ways at different speeds with different resource needs
and assistance needs from the likes of Europe. It is finding and
adapting and tailoring the policy mix to different developing
countries who are experiencing different states of development
and have different needs which is the challenge and the trick
which we have to pull off when we are trying to marry trade policy
and development policy. When I came to this job one of the earliest
speeches I made was at the London School of Economics in February
2005, which I called "Putting Trade at the Service of Development".
You cannot separate these two things. One is the driver of the
other. If you embark on a course the purpose of which is to limit
your trade growth, limit your integration into the global economy,
limit the steps that you can take by multiplying the development
benefits and potential of creating a more regional base and market
to assist your development as a stepping-stone to economic growth
and strengthening which enables you to be a stronger participant
in the international trading system, then what you are saying
is that you are going to cut yourselves off indefinitely and you
are resigning yourselves to inexorable economic decline and inexorable
shrinking of your share in world trade and growing markets which
is going to drive you further into poverty, not enable you to
climb out of it. I am not expressing something which is original
or new. So much is obvious and it is obvious to developing countries.
What is less obvious to them is how, on what basis, over what
time and with what development assistance and over what implementation
periods this should be done. That is the hard bit. What we are
trying to do through our EPAs is find the best way in which we
can reconcile the market opening and trade liberalisation needs
of ACP countries on the one hand with their need on the other
to go carefully and sensibly in a measured and progressive way
over time to achieve this. This is why I describe my own approach
and policy as one of progressive liberalisation, and by "progressive"
I mean progressive in both senses of the term. I mean progressive
in terms of sequential, step-by-step implementation and change
and also in the sense that it has to be done in the interests
of the many and not the few.
Q59 Hugh Bayley: To return to EPAs,
what are the incentives for least-developed countries to sign
up for an EPA when they already have, through Everything but Arms
(EBA), quota-free, tariff-free access?
Mr Mandelson: Because they will
have regional trading arrangements and growing regional markets
to assist that process so that they are not looking just to tariff
preferences vis-a"-vis the European market, but they
will also be looking increasingly and progressively to regional
market growth and growth and trade opportunities nearer home,
and, secondly, because there is a very substantial Aid for Trade
development assistance dividend that goes with the implementation
of EPAs. They know this, which is why the ACP countries themselves
embraced this process in the first place. You rightly point out
that some amongst the ACP are getting cold feet and wondering
whether they are doing it in the right way or is it not happening
too quickly, et cetera, but the negotiations that we are
undertaking are following the road map that the ACP countries
themselves put in place with us at the beginning of this process.
These road maps have been in existence now for a long time and,
despite all our efforts to invest in their negotiating capacity,
and we do invest very directly and substantially in their capacity
to negotiate trade arrangements directly with us but also multilaterally,
and despite my efforts to say, "Look: there is no point in
dragging your feet because you cannot put off the day indefinitely
when you have to reach an agreement on this", that is what
they are doing. It is hard. It is hard rowing and it is hard ploughing,
I am not denying that, but it has got to be done, partly because
the benefits of doing it successfully are so great for the ACP
countries, but also what is the alternative? The alternative is
not the status quo. Other WTO members will not allow a
simple continuation of the traditional trading relationships between
ACP countries and the European Union. They will not have it and
they have made that clear. That is why they gave their waiver
until the beginning of 2008 and I cannot extend that waiver, as
Pascal Lamy made clear in Addis last week when he was speaking
with the African Union. He was asked this direct question by African
countries, "Do you not think that if we could not get the
EPA negotiations done by the end of the year the WTO members will
simply give us an extension?", and he said, "You cannot
rely on that and you certainly cannot assume it will happen without
a price being paid by you for the privilege". This is a serious
economic cost that they are looking at if they do not complete
these negotiations within this year. I have teams of very well-motivated
officials who have a colossal amount of goodwill, but if we do
not find that negotiating willingness on the other side of the
table to match what we are prepared to do and put into this then
I cannot force people. If they will not reach an agreement I cannot
impose it on them, but the costs of not reaching an agreement
are very sizeable for the ACP and therefore you look at a worried
person, not for my own sake. The economic cost is not going to
be in Europe. The economic cost is going to be amongst the ACP
countries themselves.
18 Foreign Direct Investment. Back
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Southern African Development Community. Back
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