Memorandum submitted by ActionAid International
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;
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 outside 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;
— 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
1 ActionAid is an international anti-poverty agency
working on over 40 countries, taking sides with poor people to
end poverty and injustice together. Back
2
Much of this section is taken from the December 2007 publication
Economic Partnership Agreements (EPAs): Assessing recent developments
against the UK government's 2005 position written by Traidcraft,
Tearfund, Oxfam and Christian Aid. ActionAid thanks the authors
of this report for permission to use it here. Back
3
Ibid. Back
4
PricewaterhouseCoopers, 2005. SIA of the EU-ACP Partnership Agreements-West
Africa Agro-Industry. Back
5
Ministry of Trade and Industry, 2007. Outcome of the Final Round
of the SDAC-EPA negotiations. Press Statement, 5 December. Back
6
AU, 2006. Nairobi Declaration on Economic Partnership Agreement.
Africa Union. Back
7
Gareth Thomas, European Standing Committee Debate on Economic
Partnership Agreements, 3 December 2007. Back
8
Title of Guardian comment piece 1 December 2004 at http://ec.europa.eu/commission_barroso/mandelson/sp_dev_en.htm Back
9
Lecture by Peter Mandelson at the London School of Economics,
4 February 2005. http://ec.europa.eu/commission_barroso/mandelson/speeches_articles/sppm013_en.htm Back
10
European Commission, 2006a. Global Europe-Competing in the World.
October. trade.ec.europa.eu/doclib/docs/2006/october/tradoc_130376.pdf Back
11
European Commission, 2006a. Op cit. Back
12
European Commission, 2006a. Op cit. Back
13
European Commission, 2006b. Global Europe: A Stronger Partnership
to Deliver Market Access for European Exporters. http://trade.ec.europa.eu/doclib/docs/2007/april/tradoc_134507.pdf Back
14
Annex to the Global Europe communication (A Commission Staff Working
Document) on page 23 at http://trade.ec.europa.eu/doclib/docs/2006/october/tradoc_130370.pdf Back
15
European Commission, 2006c. Europe's TDIs in a Changing World
Economy. http://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_131986.pdf Back
16
Draft negotiating mandates for new FTAs with India, ASEAN, South
Korea, Central America and the Andean Community. Back
17
Sustainability Impacts of the Euro-Mediterranean Free Trade Area.
http://www.sia-trade.org/emfta/en/Reports/Phase2FinalreportMar06.pdf
pages 24, 31 and 32. Back
18
Ibid, pages 18, 25, 31 and 32. Back
19
This is not explicit in the Global Europe document but is laid
bare in the supporting Annex to the communication (A Commission
Staff Working Document) on page 17 at http://trade.ec.europa.eu/doclib/docs/2006/october/tradoc_130370.pdf Back
20
European Commission, 2006a. Op cit. Back
21
See Annex to global Europe at http://trade.ec.europa.eu/doclib/docs/2006/october/tradoc_130370.pdf Back
22
European Commission, 2006a. Op cit. Back
23
Keidel, A., 2007. The limits of a smaller, poorer China. Financial
Times, 13 November 2007. Back
24
Agence Europe, 2007. Council green light to launch of negotiations
for bilateral free trade agreements with ASEAN, South Korea and
India. 23 April. Back
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