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28 Nov 2007 : Column 98WH—continued
Secondly, if we do not have EPAs, what do we have, and where will the alternatives leave ACP countries? Is there a plan B or simply a void? The third, and in the long term perhaps most important, question is this. If EPAs are unworkable and the general system of preferences—known as GSP—is only temporary, what sort of trade deal should low-income countries have? What should the Commission be calling for? One thing is very clear: EPAs do not meet the aims of the Gleneagles communiqué, and the EU Governments who signed the declaration should be making that clear to the Commission.
How did we reach this position? As we all know, the current system of Cotonou agreement preferences, which provides ACP exporters with preferential access to the EU market, expires at the end of 2007. The Cotonou agreement legally requires the EU to leave no ACP country worse off after the expiry of the Cotonou agreement preferences, in ways that are compatible with WTO rules. The European Commission maintains that there is only one means to fulfil its obligation—EPAs.
Pete Wishart (Perth and North Perthshire) (SNP): I share the hon. Gentleman’s concerns about the general rush to sign EPAs in December. When I asked the Secretary of State for International Development about that in the previous debate that we had on the issue on the Floor of the House, he said that EPAs had to be signed because of WTO obligations, but surely there are other solutions. We could have an extension of the WTO waiver, or we could look at the GSPs and avoid the raising of tariffs by January. There are legal ways in which we can avoid rushing into EPAs and work in the best interests of developing countries.
Tony Baldry: The hon. Gentleman makes an extremely good point. I shall come to the issue of waivers and GSPs in greater detail. It is a perfectly valid point that we should not be put in a position in which we are told that it is either EPAs by 31 December or nothing at all.
EPAs pose a serious threat to ACP economies, because we are now moving to a reciprocal relationship with ACP countries in which all trading partners have to liberalise. That is fine over time, but ACP countries need policy space. The EU is the largest trading partner for most ACP countries, but as an advanced industrialised collective economy, the EU is also one of the most powerful competitors in the world. Although it is possible to design an economic relationship with the EU that benefits ACP countries, the Commission’s current EPA proposals threaten to do the opposite. I submit that the proposals go far beyond anything that has ever been asked or that is required by the WTO and could have a serious negative impact on ACP countries.
There are three big concerns about EPAs. First, every developed country, including Britain and the United States, has used tariff protection during its history to develop industry. Indeed, every advanced economy has used tariff protection at various times during its history, but EPAs restrict that capability for ACP countries and could unleash a surge in European imports that would wipe out fledgling industries, such as Kenya’s dairy and flower sectors, as well as undercut the prices of agricultural products. Threats from the Trade Commissioner, Peter Mandelson, mean that there could be a rise in tariffs that would equally devastate African countries. That puts at stake millions of jobs and thousands of companies in 76 of the poorest countries in the world, which depend on exports to the EU.
An example is Kenya’s horticultural industry. The sector is worth $700 million in foreign exchange to Kenya, but come January, Kenya could face a 10 to 20 per cent. hike in tariffs on all its exports to the EU, which could be sufficient to bankrupt some of its most successful export companies, which have been carefully nurtured through development aid programmes, including those of the UK. That is one of the real ironies. Many of the fledgling industries that face being seriously undermined are industries, occupations and trades that we have helped to build up with development aid over the past couple of decades. This story could be replicated across the globe from Lesotho to Namibia, from Papua New Guinea to the Pacific island of Vanuatu and from the Caribbean to Mozambique.
My second serious concern is that Governments of developing countries themselves stand to lose a major chunk of their revenue from tariffs. For instance, Zambia would lose $15.8 million—the equivalent of its annual HIV/AIDS budget. EU assurances that there would be aid to compensate only underline how this slightly crazy merry-go-round would increase dependency on aid.
The third and possibly most complex and important issue of all is how EPAs will affect regional trade. If people can get cheap widgets from the EU, why would they bother importing them from their neighbour in Africa or the Pacific? UN studies have indicated that EPAs could lead to contraction in exactly those low and medium-technology industries that are the basis for successful job creation and enterprise in Africa and elsewhere. Pitting African countries against one another is one of the most destabilising and disturbing aspects of EPAs. High tariffs between African countries have often discouraged trade between near neighbours. We should be encouraging trade between African countries. That, it appears, is what African countries want. The African Union has talked of a pan-African trade area, and the new East African legislative assembly is attempting to build a common market similar to the EU. If that is what African Governments want, we should support it, not destabilise it with EPAs.
EPA negotiations are at a critical stage. Detailed draft texts are belatedly on the table in all regions, and the Commission has set out its core negotiating parameters in all six ACP EPA regions. ACP countries are being placed under immense pressure to make major concessions. The Commission has refused many constructive offers that they have placed on the table and has failed or delayed in responding to other requests. A number of ACP regions have made it clear that more time is needed to reach pre-development trade agreements. As the deadline draws close, exporters are becoming alarmed at the prospect of high tariffs into the EU market.
The EU appears to be watching the clock. In his interview on Sunday on “The World This Weekend”, Peter Mandelson gave the impression that all trade negotiations tend to conclude at the last moment and that everyone plays it to the wire. I suspect that he is hoping that, as pressure mounts, ACP countries will have no option but to accept the Commission’s proposals. Many who have been involved in the matter, including many non-governmental organisations, are deeply concerned to hear from the negotiating room that the Commission is manipulating the prospect of development aid as well as that of the loss of market access to pressure ACP countries to agree to proposals with damaging implications for their development.
With the clear omission of a development component and an aggressive EU trade agenda, EPAs threaten the achievement of the millennium development goals. Part of the problem is that the Commission insists on including issues that are not required and were strongly opposed by the ACP at the WTO, including intellectual property, competition and public procurement. For example, the African Union’s collective position that
“except for trade facilitation, the other three Singapore issues of investment, competition policy and transparency in government procurement should remain outside the ambit of the WTO Doha work programme and EPA negotiations”
was stated in an AU Trade Ministers’ declaration of June 2005 in Cairo and reaffirmed in April 2006 in Nairobi and in January this year in Addis Ababa. On all occasions, it was simply ignored. The Select Committee on International Development, which I chaired during the last Parliament, strongly criticised the EU recently for forcing the issues on the ACP:
“the EU is abusing its position in the partnership to persuade the African, Caribbean and Pacific (ACP) countries that the New or Singapore Issues are essential for development and by implying that there may be penalties if they reject them.”
So what will happen? It is now too late for credible, negotiated and detailed agreements to be established by 31 December this year. Judging from past precedents, such as the EU-South Africa trade agreement, negotiations still have two to three years to run. The available options are to agree without negotiation detailed schedules prepared by one party to the EPA talks; to agree EPA agreements that establish the key principles but leave the details to further negotiation; to replace Cotonou in January 2008 with the EU’s “next best” trade regime while negotiations continue; to create a better fall-back or interim regime for the ACP than exists at present; or to seek an extension of the WTO waiver.
The first three options are undesirable, and the latter two face problems. To agree EPAs either in principle or in detail without full negotiations with the ACP would be absurd. It would also raise questions of legitimacy. EPAs should be ratified as mixed agreements. They should certainly be ratified within the developing country agreeing them, usually—obviously, it depends on the constitution—by a vote in Parliament. That is what happened when South Africa reached an agreement on an EPA in 2002; it was ratified by the South African Parliament. Legal opinions—the most recent was secured by Oxfam—suggest that Parliaments in EU member states should also ratify such agreements. It is therefore undesirable that agreements should be reached without clarification or ratification in Parliament and without debate or details. Will the Minister confirm that the UK Parliament will have the opportunity to ratify or debate the EPAs? I understand that a European Scrutiny Committee meets on Monday. It would be helpful for the House to know what its scope will be in relation to the EPAs.
The third option is the default option, which would result in perhaps the least desirable outcome—the total void option. Even the Commission accepts that that would be a bad outcome. Officials say that, unless positive action is taken to avoid it, from January 2008, the EU will apply to imports from ACP countries the generalised system of preferences, the tariff regime applying to all developing countries.
The standard GSP regime—I stress that it is distinct from GSP+—is much less favourable than Cotonou for many ACP exports. ACP states without least developed country status will experience a jump in the EU tariff applied to some of their exports. Although many of the increases will be relatively small, 267 of the goods that they export will experience a tariff jump of at least 10 per cent. Nearly two thirds of non-LDC ACP states will see a tariff jump of more than 25 per cent. by value on their current exports to the EU; for just over one quarter of states, the proportion of goods affected will be more than 50 per cent. The figures and the impact are quite serious. The most seriously affected countries will be those that export a relatively high proportion of the products facing the steepest tariff jumps. All ACP countries will be affected, but 20 countries—including Belize, Kenya, Namibia, Suriname and Swaziland—will be hit particularly hard.
Any new tariff results in the payment of taxes to the EU, notionally by the importer but in practice, through a cut in the price paid, by the ACP. The Overseas Development Institute calculates that new tariffs of 10 per cent. or less would result in a transfer from the ACP states to European treasuries of some €156 million a year, more than 2.5 times EuropeAid’s commitment to health projects in all APC states in 2005. If tariffs of more than 10 per cent. and specific duties are included, the calculated EU tax take is much greater. Namibia, for example, could find itself paying four times as much in taxes to the EU each year as it receives from EuropeAid. However, such high taxes often will not be paid, for the simple reason that ACP exports will collapse.
The next option is a better fall-back regime, meaning GSP+. According to Cotonou, EPAs are not the only option; they are only the first to be investigated. Article 37(6) of the Cotonou agreement commits the EU to consider providing states that do not join an EPA with
“a new framework for trade which is equivalent to their existing situation and in conformity with WTO rules.”
The EU’s problem is that it has agreed to an obligation that it cannot easily fulfil. For eight years, it has failed to come up with a solution, but one regime comes close—the GSP+, available to the 15 countries that applied by December 2005.
To be an effective fall-back, the GSP+ must be accorded temporarily to all non-LDC ACP states from January 2008 and extended, at least for them, to improve its provisions covering the limited number of goods for which Cotonou is better. If the EU did so, it would avoid short-term disruption to trade, while giving all parties a breathing space in which to finalise an EPA or ratify and implement the remaining conventions needed to establish permanent eligibility. They are wholly autonomous actions that the EU can decide to take—the EU just has to do it. Otherwise, the only other option is for the Commission to introduce waivers under WTO rules. I shall return to that point.
Unlike the WTO waiver option, the solution is entirely in the hands of the EU. However, as with the waiver, the problem lies in the EU’s unwillingness to act. The casualty will be the EU 27’s credibility as a liberalising force. So far, the Commission has set its face against either of the changes to the GSP+, which the Commission alone can initiate, so we would be left with the waiver.
Waivers have traditionally been the response of choice from Organisation for Economic Co-operation and Development states that wish to ensure the multilateral legality of their preferential accords. It is a favoured option for some in the ACP and the European Parliament. It is not without its problems, but there is a precedent that could be useful: the waiver for Cotonou that expires in 2007 was delayed for two years while the EU negotiated with objectors. Although that shows that obtaining a waiver is difficult, it also shows that the EU considers it legitimate to continue with Cotonou preferences while a waiver is being negotiated, as it did from 2000 to 2002.
The key obstacle, therefore, is EU reluctance to seek a new waiver. That leaves us in a complete mess—one that was totally predictable, as we have known for years that the EU needed to agree a trade deal before the end of this year. It would be highly irresponsible to put in place agreements that are either forced on ACP countries without adequate negotiation or agreed without the details. It would also undermine accountability through the ratification process. It would be a disaster for development if we went back to GSP, but the Commission is pushing the default line that higher tariffs will be the consequence for the blocs that fail to agree to EPAs.
That leaves us either with GSP+, which is the least nuclear option but only a temporary measure, or with the EU seeking a waiver. It appears to be doing little about that. Indeed, it is doing little about progressing towards an alternative agreement on GSP+. One thing is clear: the ACP, and Africa in particular, will not get the trade deal that they desperately need. The think-tank Open Europe put forward a list of proposals in a recent paper on how EPAs should be negotiated if they are agreed. It is a pragmatic list and includes
“a longer time frame for liberalisation”—
“as much room for discretion as possible within WTO rules in terms of the scope of liberalisation”
“allowing individual country timetables for liberalisation, rather than a single schedule for EPA regions, to allow regional integration to proceed at its own pace.”
Other recommendations include the EU taking the threat of higher tariffs off the table, spelling out how it will allocate short-term aid to support tariff reductions and coming up with an integrated deal on preferences for developing countries with liberal rules of origin to be taken up by all low-income countries and, ideally, also harmonised through WTO agreements. That would be good, and it would also offset the trade-diverting effects of EPAs. I am sceptical that that will now happen as there are only four weeks of negotiations left.
So what is going wrong? Of course, there is no single simple solution. Removing the barriers that stand in the way of equitable global economic development requires action on multiple fronts: effective aid, debt relief, disease prevention and conflict resolution. However, world trade rules are currently a significant part of the poverty problem and fundamental reforms are needed to make them part of the solution. The capacity to trade, both among African neighbours and with the rest of the world, is the key to unlocking Africa’s prosperity. Effective world trade can and should be a powerful force for good. The numbers stack up. According to Oxfam, if the developing world were to increase its share of world
exports by just 1 per cent., the resulting gains in income could lift 128 million people out of poverty. In Africa alone, that would generate $70 billion—approximately five times what the continent receives in aid. A mere 1 per cent. movement in Africa’s share of world exports would lead Africa to receive more than five times what it receives in aid.
Low-income countries need a comprehensive pro-poor trade deal at the WTO. The deal should mean that EU countries and other major industrialised countries open their markets unilaterally to the products of all low-income countries, liberalise rules of origin to make tariff and quota-free access a reality for low-income countries, offer incentives to encourage low-income countries to reduce trade barriers against their low-income neighbours, abolish all export subsidies and help low-income countries to develop their export capacity. Without a trade deal, there is the danger of going backwards on the Gleneagles declaration. With trade negotiations failing in the EU and the WTO and given the start of a new presidential race for the White House in the United States, it is time for collective action to make those reforms. Now is the time to get real about trade.
3.4 pm
Mr. Andy Reed (Loughborough) (Lab/Co-op): I congratulate the hon. Member for Banbury (Tony Baldry) on securing this timely debate about an important issue that is worthy of discussion. I am looking forward to the Minister’s response—[Interruption.] I fully understand his need to disappear briefly while I am speaking, and I have not taken it personally. He will be back momentarily.
This is not about Government-bashing. We have some criticisms of the direction that the negotiations are taking, but we welcome the progress on aid and development that has been made over the past decade or so. However, a lot of that good could be undone by some of the examples given during the hon. Gentleman’s speech. For example, all the aid programmes in Kenya could be undone by the 10 per cent. tariff. That shows how ridiculous the situation has become.
Like the hon. Gentleman, I want to focus on the need to ensure that the EPA negotiations, if they have to be concluded so quickly—we can question that—put development at the top of the agenda. Development should be at the heart of such negotiations. It became clear—I wrote it down—during the meeting of the all-party group on debt, aid and trade last week, which many hon. Members attended, that this is all about the people. It is about the individual farmers whom we have met in their countries. It is about the farmers who, more recently, have visited us to ask that we campaign on their behalf. Sometimes we can get lost in the jargon, with EPAs and GSP+. Those people do not understand that. They understand the impact on their individual lives and the negative impact that the process could have.
I accept that it is necessary to replace EPAs, but I want to hear from the Minister how necessary it is to reach the deadline of 31 December without considering the alternatives of waivers. I probably do not need to go into much detail, as the hon. Gentleman has made a compelling case for the alternatives to heading at such speed to the deadline of 31 December.
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