House of Commons - Business and Enterprise

Select Committee on Business and Enterprise Written Evidence

Memorandum submitted by ActionAid

1. INTRODUCTION

1.1 ActionAid[1] welcomes the opportunity to submit evidence to the House of Commons Business, Enterprise and Regulatory Reform Committee Inquiries on:

— Recent developments in trade.

— Trade and Investment Opportunities with India.

1.2 There is clear overlap between the two inquiries. Consequently, this evidence combines the two issues into one paper.

2. RECENT DEVELOPMENTS IN TRADE

2.1 The machinery of recent government changes

2.1.1 ActionAid welcomed the re-organisation in UK government that sought to place development at the heart of trade policy. It is perhaps too early to cast an overall judgement on the merits of the move, given that it has only been in place for about two months.

2.1.2 That said, the negotiations on EPAs and the recent 2007 deadline could be seen as a barometer of the development credentials of the new government changes. The UK has placed great store on its progressive position on EPAs and it is informative to see how the government has reacted to the latest developments. As of 14 December 2007, some 20 ACP countries have initialled interim (goods only) EPAs.

2.1.3 The UK government's position on EPAs is centred around seven principles (unless specified otherwise, these date from 2005):[2]

1. ACP countries should not be forced to accept sweeping liberalisation commitments;

2. ACP countries should be provided with effective safeguards to protect against subsidised EU imports;

3. The EU should provide complete duty and quota-free market access to the ACP, with no strings attached;

4. The EU should make rules of origin more development friendly under EPAs;

5. Negotiations on trade-related issues should only take place if they were ACP-driven;

6. Alternatives to EPAs should be made available; and

7. EPAs should promote the ACP's regional integration (UK Government position Dec 2007).

2.1.4 ActionAid believes that the UK Government, together with other like-minded member states, has failed to rein in the ambitions of the European Commission (EC) on just about all the criteria.

Sweeping liberalisation commitments

2.1.5 In 2005, the UK government committed itself to the following: "EPAs must ensure that ACP regional groups have maximum flexibility over their own market opening. The EU should therefore offer all ACP regional groups a period of 20 years or more for market opening on an unconditional basis. Each regional group should be offered this full period".

2.1.6 Yet ACP countries have already accepted sweeping market opening commitments by agreeing to open up 80% or more of their markets; and for most countries, the transition period will not extend beyond 15 years. For some the extent of liberalisation is considerably higher (Botswana, Lesotho and Swaziland 86%, Seychelles 97%, Mauritius 95.6%, Papua New Guinea 88%). Most of this liberalisation is front loaded (ie it will occur at the start of the liberalisation period). For example, for Burundi and Rwanda (part of the East Africa Community), liberalisation will happen in the initial stages and be almost immediate because currently only 22% of Rwanda's and 0% of Burundi's imports have a zero tariff.

Safeguards

2.1.7 ActionAid believes that the safeguards will prove inadequate. They are largely based on the existing provisions at the WTO which have proven largely ineffective because they are procedurally cumbersome, of limited duration and do not contain the type of flexibilities that ACP countries are demanding, for example in the WTO negotiations. The infant industry safeguard has been described by "A WTO legal expert ... as no more than `normal safeguards by another name'"[3] and will in all probability fall foul of similar limitations (ie of very limited duration).

2.1.8 The European Commission's own impact assessment in advance of any EU-ACP agreement in West Africa confirms the potential impact of liberalisation: surges of imports could rise by 16% for onions, 15% for potatoes, 17% for beef and 18% for poultry.[4]

Conditionalities have been applied

2.1.9 In a number of the interim agreements, the EC has insisted on commitments for further negotiations on new issues, including investment, competition and government procurement. This is despite calls by some of the EPA regions that they do not want to negotiate them (see below). In addition, one of the reasons why Namibia initially failed to sign the SADC interim agreement was "the EC's demand for MFN treatment for the EU in all future free trade agreement between SADC EPA countries and any third party[ies]".[5] If for example the SADC EPA countries negotiated to deal with say China, these same countries must provide the same preferential market access to the EU.

DFQF, Rules of Origin and other issues

2.1.10 Duty Free Quota Free market access will be limited for a number of reasons: the failure of the EU to substantially improve rules or origin; the retention of transition periods on two key export products (sugar and rice); standards that limit ACP access to EU markets; and the continued use of domestic agricultural subsidies.

Trade-related issues

2.1.11 The UK Government's 2005 position paper is very clear on this point: "Investment, competition and government procurement should be removed from the negotiations, unless specifically requested by an ACP regional negotiating group".

2.1.12 Despite requests from ACP countries to exclude certain new issues—the Africa Union explicitly said in 2006 that "these issues [investment, competition and government procurement] be kept out-side the ambit of economic Partnership Agreement"[6]—commitments for future negotiations on binding investment agreements are included in the interim agreements (for example in the SADC agreement).

Alternatives

2.1.13 No alternatives have been offered to the ACP despite the fact that legal analysis shows that feasible alternatives are available. Nigeria has asked for admission into GSP Plus from January 2008, which is both technically and legally feasible. DFID has recently indicated that it would be willing to support Nigeria's request.

Regional integration

2.1.14 The UK government has stressed that: "In the long term, the biggest benefits for countries will be from the extra regional integration that flows from EPAs".[7] This is being severely undermined by the fact that interim agreements are now being signed by individual ACP states.

2.1.15 In light of this situation, the UK government should take action immediately to:

— demonstrate its commitment to its previous positions by contesting texts that contradict that statement;

— support calls from ACP countries for more time to negotiate pro-development deals, and for feasible alternatives to be considered;

— support ACP countries that are demanding a renegotiation of signed or existing deals;

— ensure that any further negotiations on areas such as investment and government procurement should only take place if requested by the ACP; and

— ensure an effective and strong EPA monitoring and review mechanism.

2.2 The EU's trade strategy

2.2.1 On taking up the post as Commissioner for trade and competitiveness, Peter Mandelson committed himself to "make Europe's trade policies work for the poor"[8] and put "trade at the service of development".[9] However in stark contrast, ActionAid believes that the EU's new trade strategy is merely a manifesto for business.

2.2.2 The EC's new vision is contained in the 2006 communication Global Europe: competing in the world (and supporting documents) which prioritises the rapid conclusion of a number of new free trade agreements (FTAs) with developing countries (including Economic Partnership Agreements).[10] What is alarming is not just the content (see below) but also the nakedly aggressive language; this used to be characteristic of internal Commission memos but has now been laid bare for all to read.

2.2.3 It's clear that, in the Commission's view, the EU's trade agenda has not been achieved through multilateral channels, particularly the WTO. The choice of FTAs represents the EU picking off key markets and targeting them for intensive liberalisation. Central to this new policy setting are agreements that will go much further than multilateral talks (WTO +)—tariff liberalisation is deeper and quicker; issues that have been rejected at the WTO are being pushed aggressively by the EU; and stronger rules and procedural requirements are being placed on intellectual property, food standards and other non-tariff measures.

2.2.4 We believe that the communication shows that the European Commission continues to pay scant attention to the impact of its trade policies on poor people, development and the environment, yet prioritises the interests of business. For indication, the Global Europe communication mentions "EU companies" at least 20 times. Yet in contrast, poverty is referred to, in passing, just twice whilst the critical issue of the interaction between trade and climate change is marginalised as requiring further attention.

2.2.5 The section below provides some background to Global Europe and ActionAid's concerns.

"New trade issues"

2.2.6 The EU wants to introduce and enforce "new trade issues" into FTAs, some of which have already been rejected at the WTO. In Global Europe, the EU lists intellectual property, services, investment, public procurement and competition as "areas of economic importance to us".[11]

2.2.7 The EU does not try and hide its frustration that many of its offensive interests have found little if any support in multilateral talks. Many of these controversial issues—for example rules on investment, competition and government procurement—have already been rejected by developing country members at the WTO because they were anti-development. But the EU plans to introduce them into its new FTAs regardless. This is despite the fact that ASEAN and India have already indicated that they do not want to negotiate market access in government procurement for example.

Market potential and prospects for economic growth

2.2.8 Global Europe clearly identifies the need to forge strategic links (ie through FTAs) with partners in emerging markets, such as India, Mercosur, Russia, Gulf Co-operation Council, South Korea and ASEAN. China is also mentioned for special consideration. In part this is driven by geopolitics—the fact that the US has, or is progressing FTAs with these countries, is an important consideration for the EU: "We should also take account of our potential partners" negotiations with EU competitors".[12]

2.2.9 The communication confirms the EUs commitment to reduce tariffs with negotiation partners—despite some recognition that this can cause problems including revenue and employment losses and bankruptcies.

2.2.10 In past FTAs (ie with Chile, Mexico, South Africa and in EPAs), the EU has driven a very hard bargain on market opening with negotiating partners not-withstanding that fact that EU companies are far more competitive and the EU continues to distort agricultural markets through the use of subsidies.

2.2.11 In such a climate, the level of market protection that should be afforded to negotiating partners in any FTAs should be high. However, in some of the new FTAs, the EU is seeking symmetry and reciprocity in market opening (ie 90% + on either side over a transition period of about seven years), despite the massive differences in development between the partners. Where it has allowed asymmetry, for example in EPAs, the initial requests from ACP countries to exclude a significant number of sensitive sectors have been ignored.

2.2.12 The EU may also try and limit the application of other forms of market protection that could be used by negotiating partners—ie through safeguards for example (often called trade defence instruments). It has made its intentions clear: to counter the "abusive and/or WTO-incompatible use of trade defence instruments by third parties".[13] The annex paper to Global Europe (and the EU Green Paper on Trade Defence Instruments) suggests that the EU may include procedures which will make TDIs more difficult for negotiating partners to use: "Current Trade Defence Instruments contain a degree of flexibility but might need to be reviewed in light of the new challenges posed by globalisation".[14],[15] In any event the EU has confirmed that TDIs in any new FTAs will go beyond WTO commitments.[16]

2.2.13 And it isn't as if the European Commission is not aware of the consequences of market opening—it just chooses to ignore the evidence contained in its own SIAs. Take the SIA with countries in the EU-Mediterranean FTA. In an assessment of the liberalisation of industrial products, the negative implications heavily outweigh positive ones. There were particular significant negative impacts for employment/unemployment. In Algeria, Morocco, Egypt and Tunisia, employment in the total workforce is predicted to fall by 8%. The sectors experiencing the biggest short-term employment losses include food and beverages, textiles and clothing, motor vehicle production, chemicals, iron and steel and wood products.[17] Government revenues are also predicted to fall heavily, particularly in Algeria, Lebanon and Palestine but also in Tunisia and Morocco; "if this [loss] is not mitigated by levying the same amount of income by other means, adverse impacts on health, education and social support programmes can be expected."[18]

Non-Tariff measures

2.2.14 The EU is also targeting non-tariff measures—ie other barriers to trade in what it calls behind-the-border regulation.

2.2.15 Important in respect of non-tariff measures is the proposal that would allow interested stakeholders (ie EU companies) the right of prior consultation on any measure that the negotiating partner might want to introduce and an enforcement procedure along the lines of the WTO's dispute settlement mechanism "and make them accessible to industry" (a development that departs from the WTO state-to-state procedures).[19]

Ensuring access to resources

2.2.16 No doubt as a response to lobbying from European business, the EU unashamedly targets access to natural resources as a key priority: "Measures taken by some of our biggest trading partners to restrict access to their supplies of these inputs are causing some EU industries major problems".[20]

2.2.17 The language here is almost neo-colonialist, pandering to the import interests of EU transnational corporations. Those sectors mentioned include agricultural materials, energy, metals, minerals, scrap metal, hides and skins.[21],[22] The key issue here are export taxes and other export restrictions. However, these are often in place to safeguard natural resources for environmental and developmental reasons.

2.2.18 ActionAid believes that Global Europe is in stark comparison to the stated aim of the UK Government to put development at the heart of trade policy. UK government should:

— Provide a political response, together with other member states, to the EC's business-led trade policy.

3. TRADE AND INVESTMENT OPPORTUNITIES WITH INDIA

3.1 ActionAid's discussions with DFID officials have led us to believe that the UK government is not prioritising the development component of the EU-India FTA. If true, we believe this would be of great concern.

3.2 ActionAid would like to draw to the BERR Committee's attention a recent Indian report by the National Commission for Enterprises in the Unorganised Sector (annexed to this document). This study was commissioned by the Government of India. It comes forward with very worrying conclusions: "Contrary to the trend in the number of people below the official poverty line, the number of people in this [poor and vulnerable] segment has increased over the years." The statistics are equally worrying: "in 2004-05 77% people, totalling 836 million, had an income less than twice the official poverty line or below Rs. 20 per day per capita [ie $0.50 a day]". These figures are in line with a recent analysis by the Asian Development Bank which found that "the number of dollar-a-day poor in India is closer to 800m than the current estimate of 400m."[23]

3.3 As our analysis on Global Europe reveals, India is being targeted by the European Commission. But we believe that rapid and deep liberalisation of trade and investment in India will worsen rather than improve the position of the poor and vulnerable in the country.

3.4 ActionAid believes the UK government, in keeping with its position on EPAs, should adopt the following policies, as a minimum:

— India should not be forced to accept sweeping liberalisation commitments (that liberalisation should be consistent with the level of development of the negotiating partner);

— India should be provided with effective safeguards and other defence mechanisms to protect against (subsidised) EU imports;

— The EU should make rules of origin more development friendly in any EU-India FTA;

— Negotiations on trade-related issues should only take place if requested by India; and

— Additional resources should be available to support any regional integration within South Asia.

3.5 The negotiations on the EU-India FTA are in their initial phases but at this early stage, we would want to highlight three important issues.

Sweeping liberalisation commitments

3.6 India is being asked to reduce tariffs on 90% of its trade within seven years. India had requested an asymmetrical approach—that if India committed to 90%, the EU should do more, ie 95%. This was rejected by the European Commission who want a straight symmetrical and reciprocal deal with India. This could be disastrous for development. India is right to be wary of quick and deep market access opening. The European Commission's assessment of growth in goods trade between the FTA parties is heavily skewed in favour of the EU. EU trade would grow by 56.8% with India. Yet in contrast, Indian trade to the EU would only grow by 18.7%.[24]

Adequate safeguards and protection of sensitive sectors

3.7 The EU will continue to use large amounts of domestic agricultural subsidies (and possibly some export refunds). As a result, India must be afforded adequate safeguards and protection of sensitive sectors. Ever indication points to safeguards being similar to those in the WTO (see concerns above) and only covering agriculture. Given the negative impact that industrial imports could have on sensitive industries and in the unorganised sectors, flexible general safeguards (including infant industry safeguards) should be available which are consistent with the G33 demands in the WTO negotiations.

New (trade-related issues) issues

3.8 ActionAid remains concerned that many trade-related issues—investment, competition, government procurement etc—will not bring benefits to poor people, particularly if applied on the principle of non-discrimination.

3.9 India has already indicated its reluctance to negotiate on government procurement which would include market access. But this is a key offensive area for the EU. But the development implications are great. Procurement policies may be part of an industrial policy or an instrument to attain social objectives (eg, support for small and medium sized enterprises, minority-owned businesses, disadvantaged ethnic groups, or certain geographic regions). In addition, a government's ability to procure from firms of its own choice can be an instrument for macroeconomic management. UNCTAD India is conducting a study as to the merits or otherwise of including government procurement in the EU-India FTA. The preliminary conclusions find that there would be a "net welfare loss" to India.

December 2007