Examination of Witness (Questions 220-237)
MR MACIEJ
POPOWSKI
1 APRIL 2009
Q220 Mr Singh: I asked this question
of Mr Deutscher: are you satisfied that multilateral institutions
have moved fast enough and effectively enough in terms of help
or instruments to help poorer countries?
Mr Popowski: I think all the multilateral
institutions have worked very hard over the last few months to
be ready to respond. Of course, if you need to mobilise money
and if you need to spend it quickly it is a big challenge, but
I think we have made progress. The Vulnerability Fund is just
one of the ideas and some other ideas will be discussed at the
G20 starting tonight. We hope that, for example, the question
of doubling the special drawing rights of the IMF will be sorted
out quickly and it will finally happen because that is really
needed. Quite a lot of partner countries need that money. It was
also mentioned by Eckhard Deutscher that the European Union has
made a pledge to contribute €75 billion to the IMF capital
to boost its spending capacity. We have made progress but we need
to go further.
Q221 Mr Singh: I think two years
ago we were with the IMF and at that time they were closing offices
and shedding staff because they were not making any money because
they were not lending enough. I asked if there was a need for
the IMF anymore. Obviously there is still a need and bigger than
it was before.
Mr Popowski: I am afraid it is.
Q222 Mr Singh: Mr Deutscher was very
strong on the need for reform of multilateral institutions including
the World Bank. Do you share his view? Do you think they should
be reformed and, if so, what kind of reforms would you like to
see?
Mr Popowski: We have arrived collectively
at a stage where all the institutions are basically at a stage
of being re-examined. We are looking into the whole international
set-up. That is one of the objectives of this summit starting
in London tonight, to try to outline a new global governance that
includes the World Bank, the IMF, the G20, the G8 and the OECD.
I think we need to be more representative and more inclusive.
The question that you posed to Mr Deutscher, I can repeat his
answer. An additional seat for Sub-Saharan Africa on the World
Bank board will not do the trick. It is a good start but we need
to go further than that. We need to finally reach agreement on
a different way of electing the heads of the IMF and the World
Bank. It must be a merit-based process with no geographic bias.
The picture of the multilateral institutions, especially the aid
agencies, is quite complex. The report by the OECD presented last
year was telling, but now we need to draw conclusions. Do we really
need so many players around the table and so many different international
and national flags? We should be serious about this. We should
start a discussion on that as well. It is not for now to decide
if we are going to cut by half the number of multilateral institutions
but it has to be borne in mind otherwise I do not think we are
quite serious about an effective international governance system.
It is not likely to be a single all-encompassing institution at
the end of the day but at least we should try to be simpler and
more effective.
Q223 Mr Singh: It is hard to do it.
Mr Popowski: It is.
Q224 Andrew Stunell: We have heard
that there are 242 multilateral programmes, then there is, the
27 plus one, and you are now having an EU Vulnerability Fund.
Is that the 243th fund? How does this fit in? You are arguing
for simplicity but you are also proposing new and different programmes.
Mr Popowski: It is an instrument;
it is not a separate structure. It is an existing instrument which
we are going to refocus within the current EDF budget, but we
are going to use unspent reserves under the 10th EDF to finance
that. It is not a new body. It is not a new vertical fund. The
Commission is going to manage it as we did before. We are not
adding to the confusion hopefully. We are not adding to the complex
picture of the multilateral world.
Q225 Andrew Stunell: If I am a developing
country's government and I want to access this money, we have
the same problem in civic society in this country, you have about
35 different organisations to apply to and filling the forms in
takes more time than spending the money. How will a developing
nation access this money? What will be the route for accessing
this separate fund?
Mr Popowski: What we intend to
do is to grant that money under the reformed FLEX instrument,
one of the European abbreviations, to grant most of it in the
form of budget support. As you know, that is the preferred instrument
of the European Commission, budget support, and we want to do
it exactly in that way, so offer the money directly to the government
of the partner country so they can use it the way they see fit.
The idea would be to offer the possibility of additional interventions
in the social sphere but the procedure is fairly easy. We believe
that budget support is a predictable way of spending and a way
of spending really respecting the principle of ownership by the
partner country itself.
Q226 Chairman: It has been suggested,
and there has been an undercurrent in the aid and development
debate for years, that free trade for developing countries would
do more to lift people out of poverty than all the aid and remittances
that we are all working on and yet we are further away than ever
on getting a progressive free trade agreement. Mr Deutscher very
strongly was saying far from being less urgent, now is the moment
to deliver because it would do more for the developed and developing
world than any other single action. To be blunt, one of the main
obstacles to delivery is the European Union. Is it not time that
the European Union recognised that its protectionism, particularly
on agricultural, is not only bad for development but bad for the
world economy and bad for the European Union?
Mr Popowski: I am fully aware
of the importance of the Doha Development Round. We also believe
that it needs to be brought to a successful outcome as soon as
possible. The Commission is going to state publicly in the communication,
the policy paper, that it is a prerequisite of making progress
and especially now in times of crisis. It is a very complex situation.
As you know, the negotiations have been dragging on for a very
long time. I do not think it is only the fault of the Europeans
that we could not reach agreement, but I hope that the context
has changed so dramatically now that all the players around the
table in Geneva will be more willing to compromise.
Q227 Chairman: I have no difficulty
saying the same thing to President Obama; it is the United States
and the European Union. You are the Director of Development for
the European Union, is this not a moment for your division to
strengthen your arguments? We all know the politics. We all know
there are Member States who have vetoes and ultimately you cannot
do anything about that, but what you can do is use your powers
of persuasion and information to confront the difficult partners
with the fact that actually they are no longer protecting their
own interests but are damaging them. It is estimated that the
agricultural production from Sub-Saharan Africa could increase
dramatically if they had the opportunity to get access to our
markets. Indeed, we saw when we were in Kenya cut-flower production
on a world-class scale which was delivering cut-flowers to European
markets with one-sixth of the carbon footprint of flowers produced
within the EU and doing it competitively. The potential is there
and that would be an expansion of trade that would benefit both
the EU and developing countries. Is it not the responsibility
of your particular part of the Commission to really reinforce
those arguments to use this moment now to say it is time for a
radical rethink and that protectionism is working against the
real interests of economic recovery?
Mr Popowski: It is our role to
be an advocate and watchdog of policy coherence for development.
I would put it in that context. That is only one of very many
inter-linkages between different policy areas where we have to
be careful. When we implement a certain policy, be it agriculture,
trade or migration, that should not undermine the development
interests or the interests of the developing countries. That,
of course, is what we are doing in our part of the house, also
pushing the policy coherence agenda and making both our colleagues
and other parts of the Commission and the Member States aware
of the potential damage we could create by conducting policies
not conducive to development results. We are going to discuss
with Member States all the aspects of development policy before
the formal meeting of development ministers in May. We will present
our policy proposals, our communication, our Monterey report on
financing and aid effectiveness and all the aspects will be put
before the Member States again. No doubt we will have a difficult
discussion but a discussion that should lead to conclusions by
the ministers. I agree that is the right time to do so.
Q228 Chairman: That is fair enough,
but in terms of the EPAs which are negotiated by the Commission,
could you review the way you are doing these and remove the requirement
for any reciprocal liberalisation? Could you not make them pro-development
agreements?
Mr Popowski: You know the story
of the EPAs[2],
the story behind it, and its origin to make our trade agreements
with the ACP countries WTO compliant. The perception of the EPAs
was somehow distorted in many quarters in the sense that it was
seen as something that we were imposing on the partner countries.
I would like to put it in a different way. The EPAs were conceived
as an instrument to promote regional integration and intra-ACP
trade in different regions. Of course we ran into difficulties
with our partners so that we are still not there yet and we are
continuing our negotiations. I am not dealing with the EPA negotiations
directly so I am not in a position to give you details on the
state of play, but what I can say is that especially now, in the
difficult time of the financial economic crisis, regional integration
is also a way of promoting growth and opening up new market opportunities
for the partner countries. I do not think we should abandon that
approach.
John Battle: The EPAs are seen as a stumbling
block because it is seen as do as we say and not do as we do.
There has to be an opening up and a liberalisation of developing
countries' markets when we are not doing enough. I wonder if I
could turn back on your words of a strong message. It is not potential
damage to trade. We have set up, in the Houses of Parliament,
a Trade out of Poverty group that is all-party and puts together
some interesting characters where we have got together to say
the facts are there is a 6% decline in trade now. It is actual
damage that could wipe out the whole of the aid budget to the
0.7% within one year. All that effort to get everyone in line
to pay 0.7% could be wiped out this year by the decline in trade
alone. I wonder whether I could dream of the Italian Presidency
giving an incredibly strong leadership in June from the EU to
get Doha back on track. Could I dream of much more pressure coming
from within the EU leadership to say unless those trade talks
are not back on track at the G8 then we are wasting our time debating
aid?
Q229 Chairman: Sweden is taking over
the presidency of the EU and Italy is taking the G8.
Mr Popowski: I can say that I
share your dreams. We have already sent quite a number of messages
to the G8 Presidency. The EU Presidency, both the current Czech
and the future Swedish, is fully aware of the challenge. Our position
is that the Doha rounds should be finalised as soon as possible
because we need to create a real value for developing countries,
especially the least developed countries, and to provide duty
free and quota free access for them. For me it is a part of our
policy coherence agenda and it is not a bureaucratic exercise.
Of course we have to use different bureaucratic instruments, impact
assessments and different kinds of consultations, but it is really
crucial and it is very political. What is really needed, and I
would refer back to the Chairman's remark on the role of the Directorate
General for Development, is we have to be a whistleblower and
a watchdog and that is what we are. We are constantly reminding
other colleagues of development dimensions and of potential collateral
damage of the different policies. I think we reached quite a good
level of agreement within the DAC community that the policy coherence
for development should be one of the main tasks of the DAC in
the future. Eckhard Deutscher referred to the ongoing work of
the DAC reflection group on which he is presiding and of which
I am member of the European Commission. We already know that is
one of the main challenges for the future, to make sure that we
are more coherent in implementing the development policy and that
the development policy is, in a way, co-owned by other departments
within national administrations and within the Commission. It
is not only for the development people to push for a pro-development
agenda but the others have to be on board as well: trade, agriculture,
internal affairs and all the parts of the national and international
administrations.
Q230 John Battle: Could I return
back to the donor aid commitments? We got the impression that
half the Member States have issued timetables for their multi-annual
budgets. Could you give us a clue as to which have not, or if
you could let us have a list? You may not have them.
Mr Popowski: I do not have a list
with me.
Q231 John Battle: Could you provide
us with a list? It may help in some of the conversations.
Mr Popowski: Yes, I will see what
we can provide.
Q232 John Battle: The outcomes you
are hoping for from the EU development ministers meeting in May,
what are the top priorities? I liked your remark about sending
strong messages. I think that the Commission for nearly 40 years
now has led on the development agenda and pulled people to co-ordinate
a line, but what do we want to come out of the EU development
ministers this May, because that could be quite a crucial meeting?
Mr Popowski: It is. It will take
place just two or three weeks before the UN High Level Conference
in New York where the Stiglitz Commission report will be debated.
It will come two months before the G8 Summit so it will be one
of the highlights in the development debate this year. We are
going, as I said, to present to our Member States a communication
and our report on our Monterey commitments, so the state of play
but also recommendations for the future. The main message is that
we need to honour our commitments. We need to act, and we need
to act swiftly, in order to be able to tackle the consequences
of the crisis. We are going to cover quite a vast ground in the
paper. We are going to propose more co-ordinated and targeted
action. We are going to push for more effective aid which I have
already mentioned. Also we would like to propose some additional
instruments that we could offer to the developing countries. We
need to mobilise everything that is at our disposal, both the
ODA money and we need to take forward the ongoing discussion,
we need to make progress on innovative sources of financing. There
is only a handful of Member States that are using innovative sources
of financing like airline tax, for example, to finance development-related
expenditure. We can go much further than that by using revenue
from the Emissions Trading Scheme revenue. That is still not the
case but there is huge potential there and that is exactly where
the development agenda is very much linked to the Copenhagen Summit
on Climate Change. We need to be serious about financing both
mitigation and adaptation. There is a huge effort that is needed.
According to our estimates we need to spend €175 billion
on mitigation plus €50 million annually on adaptation, so
I think the agenda will be quite full. We will suggest that we
need to engage in a targeted way in areas that I have already
described, being infrastructure, agriculture, green growth, so
environment protection and climate change. We need to progress
on trade and continue with disbursing the Aid for Trade money.
I think I have covered the Doha round already.
Q233 John Battle: Doha will be on
the agenda. Will the trade questions be on the agenda?
Mr Popowski: Yes. It will be quite
a comprehensive discussion because all the issues relevant to
the EU development policy will be on the table. We very much hope
to arrive at a common position that will inform the EU position
both on the UN conference in New York and other development events
later this year.
Q234 Mr Sharma: Currency depreciation
is a fact in many areas in the EU. To what extent is the effect
of currency depreciation likely to affect European Commission
expenditure?
Mr Popowski: We calculate our
statistics in euros and the euro was not affected by depreciation
so we do not think that it will produce immediate effects for
the time being. There are reasons to believe that it might be
the opposite because the euro is quite strong which potentially
could be difficult for the European economy, but I do not think
it would really impact on the aid budgets. On the other hand,
if the European economies continue to shrink the real volume of
aid in 2009 and 2010 is likely to diminish even if we stick to
our commitments to spend 0.56% in 2010 and 0.7% in 2015.
Q235 Mr Sharma: The Secretary of
State has told the Committee here that the fall of the pound against
the euro has put pressure on the Department's funds as it makes
a contribution to the EU. Are there any other Member States facing
similar problems?
Mr Popowski: I think it could
be the case with the non-eurozone members of the EU, Sweden for
example or most of the new Member States. Of course, their contribution
to the ODA budget of the European Union is rather small. They
account for 8% of the European GNI and only 2% of the European
ODA. Most of the new Member States are non-eurozone members and
their currencies are severely affected by the crisis and they
are really depreciating rapidly so that could be the case.
Q236 Chairman: The UK has maintained
its commitment. The consequences are that your budget is not affected
because the UK will pay its euro contribution, but because the
pound has depreciated it will affect our domestic aid budget which
could mean that it will inhibit other possible non-core contributions
that the UK might have made to European Commission programmes.
I do not know whether that is in your calculations.
Mr Popowski: We are aware of it.
We have been discussing that with our colleagues in DFID while
preparing our report on financing for development. That was already
taken into account during the preparatory work for the report
that is going to be published on 8 April.
Q237 Andrew Stunell: We had a discussion
in the first session about taxation and its impact on developing
countries. The Commission has published the draft Council Directive
on taxation which I presume your department will have had some
input into. You are probably aware that it has hit some stormy
water in this building with our European Scrutiny Committee who
perhaps are not as enthusiastic as they might be about the direction
it is going. Can you just say to us what action the Commission
is taking to reduce tax evasion and where you think this should
proceed in the next year or two?
Mr Popowski: First of all, in
order to be effective the action on tax evasion must be global.
If we do it on our own, even as the EU, we will not really solve
the problem. We need to be comprehensive. I understand that will
be quite vividly discussed by the G20 leaders tomorrow in London.
There is already political agreement to address the problem of
the non-co-operative jurisdictions. This discussion has already
produced a knock-on effect. If countries outside the European
Union are ready to sacrifice the banking secrecy rule, it shows
that things are changing. Taxation, as you know much better than
I do, is a very sensitive issue for our Member States. The European
policy on taxation, in fact, covers a very limited ground. What
we are discussing is basically the VAT and it is for the Member
States to decide on the rates. When it comes to the development
agenda, we are going to promote good governance in the area of
taxation in the partner countries, also using incentives like
the governance incentive tranche of the European Development Fund.
That could be used also to promote good governance in the area
of taxation if it is a priority jointly identified by us and our
partner countries. We are going to be proactive to the extent
that the Member States allow us to be because it is not our competence.
There is also ongoing work in the Commission on the question of
the corporate tax base, for which I am not responsible in the
house, but that is quite a difficult complex issue which is linked
to the question of de-localisation of businesses within Europe
as you can imagine. It was supposed to be accomplished last year
but it is still ongoing. The Commission is going to propose some
ideas on how to harmonise not the rate of corporate tax but the
method of calculating the corporate tax base.
Chairman: Thank you very much. As you
can see, the Committee is somewhat troubled by all these challenges,
as I guess we should be and you should be as well. I should indicate
that it is not all bad news but it is uncertain. I hope you also
get the message that we have strong views about making progress
on trade agreements as essential for development and we encourage
you, therefore, to speak out as the Development Director on that.
Thank you for coming here and exchanging your views with us; it
has been extremely helpful. Our intention is to produce this report
around the end of May in time to feed into the Government's White
Paper so you will see the recommendations there.
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