House of Commons - International Development

Select Committee on International Development Second Report

2 International trade negotiations

27. In March 2007, we published our Report on EU Development and Trade Policies: An update. The Report's final conclusion on the European Union's two main trade negotiations at the time was:

"The essential building blocks needed to secure fair and effective deals are clear. Political will is now needed to put those blocks in place. As the WTO and EPA negotiations enter their final phases, we believe that progress will be made if they are conducted between equal partners who are willing to make compromises, conscious of what is at stake and, above all, committed to making trade work for the benefit of the poor."[45]

This inquiry offered a further opportunity to review progress towards agreements in the Doha Round at the World Trade Organisation (WTO), and in the Economic Partnership Agreement (EPA) negotiations between the European Union and African, Caribbean and Pacific (ACP) countries.

28. The Government's evidence to us said that the UK's Doha and EPA positions were the product of "close working between DFID and BERR, which will now be consolidated in the new structural arrangements".[46] However, Traidcraft told us that that there was "no confidence that the richer countries are listening to the poorer countries in the [Doha and EPA] negotiations."[47] We were concerned to hear that developing countries may have lost confidence in the response of developed countries to their views. Now that DFID has been granted greater influence over the UK's trade policy, we hope that, in the UK's case at least, lost confidence can be restored.

WTO Doha Development Round

29. Our March 2007 Report warned that the window of opportunity for reaching a Doha Round agreement was narrow.[48] Progress since has been painfully slow, and that window has narrowed still further. The current aim appears to be to agree a framework deal by the end of 2007, some two years after this should have been agreed at the Hong Kong WTO Ministerial in December 2005.

30. The Traidcraft view was that "Doha is pretty much a dead duck", with no agreement possible "without a substantial move by the richer countries, a demonstration of political goodwill".[49] In Professor Winters' view, further progress was needed on agriculture, although, he said, "I would not want to guarantee that would be enough to reach even a fairly modest agreement overall, I think it is clear that without further steps we are not going to get one."[50] As both Professor Winters and Traidcraft told us, unilateral moves are needed from developed countries.[51] Without signs of progress, Professor Winters said the Doha Round should be drawn to a close soon because "it is riddled with a lack of trust and there is no point keeping it alive for another three or four years without evidence that it is going to be quite different".[52] However, the Minister was relatively up-beat:

"I do not think it is right to say they are as dead as a dodo; quite the opposite actually. A lot of activity is taking place. All the major players have recognised that we are in a critical moment and that we do not have that much time left if we want to secure an agreement by the American presidential elections."[53]

31. The critical issues for the Doha Round remain the same as at the time of our last Report. As we noted in March 2007, World Trade Organisation members need to show the requisite political will to reach a deal. Developed countries should reinvigorate the process with unilateral moves or draw the process to a close if it is irretrievably moribund. The Government should continue to make the case for unilateral moves with other EU Member States. Again, we encourage the UK, EU and all negotiators to approach Doha with sufficient flexibility to succeed.

EU Economic Partnership Agreements

32. Our March 2007 Report highlighted our concerns that the EU could be "abusing its position" to push African, Caribbean and Pacific (ACP) countries to include the new, or 'Singapore', issues in their Economic Partnership Agreements with the EU and implying penalties for their rejection.[54] We welcomed assurances from the European Commission on both their voluntary inclusion in each region's negotiations and on long implementation periods for any agreement.[55] But, even with flexibility on this point, some ACP regions, such as the Pacific and West Africa, have stated that they do not see themselves as able to agree EPAs as originally envisaged by the end of 2007.

ALTERNATIVES TO COMPREHENSIVE ECONOMIC PARTNERSHIP AGREEMENTS

33. Under the terms of the EU-ACP Cotonou Agreement, EPAs will replace the current trade arrangements from 2008. With this deadline approaching, the Trade and Development Minister has urged the EU's other Member States "to focus on what is necessary… and leave other issues off the negotiating table until later", a view that he told us commanded some support.[56]

34. Since then, the EU Trade Commissioner has outlined the Commission's proposed 'Plan B' which recognises the threat of serious disruption to developing country exports resulting from sudden loss of tariff preferences at the end of 2007 and accepts that the deadline need only apply to the "goods market access element" of EPAs.[57] The Commissioner remains committed to comprehensive EPAs, and believes some EPA regions will be able to reach such agreements in time, with the Caribbean and Central African regions looking most likely to be able to do so.[58] However, interim 'goodsonly' agreements would now be offered to those ACP regions that are in a position to reach them, and to individual ACP countries in those regions that are not able to do so as a group.[59] The new, or 'Singapore', issues would then be considered in later talks leading to a second stage 'full EPA' deal.[60] We welcome the European Commission's belated recognition of the need for a 'Plan B' in the form of agreement on the goods-only element of Economic Partnership Agreements, given the imminent threat of disruption to exports facing developing countries at the end of the year.

35. The European Commission has concluded that WTO-compliant free trade areas are the "only way to ensure legal certainty for any goods market access arrangement between the Community and an EPA region".[61] Addressing the European Parliament's Trade Committee, the Trade Commissioner said he had "explained before why extending Cotonou, seeking a further waiver, or amending 'GSP+' criteria are not alternative options."[62] The Commission therefore has concluded that it "has no option available" but to offer future goods access to those countries not able to agree EPA deals either through the standard Generalised System of Preferences (GSP) or, for Least Developed Countries (LDCs) in the ACP regions, through 'Everything But Arms' (EBA).[63] The Trade and Development Minister saw one possible alternative course of action—extending the negotiating period under a WTO waiver—as "very unrealistic" and believed that offering enhanced GSP arrangements (GSP+) was not a "particularly attractive" alternative option.[64] He said GSP+ would give worse market access than the EU's EPA offer of duty- and quota-free access (with transition periods for sugar and rice) and a narrower range of eligible products, while requiring adherence to international labour and environmental standards, which have not yet been ratified and implemented by any ACP country.[65]However, before the Commission's announcement, the Minister told us: "We have made clear to the European Commission that their suggestion that GSP will be the only thing on offer […] is not acceptable to us."[66]

36. A recent letter to the Financial Times co-authored by NGOs said that "the Commission is incorrect to claim that it has no legal choice but to raise tariffs in January 2008 […] the Commission may not like the choices it has—but they are legal".[67] Oxfam believes that using the GSP "would entail heavy costs for ACP countries", primarily non-LDC ACP countries given that the EBA arrangements for the LDCs "provides better access than the Cotonou Agreement and is equivalent in tariff coverage to the EU's offer under EPAs".[68]

37. Time is rapidly running out for the Economic Partnership Agreement talks, with the approach of the end-of-year deadline. In our previous Report, we called on the EU to undertake planning to request a waiver extension should EPAs not be concluded in time. We note that views vary on whether a waiver extension is realistic, but we also note that there has been little sign of any preparations by the European Commission for this wholly predictable situation until very recently. Some countries will simply not be ready to reach even a goods-only EPA deal by the end of the year. The Everything But Arms option available to Least Developed Countries is, in our view, a viable alternative. But there appears to be no viable, pro-development alternative plan for those non-LDC countries that do not agree 'goods only' deals with the EU by the end of the year. The difficulties facing these countries is a matter of great concern to us. We agree with the Trade and Development Minister that the basic Generalised System of Preferences in particular is not an acceptable alternative. We expect the UK Government to make this case vocally in its discussions with other Member States and the Commission, and to ensure that a more acceptable alternative is offered.

SECOND-STAGE EPA DEALS

38. The Commission sees any interim goods-only agreements as "a stepping stone", containing "rendezvous clauses and binding commitments to continue negotiations in outstanding areas."[69] However, concerns have been raised that this approach could be dangerous for developing countries: final deals might never happen once the fixed deadline set by waiver expiry has passed, while the ACP countries would have opened themselves up to reciprocal trade with the EU and "would lose all their bargaining power vis-à-vis the EU to achieve their objectives" in the second-stage.[70] Developmental components, such as aid for trade, would probably also be missing in interim deals and therefore aid to help with adjustment costs may not be forthcoming when it is needed most. We are uncomfortable with the implication that goodsonly EPAs are only 'stepping stones' to full agreements, given the EU's previous commitments to include other issues only where individual countries or regions actively seek to do so. We are also concerned about the possibility that these interim deals may lack development components. We recommend that the Government push for inclusion of aid for trade provisions within these deals.

RULES OF ORIGIN

39. The Commission proposes new rules to determine eligibility of goods for access to the EU under EPAs: EPA-specific rules of origin.[71] These will only apply to the countries and regions that reach comprehensive or goods-only agreements, which suggests that others will be forced to use existing GSP rules of origin, which Oxfam notes are "slightly stricter" than what is currently available to ACP countries, known as Cotonou rules of origin.[72] However, the Commission accepts that there may be a delay in implementing the new rules, and that in the interim, Cotonou rules of origin "with certain unilateral improvements", covering fisheries, textiles and potentially agriculture, will apply.[73]

40. We welcome the fact that new rules of origin, which we expect to enhance developing countries' ability to benefit from improved market access, are to be an integral part of Economic Partnership Agreements. However, the loss of Cotonou rules of origin for any country not reaching a goods-only or full EPA by the end of 2007 serves to compound the potential disruption for these countries in moving to less generous arrangements, such as GSP. We recommend that, in its reply to this report, the Government gives its view as to whether Cotonou rules of origin could be maintained for countries unable to agree a goods-only deal.

45 International Development Committee, Fifth Report of Session 2006-07, EU Development and Trade Policies: An update, HC 271, paragraph 41 Back

46 Ev 32 [DFID] Back

47 Q 9 [Mr Gidney] Back

48 International Development Committee, Fifth Report of Session 2006-07, EU Development and Trade Policies: An update, HC 271, paragraph 20 Back

49 Qq 3 and 9 [Mr Gidney] Back

50 Q 10 [Professor Winters] Back

51 Qq 11 and 9 [Professor Winters; Mr Gidney] Back

52 Q 11 [Professor Winters] Back

53 Q 105 [Mr Thomas] Back

54 See glossary. Back

55 International Development Committee, Fifth Report of Session 2006-07, EU Development and Trade Policies: An update, HC 271, paragraph 31 Back

56 "Statement from Trade and Development Minister Gareth Thomas on Economic Partnership Agreements" (at EU Development Ministers meeting on 22 September 2007), http://www.dfid.gov.uk/aboutdfid/organisation/economic-partnership-agreements-minister.asp; and "UK calls for new trade agreements that work for the poor, not against them", 26 September 2007, http://www.dfid.gov.uk/news/files/epas-letter.asp; and Q 103 [Mr Thomas] Back