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Session 2008 - 09
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Public Bill Committee Debates

Draft European Communities (Definition of Treaties) (Agreements concluded under Article XXI GATS) Order 2008

The Committee consisted of the following Members:

Chairman: Sir John Butterfill
Armstrong, Hilary (North-West Durham) (Lab)
Blackman, Liz (Erewash) (Lab)
Field, Mr. Mark (Cities of London and Westminster) (Con)
Foster, Michael Jabez (Hastings and Rye) (Lab)
Howell, John (Henley) (Con)
James, Mrs. Siân C. (Swansea, East) (Lab)
Moore, Mr. Michael (Berwickshire, Roxburgh and Selkirk) (LD)
Penrose, John (Weston-super-Mare) (Con)
Prentice, Mr. Gordon (Pendle) (Lab)
Soulsby, Sir Peter (Leicester, South) (Lab)
Stunell, Andrew (Hazel Grove) (LD)
Thomas, Mr. Gareth (Minister of State, Department for International Development)
Viggers, Sir Peter (Gosport) (Con)
Ward, Claire (Vice-Chamberlain of Her Majesty's Household)
Wilson, Phil (Sedgefield) (Lab)
Wright, Jeremy (Rugby and Kenilworth) (Con)
Mick Hillyard, Committee Clerk
† attended the Committee

Second Delegated Legislation Committee

Monday 26 January 2009

[Sir John Butterfill in the Chair]

Draft European Communities (Definition of Treaties) (Agreements concluded under Article XXI GATS) Order 2008

4.30 pm
The Minister of State, Department for International Development (Mr. Gareth Thomas): I beg to move,
That the Committee has considered the draft European Communities (Definition of Treaties) (Agreements concluded under Article XXI GATS) Order 2008.
It is a pleasure to serve under your chairmanship, Sir John. I look to you to protect me from any aggressive questioning from my own side and the Opposition. The order is intended to give effect under domestic law to a total of 17 agreements reached with other members of the World Trade Organisation. It is a piece of routine WTO business and is in no way connected to the ongoing Doha development agenda round of trade negotiations.
The agreements have been necessary because of the successive enlargement of the European Union, first from 12 to 15 member states in 1995, and then to some 25 member states in 2004. In acceding to the European Union, in order to ensure that they are compliant with EU law, those new member states have had to withdraw some of their existing commitments in trade in services, under the WTO general agreement on trade in services, or GATS. Under WTO rules, when countries withdraw commitments, they must offer comparable commitments in other areas, hence the negotiation that has taken place with the 17 other WTO members that considered themselves affected by the withdrawn commitments.
There are 17 substantively identical agreements, each setting out the same withdrawals of commitments by the new member states and the same compensatory adjustments agreed. The agreements are consistent with the WTO principle that commitments that are offered to one member should be offered to all. The 17 agreements were published in Command Paper Cm 7430, in July last year.
All member states have made some compensatory commitments. For the original 12 member states covered by the EC’s GATS schedule at the end of the Uruguay round, including the UK, those are very minor. Most compensatory commitments are made by the acceding member states.
The UK has agreed to take on three commitments. First, in line with current legislation, no area of the telecommunications services or computer and related services sector covered by our GATS commitments is reserved to the public sector. Secondly, we have brought forward from the EU’s current GATS offer in the Doha round the specific offer in telecommunications services, which would cover all affected member states and contains fewer reserved areas. Thirdly, we will bring forward from our current GATS offer in the Doha round the removal of the cover of an economic needs test in one further sub-sector—integrated engineering services—of the temporary movement of highly skilled professionals. The first two commitments are taken by all member states; the third is taken by the UK. Other member states have also made specific, albeit different, commitments.
4.33 pm
John Penrose (Weston-super-Mare) (Con): It is always good to see you in the Chair and looking after us in Committee proceedings, Sir John. Since this is my first time in this particular role, may I start by saying how much I am looking forward to debating the various issues surrounding this portfolio with the Minister? While I am sure that we will not agree on everything, I hope that we will have a respectful and constructive debate whenever disagreements occur.
This is exactly the sort of occasion when there will not be any great disagreement because this is a largely consensual piece of secondary legislation, to which my party has no fundamental objections. As the Minister ably explained, this is a largely routine piece of legislation that flows from the WTO discussions and negotiations. While it covers most of the new EU member states, I understand that it does not yet cover Romania or Bulgaria. Therefore, like London buses, another measure will probably come along in due course to cover the equivalent set of arrangements and organisations for those countries’ international obligations.
I have no particular objections to anything that has been announced today, but I will be grateful if the Minister can clarify one substantive question. In paragraph 10 of the explanatory memorandum, it states:
“The agreements will not lead to any new regulatory measures, so there is no impact on business, charities or voluntary bodies.”
It goes on to say:
“For the same reason, there is no impact on the public sector. An Impact Assessment has not been prepared for this instrument.”
Given that some 17 non-EU countries that are members of the World Trade Organisation are affected by this measure—the list includes some very large trading partners of Britain, such as China, the US, Australia and Canada—will the Minister explain how we can be certain that there will be no impact, particularly on businesses?
Let me give the Minister a theoretical example to illustrate what I mean. Let us say that a British company working in a particular market sector was successfully exporting to the US, but then suddenly had to compete with another company, also a very effective and strong competitor in the same market sector, which was based in a new EU member country. It would find that the company in the new EU member country would have better access to the market in the US as a result of this measure. Does that not mean that the UK company would find that it had a stronger competitor potentially taking some of its business and therefore some of its export revenue in the US?
Mr. Thomas: To help answer the hon. Gentleman’s question, perhaps I should be clear about what agreements in the WTO are increasingly looking like. I am sad to say that most agreements that are achieved through the WTO are about effectively locking in decisions that have already been taken domestically by country Governments. We have effectively confirmed that in our telecommunications industry, to which I alluded, we are reserving no area for the public sector. Therefore, we are simply confirming what is already the reality in that sector in the UK. There is no impact as such on UK business because it is already working to that scenario.
John Penrose: I thank the Minister for that explanation. It does not necessarily address the precise example about which I was talking, which was export revenues earned by British companies in markets such as the US. I think the Minister’s example—if I have understood it correctly—related to the impact on the UK economy and access to the UK market. Perhaps he will put me right if I have misunderstood him. When he winds up, will he answer my question about export revenues earned by British companies in some of the 17 countries listed in this statutory instrument?
That was the only substantive issue that I wished to raise. I am sure that the Minister will come up with a cogent explanation in due course. Other than that, I have no further objections or concerns relating to this piece of legislation.
4.39 pm
Andrew Stunell (Hazel Grove) (LD): I am pleased to be serving under you on this Committee, Sir John. I think that this is the first time I have done so in my career so far.
This is a short but important document. I want to make it clear from the beginning that, as the hon. Member for Weston-super-Mare said, we support in principle the idea of liberalised, non-discriminatory trade in both services and goods. Therefore, in principle, we have no objection to this document and its contents. However, I have a number of questions to which I hope the Minister will respond.
In his introduction, the Minister made the point that this measure was not connected to wider issues. However, I know that he takes these matters to heart and he will be well aware that there are many NGO concerns about the way that WTO and the GATS agreement are rolling forward. I would like the Minister to spell out some of the advantages and disadvantages that there might be and the balance of power that exists between the developed nations, such as the United Kingdom, and the developing nations.
I notice that among the list here are countries such as India, Ecuador, Colombia, Cuba and even Argentina. It could be that the balance of advantage is tilting—particularly when the Minister says that, in practice, it will make no difference whatever to the United Kingdom, strongly suggesting that we are offering them new lamps for old. Perhaps he could respond to that point.
In preparing for this debate, I had a look at the Department’s “Q&A”, which made the point that some developing countries were short of capacity to participate effectively in these negotiations—something which NGOs are also focused on. I was therefore disappointed to read the Minister’s answer in the “Q&A”, which says that
“the funding a provide a person in Geneva to work closely with developing countries to provide help where it is most needed.”
Perhaps the Minister could let us know how that works and whether, in his judgment, one person being contributed to this process will be enough.
Does the Minister believe that there are any lessons to be learned from the financial turbulence of the past 18 months at international level? Is the liberalisation model still one that the United Kingdom Government want to go hell for leather on? To what extent does he believe that where, for instance, private contractors take on public services—particularly in developing countries, such as those I have already mentioned—there is always a benefit to recipients of those services? Even in my own area of the north-west of England, which is far from being a developing country, we have a utility provider which has just had its knuckles severely rapped by the regulator for the charging system that it has been applying to non-commercial customers over the past year.
I have one or two questions to ask about the agreement, some of which the Minister has hinted at. I was going to ask him what new services we would put on the table and I get the strong impression that the answer is, “None at all”. Perhaps he could say whether I have interpreted him correctly. These are concessions that we were going to include in the next round of negotiations but they have been brought forward, as the explanatory notes state. That being the case, does that mean that further items will now be added to the United Kingdom’s negotiating brief for the next round, or does it mean that we have gone that far and no further?
I have a question about the economic needs test, which is the provision to allow highly specialist and qualified people entry to the country. It will be interesting to hear the Minister say how he expects that to work as well, and whether he thinks that will make any difference to UK approaches to the granting of visas and job permits to people from these countries.
In summary, the Liberal Democrats believe that generally, liberalised and free trade is beneficial to the nations that produce and supply, and consume and buy, the services. However, there are some important qualifications and real limits to that general presumption, particularly when there is a likelihood that multinational and global producers will use it to exploit nations and communities that are essentially powerless and where it might hinder even the United Kingdom’s capacity to develop its own social policy and patterns of service delivery. I look to the Minister to satisfy the Committee that the questions and concerns that I have articulated are resolved in the proposals he has brought forward.
4.44 pm
Mr. Thomas: I am grateful to the Opposition for their questions. I shall try to pick up some of the broad questions that the hon. Member for Hazel Grove raised, before coming back to some of the more specific ones.
On the question of the balance of power between developing and developed countries, I recognise the concern voiced by NGOs. In defence of the World Trade Organisation, in a sense it is where developing countries have most power, by comparison with trade negotiations of a more bilateral nature. Any WTO agreement must be agreed by everyone. In essence, one developing country has the same power as one developed country—Ecuador or Zambia could veto an agreement in the same way as the US or the EU could. The WTO is a democratic institution. Increasingly, we see blocs of countries coming together to increase their leverage in trade negotiations. For example, a group of least developed countries is operating collectively in Geneva in the current Doha round of world trade negotiations, significantly increasing their leverage. A number of emerging nations operated collectively in the run-up to the July Geneva ministerial last year, increasing their leverage in those discussions.
If the hon. Gentleman will forgive me, I shall happily write to him with more details of the support that the Government—through the Department for International Development—have provided down the years to developing countries to help build up their capacity in international trade negotiations. The specific answer—“Q&A”—to which the hon. Gentleman referred relates more specifically to the current set of negotiations, but since 1988 there has been a whole stream of work to help developing countries build up their ability to negotiate. We fund: people who attend negotiations, on occasion; research work for different groups of developing countries; and NGOs and think-tanks that do specific work on trade negotiations. So, yes, there has been one person assigned, but there has been a much broader stream of work and I shall try to give him, by letter, some more detail.
The hon. Gentleman made a point about lessons from the financial crisis. There is often a misunderstanding about the nature of the GATS process and about the WTO. The GATS does not prevent us from taking regulatory decisions about our financial services. There is a specific exemption in the financial services annexe to the GATS, which allows WTO members to take measures for prudential reasons—to protect investors or to ensure the integrity and stability of the financial system—so I do not think that there is a specific lesson from the financial crisis for the WTO or the GATS process as such. The debate about the financial crisis is a much broader one and not specific to our discussion.
Andrew Stunell: The Minister is giving us a lot of information, but I am sure he will be aware that there is a linkage at the international level between the WTO agreements and what the World Bank and the International Monetary Fund often impose as conditionality. Is the Minister satisfied that developing countries, and other countries for that matter, that have subscribed to WTO agreements in broad principle will not find—will be protected from finding—that their discretion in such matters is overridden by those international institutions, which are linked to the WTO?
Mr. Thomas: If the hon. Gentleman will forgive me, I would argue that liberalisation, if paced carefully and sequenced sensibly to help developing countries adjust in their own time, is in general terms a good thing. Generally, all the academic research suggests that liberalisation helps to grow trade and to boost the private sector in developing countries. The key is to ensure that it is paced to allow developing countries time to adjust their markets. That is certainly the nature of the bilateral trade negotiations taking place at the moment—the discussions about the economic partnership agreements.
The hon. Gentleman specifically asked about public services and the extent to which GATS constrains our ability to operate. Again, it is worth while for me to make it clear that the GATS explicitly excludes services that are
“supplied in exercise of governmental authority”,
which is defined as
“any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers.”
So, our commitments on education are limited to the private education market, not to the education market in general, and similarly, on health care, just to the private health care market, not to health care generally.
The reason that the hon. Gentleman may have had the sense that the agreements do not amount to a huge change is because, in practice, they do not. The requirements on the member states that acceded to the European Union, in terms of changes that were required to allow them to comply with EU law, were not huge in nature. However, in order to accede, they have to comply with EU law and had to give up some commitments offered under the GATS agreement, and as a result there have to be compensatory adjustments. So, we have had to offer up some compensatory measures. As I said, increasingly in the WTO we are seeing countries that have taken decisions for domestic reasons agreeing for those decisions to be bound in international law. That, essentially, is what we are talking about in general terms. I hope that has answered the hon. Gentleman’s concerns.
The hon. Member for Weston-super-Mare will have to forgive me, because I have entirely forgotten his specific question. If he wants to ask it of me again, I am happy to try and answer it, or happy to have a longer discussion informally. I am in the hon. Gentleman’s hands.
John Penrose: I shall not detain everyone for much longer and shall try to be brief. If it is going to take too long, we can have a longer discussion afterwards.
The case I was trying to get at was that of a British company exporting to one of the 17 countries whose trade arrangements are altered by the statutory instrument—let us say, to America. The British company is exporting successfully to America, but a competitor company, based in one of the new EU states, is also exporting successfully to the same market in America and, as a result of the changes in the statutory instrument, is able to export more successfully. The instrument will create more competition for the British company and therefore may have an impact on the British company’s export revenues. Therefore, the statutory instrument may have some impact on businesses in the UK. Why do the Government, in paragraph 10 of the explanatory memorandum, assert that there is no impact?
Question put and agreed to.
4.55 pm
Committee rose.

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