Generalised Tariff Preferences
The Committee consisted of the following Members:
Sarah Thatcher, Committee Clerk
† attended the Committee
Generalised Tariff Preferences
Michael Connarty (Linlithgow and East Falkirk) (Lab): I am happy to be here under your guidance, Mr Howarth. This is a debate on the generalised scheme of tariff preferences, known generally as the GSP. The GSP is intended to promote the economic development of developing countries by offering them preferential market access, and the current European Union scheme runs until the end of 2015. It has three elements: a basic scheme, applicable to countries that are not classified as high income countries; a special incentive arrangement, usually known as GSP plus, for those countries meeting commitments relating to human and labour rights, and a special arrangement for the least developed countries, usually known as “everything but arms”—not parts of the body, but armaments.
Document 10052/11 would retain the three separate tiers of the existing scheme, but would make a number of significant changes to them. Those include a reduction by more than half in the number of beneficiaries, excluding high income countries along with those that have comparable market access through other arrangements, and extending eligibility for the GSP plus scheme to additional countries. However, there will be no changes to the everything but arms scheme.
The Government see the GSP scheme as one of the EU’s primary trade instruments to support developing countries, and believe that the reform should increase the focus on reducing poverty. They welcome the widening of GSP plus and the maintenance of the everything but arms scheme, but are worried at the reduction in the number of basic scheme beneficiaries and believe that those in the present scheme should be offered additional preferences.
The European Scrutiny Committee took the view that, while the basic intention and structure of the arrangements would remain unchanged, their general economic and political importance for a large number of developing countries justified the document being debated in the Committee. It is, of course, generally the role of the European Scrutiny Committee to bring matters of economic, political importance to the notice of the House.
The Cotonou agreement provides for the conclusion of agreements between the European Union and African, Caribbean and Pacific countries. Council regulation EC No. 1528/2007 identified the 36 countries that were to benefit, having concluded negotiations. However, it also
The Government accept that a country that had not ratified its agreement should be removed, but were concerned that that would come into effect at the same time as the changes to the GSP. In view of that, the European Scrutiny Committee believed that document 15025/11 should be tagged to the debate that it had recommended on document 10052/11.
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey): I thank the Committee and the hon. Member for Linlithgow and East Falkirk (Michael Connarty) for asking me to be present in Committee to answer their questions and to debate the generalised system of preferences, and the Commission’s proposals to reform it. The Government and I, as a Minister, believe that the issue is incredibly important in terms of both trade and development, so it will be really helpful to have the Committee’s input into the debate as we go forward to negotiations with the Council and the Commission during the next few weeks and months.
Trade, alongside aid and investment, has a critical role to play in generating economic growth in developing countries, so helping to eradicate poverty. The GSP scheme represents one of the EU’s most significant tools for promoting trade, as the hon. Gentleman has said. By substantially reducing tariffs on most imports, it generates additional export revenue worth €3 billion annually for developing countries. Given the worrying trends of rising protectionism and the difficulty in agreeing a Doha deal, it is important to ensure that such countries retain preferential access to EU markets.
We believe that the primary purpose of the GSP is, and must remain, development. With that in mind, we welcome some of the proposed changes. For example, the extension of the eligibility criteria for a GSP plus would allow more countries to benefit from increased preferences, provided they meet the necessary human rights and good governance requirements. We also support the proposal to allow least developed countries to continue to receive duty-free and quota-free access to EU markets.
However, the Commission has proposed a significant reduction in the number of countries covered by the scheme, including the removal of all high and upper-middle income countries, which, it claims, will help
We accept that there is some scope for better focusing the scheme, but blanket exclusion of all upper-middle income countries, irrespective of poverty levels, goes too far. It is not credible to argue that the EU is doing more for the poorest by cutting the number of beneficiaries at the top end of the income scale without compensating through additional or deeper preferences at the lower end.
Discussions are under way in Council and in the European Parliament, and we expect agreement to be reached during the course of next year. Some member states have indicated that they want the revisions to go even further than the Commission’s proposals, in what would clearly be a protectionist move. In seeking a good outcome for developing countries, the UK will work to build alliances with other member states and so prevent further erosion of the preferences offered. We will also fight hard to keep the proposal on extending GSP plus to countries such as Pakistan.
Some of the more vulnerable upper-middle income countries should not lose preferential access to the EU market altogether. We have made a counter proposal to allow for that and we are considering alternative options with other like-minded member states. We have proposed, jointly with the Netherlands, a number of additional products for which we believe preferences can be extended and deepened without damaging least developed countries or European manufacturers.
The European Parliament will produce its draft report at the beginning of next month and a number of our arguments have already been taken up in its discussions. A broad GSP, including GSP plus, is an important instrument for helping poorer regions of the world to prosper through their own efforts. The scheme is of benefit not only to developing countries; greater openness is good for the EU, too. It will secure cheaper inputs for our industries and greater choice and lower prices for consumers, and it will spur innovation.
The hon. Member for Linlithgow and East Falkirk introduced the debate faultlessly, with one exception: current GSP regulation will end on 31 December 2013, so the new system will enter into law on 1 January 2014. I hope that the Committee will support the motion to maintain a liberal and development-friendly GSP. In particular, I hope that hon. Members will be ready to support the Government’s efforts in their contacts with other parliamentarians in the EU.
The Chair: We have until 5.30 pm for questions to the Minister, which, I remind hon. Members, should be brief. It is open to a Member, subject to my discretion, to ask related supplementary questions.
Ian Murray (Edinburgh South) (Lab): Thank you, Mr Howarth. I am grateful to the Minister and my hon. Friend the Member for Linlithgow and East Falkirk for bringing this matter to Committee. First, will the Minister advise the Committee whether he is aware of any likely impact on the level of trade imports to EU countries as a result of the reduction in the number of countries eligible for the GSP, especially with regard to food prices and their potential rises?
Mr Davey: A lot of analysis is being carried out in this area, as the hon. Gentleman will understand. The European Commission has carried out a number of analyses, some of which do not specifically answer the hon. Gentleman’s point. I am happy to get back to him with details. The critical issue is that the Commission’s analysis shows that removing upper-middle income countries will not help the least developed, poorer countries. That is part of its argument, but its own analysis shows that the beneficiaries of removing some trade preferences
Ian Murray: Related to that question, given the concerns about increased protectionism resulting from the blanket removal of all upper-middle income countries, what discussions has the Minister had with the Commission on any free trade agreements, particularly with countries, such as Brazil and Argentina, that are likely to be affected by the loss of privileges under the GSP? What if the free trade agreements fail?
Mr Davey: The hon. Gentleman makes a good point. A whole range of free trade agreements are under discussion with the countries he mentioned. The big free trade agreement that the EU is trying to negotiate is with what are called the Mercosur countries—Brazil, Argentina and one or two other Latin American countries. Those negotiations are well under way, but there is no indication, and indeed there is no guarantee, that they will be concluded early.
Our position is to be as reasonable as possible. Our counter-proposal is designed to ensure that some of the upper-middle income countries retain those trade preferences. Of the current 14 upper-middle income countries, only Brazil and Belarus would lose their trade preferences; the other countries, including Argentina, would keep their trade preferences. We are engaging with the Commission and are raising our alternative proposals at official level—I raised them formally at the trade council when we discussed the GSP.
Ian Murray: There has been great concern about the breadth of goods available within the GSP scheme. One of the main ways to drive trade to the poorest countries in the world is to address agriculture. Given the EU’s strong protectionism on agriculture, has there been any discussion about lessening some of those goods restrictions to allow agriculture to drive forward the economic development of some of the poorest countries?
Mr Davey: The hon. Gentleman is absolutely right. One of our disappointments with the Commission’s proposal is that it does not seek to extend the product coverage to those countries that will remain within the GSP scheme. In the counter-proposal that we tabled with the Netherlands, we argue for the product coverage to be widened. We have chosen those products carefully, both to ensure that we can try to win agreement and to ensure that there will be a good development effect. The products we have chosen are, by and large, agricultural products: sheep cuts—bone-in, fresh or chilled; barley; grain sorghum; cocoa butter, fat and oil; and, a non-agricultural good, men’s or boys’ cotton underpants.
Mr Davey: The hon. Gentleman is right to say that there will be a benefit to the EU budget. The benefit to the countries in the GSP will go down from €2.97 billion per annum to €1.87 billion per annum.
Mr Davey: Indeed I was. The hon. Member for North East Somerset, as usual, asked a perceptive question about what the benefit to the EU budget was and whether the proposals were protectionist. He is right that there is a reduction, as I said before the suspension. One reason why we tabled our alternative proposal is that we believe that wider product coverage for the poorest countries would make the scheme less protectionist. I read out a list of some of the products and may have inadvertently implied to the Committee that that list was exhaustive, but there are quite a number of other products in the Dutch-British proposal. I do not think the Committee would like me to detain it much longer by reading out the full list, except to say that women’s or girls’ briefs are also included.
I should also say that the headline figure that the hon. Gentleman quoted slightly overestimates the impact, because a number of countries that would be losing the GSP would gain from greater access to tariff and quota reductions through other free trade agreements—for example, Peru and Colombia would do so through the EU-Andean free trade agreement. The general thrust of his question is spot on, however.
That the Committee takes note of European Union Document No. 10052/11 and Addenda 1 to 3 relating to a Draft Regulation applying a scheme of generalised tariff preferences; and supports the Government’s aim that the reform of the Generalised System of Preferences (GSP) should be an opportunity to focus the scheme on the poorest countries by increasing preferences to those on the scheme and widening the eligibility criteria of the special incentive arrangement for certain countries, GSP+, but that this should not be used as an instrument to increase protectionism by the blanket removal of all Upper Middle Income Countries.
It is clear that the Committee is interested in how best to reform this important instrument for promoting international trade and economic growth, and, in particular, reducing poverty in developing countries. The comments and questions we have heard show that hon. Members share the Government’s concerns that we need to ensure
I should be fair to the Commission’s proposal. As the hon. Member for Linlithgow and East Falkirk reminded us, the everything but arms proposals—the duty-free, quota-free trade preferences that are available for 49 of the poorest countries—remain. I hope that reassures people that the EU is meeting many of its obligations in the development field. I believe the trade preferences are the most generous of any OECD country, so we are showing a real lead in this area, but the Government’s concern is that the GSP proposal as put forward by Commissioner De Gucht could be seen as moving in a more protectionist way, and we do not want that to happen. The UK and other member states will fight hard to prevent that, in the ways that I have described.
These are negotiations. I do not know the outcome, and I do not want to raise expectations that we will be successful in every element of them. All I can do is reassure hon. Members is that we will fight as hard as we can. We have a long-held reputation in this country, across all political parties, as champions of free trade, because we know that is in the interest of our people and the peoples of the world—particularly the poorest. I am sure hon. Members will want to support the Government in fighting to ensure that the principles we hold dear continue to be upheld at the EU level.
Jacob Rees-Mogg: I am so sorry; I thought that an Opposition Member might take the opportunity to speak. This the first time that I have been at one of these debates when they have not and that might show a degree of unanimity.
I am at one with the Minister in emphasising the importance of free trade. My deep concern is that these proposals are fundamentally not about free trade; they continue to take Europe down a protectionist route. We know how important free trade is to the economy of the United Kingdom, with the great rows in the 19th century, the split in the Tory party over the corn laws and the work of John Bright, who was recently the subject of a biography by my hon. Friend the Member for Stone (Mr Cash), a staunch Eurosceptic who has fought the case for maintaining free trade against what has been going on in Europe. Free trade is both about providing cheap goods for the British people and benefits to poor countries.
What we are doing here is reducing the benefits to some of the poor countries in the world. When one looks at the countries that have had free trade since the war against those that have had a lot of aid, the ones with trade are the ones that have done best. For instance, South Korea, which after the Korean war was poorer than Somaliland in gross domestic product per capita, is now an OECD nation on the back of its access to free
I am grateful to the Minister for concentrating, in answer to my question, on the amount of extra money that the measure raises for the EU, as we have already discussed. That is important, because we are in discussion with the EU on the next seven-year framework for the budget. The EU—the Commission and the Parliament—is keen to increase its spending, and seems to want to do it on the backs of some poor nations, which I happen to think is pretty disgraceful.
When we look at the details, the complexity is almost mind-boggling. There are 6,200 tariff items. What is the European Union doing with 6,200 tariff items? Is it the Fortress Europe in terms of trade that people have mentioned, or should we be looking to get rid of those tariffs? What happens with the preference? About half the products enter duty free, which is 3,100, and the other half, the sensitive items, still retain tariffs with a varying degree of reduction—3.5% on flat-rate reductions and specific duties reduction of 20%. Conditions are attached so that the European Union can remove such benefits from countries, partly if they are found guilty of unfair trading practices, but also if they are actually quite successful.
I refer the Committee to articles 22 and 23 of EU document 10052/11, on page 27 of the bundle, which list the exceptions. Countries that have managed to trade successfully off their own bat can then find that they lose their benefits. Article 22 begins:
“Where a product originating in a beneficiary country of any of the three arrangements referred to in Article 1(2), is imported in volumes and/or at prices which cause, or threaten to cause, serious difficulties to the European Union producers of like or directly competing products, normal Common Customs Tariff duties on that product may be reintroduced.”
If a company does badly because it is inefficient, the poor exporting nation loses out, because it is doing well. That strikes me as a particularly bad way of carrying on. The uncompetitive and the high price are protected. The consumer is damaged, and the poor country is not allowed to get richer.
There is then the great issue of sensitive and non-sensitive. Sensitive relates, to a large extent, to agricultural products, but it is a list of the most mind-numbing complexity, confusion and idiocy. There are a few bits that I want to bring to the Committee’s attention. I thought that hon. Members would like to know that fresh melons, including watermelons, are sensitive, but the peel of melons, including watermelons, is not sensitive. If one wishes to export the peel of a melon to the European Union, that will be duty free, but the melon itself will be subject to a duty.
I was fascinated to discover that the list of products, which starts on page 48 of the bundle, begins with entirely sensitive items of agricultural kinds, including donkey meat, which I am aware is a favoured delicacy of Kim Jong-Il, but is otherwise not commonly eaten. The first item that is non-sensitive, however, is frog legs. I wonder whether that is because there is no producer of frog legs other than the French or whether they are so competitive in France that the production—
I love the idea that potatoes—fresh or chilled—are sensitive. One has this vision of some poor potato that has grown up in a field in a country outside the European Union with low gross domestic product. It is a sensitive potato. Its feelings are upset when it is pulled out of the ground. Is that really a sensible and intelligent way for the European Union to proceed?
I note that frogs legs are non-sensitive, but limes, from a limey point of view, are sensitive. I like the fact that cyanide is sensitive. It is a good idea that it is a sensitive import to the European Union, but potassium permanganate is not sensitive. Where did these lists come from? Why are we not boldly saying to the European Union, “We believe in free trade. Free trade offers the benefits of prosperity to our people and to the people who export. There is a comparative advantage that allows our resources to be used most effectively in doing things that we are good at and letting other countries get on with what they are good at. We are condemning poor countries to poverty and stopping intermediate ones reaching a degree of wealth by imposing these absurd conditions?”
I absolutely support the Minister. I am reassured by the notes he has written and by the clarity of what he has said today. I know that many hon. Members have other important things to get on to, and they do not particularly want to be detained here, but the scheme is crucial to the prosperity of our nation and to other countries around the world. The European Union is an obstacle to that. It is taking a power under the treaties and using it in a way that is inimical to the British interest and to overseas interests. I hope that the Minister will carry on in his rigorous manner to ensure, as far as we possibly can, with the Dutch and with others, that we get a better deal both for our consumers and for overseas poor nations.
Ian Murray: I am grateful for your indulgence, Mr Howarth. This is the first Committee I have attended as a shadow Minister. I forgot to indicate that I wanted to speak after the Minister. My apologies for that. It is also the last Committee that I will attend with facial hair, as my moustache comes off tomorrow.
I am in full agreement with the Minister and what has been said. The contribution that we have just heard from the hon. Member for North East Somerset emphasised how complex the scheme is. This being my first outing as a shadow Minister, I did not expect the amount of paper that hit me, although I found the documents incredibly interesting—certainly my researcher found them interesting. It is a very complex subject.
I want to mention two things. The first is about protectionism. The Minister expressed concerns about the protectionist agenda and what it may achieve. Some concerns have been raised about the changes to the GSP plus scheme in relation to, for example, Italy and its tuna producers and Portugal and its bed linen producers. That goes to show just how ludicrous some of the specifications are, as other hon. Members have said. The concern is that the markets of fragile EU countries will be flooded by cheaper imports because of changes to the criteria for GSP plus. Although the changes to the criteria of GSP plus are incredibly welcome—we should be doing all we can to ensure that the poorest countries in the world are given the widest possible access to be able to grow their economies—there is a significant case for saying that the EU, and particular countries whose economies are hard-pressed at the moment, may use other mechanisms if their markets are put under pressure by the extension of GSP plus, to ameliorate some of the problems that may arise from the new entries to the GSP plus scheme.
My second point is that there has been growing concern that the trade labour issues—ensuring that people enter and stay in the GSP scheme—have not been adhered to as significantly as we would wish. If I may impose on the indulgence of the Committee with some examples, only Burma and Belarus have been suspended for labour violations since 1997, and there seem to have been communications within the European Commission in respect of beneficiary countries’ non-compliance with their labour obligations.
I wanted briefly to raise those two matters with the Minister. I had a more significant contribution, but I think that we are all in full agreement with the Minister’s approach and the changes that he is looking to make through various channels at the Commission. It was, however, worth while to raise those two key issues in Committee, and I am grateful for being allowed to do so.
Mr Davey: May I welcome the hon. Gentleman to his place? I should have done so earlier. I look forward to debating with him—with or without facial hair. I thank him directly for his support for the Government’s general direction, and I will try to deal with his two questions before I turn to the long, and very good, speech by the hon. Member for North East Somerset.
The hon. Member for Edinburgh South rightly said that one or two member states are worried about the extension of GSP plus. The change in the eligibility criteria will mean that Pakistan and the Philippines, in particular, can apply. They will have to meet various human rights and good governance criteria, which we shall ensure are enforced properly. Assuming that they
We are familiar with the issues because following the floods in Pakistan, which made nearly 15 million people homeless, the UK Government tried to have Pakistan temporarily given GSP plus, as part of the European Union’s signal that we wanted to stand by the people of Pakistan and help them grow their economy. Unfortunately, for lots of reasons—not least India’s objection at the World Trade Organisation in Geneva—we were not able to proceed with that proposal, but at least we now have a proposal on the table. At the time, we obviously discussed the impact of VAT with other member states, and we began to win the arguments.
The hon. Member for Edinburgh South rightly pointed out that Italy and Portugal have economic problems—indeed, we all do at the moment—but arguably their economies are particularly fragile. The extension of GSP plus will not make a significant difference to their economies, but it may make a huge difference to sectors in Pakistan and the Philippines. Some of the challenges that both Italy and Portugal—indeed, all of us in the European Union—need to face up to are less in that area and more in others. I look forward to working with my Italian and Portuguese colleagues on growth policies, including on the single market, on reducing regulation and on innovation. We can foster a positive approach together.
On the trade labour issues, I am not fully on top of the Burma and Belarus examples that the hon. Gentleman cited. I will certainly look into them and write to him if I have anything specific to add. I am happy to consider that issue.
The hon. Member for North East Somerset strayed into a general attack on the European Union, which is where I depart from him. He mentioned the history of his party’s split over free trade, which gave the predecessor of my party, the Liberal party, an opportunity to lead this country as the holders of the Ark of free trade beliefs at that period. We continue to adhere to that, and I am delighted to say that on free trade, at least—if not perhaps on Europe—the modern Conservative party appears to be united.
The hon. Gentleman questioned the EU’s commitment to free trade, but I have to say that I disagree with him. Looking at a whole range of issues—including Doha, for example—we have been championing the case for free trade. Across the European Union, we have been prepared to take some difficult decisions, including on agriculture, to try to facilitate a deal at Doha. I do not think that anyone in Geneva or in the capitals of the major trading nations would point the finger at the EU as the problem in getting a free-trade deal. Having worked with Commissioner De Gucht and some of his officials, I believe that he and his directorate are committed to free trade. It is true that there are member states across the Council and MEPs who are less committed
While there is always room for improvement and, dare I say it, always room for improvement in our own country on these matters, the hon. Gentleman’s overall analysis of the EU position on free trade was unfair. As I made clear in my earlier remarks, he is right to sound the alarm, but even so some of the countries that are having GSP removed are hardly poor. Frankly, I was surprised to learn that we were giving trade preferences in the EU to the high income countries of Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates, Oman, Brunei and Macau, and I think the Commission is right to remove those preferences. We need a balanced discussion about this; it is important because we want to win the debate at EU level.
In his usual forensic fashion, the hon. Gentleman had read the papers and made a number of well-targeted remarks, but he was a little unfair in some of them. The categories he referred to come from definitions of the World Trade Organisation. The EU chooses to give tariffs or not give tariffs on those categories, but they have not been dreamt up in Brussels, and they play more widely across the country. The hon. Gentleman was right when he referred to some of the rules that have been in place for many years about how
As trade Minister, I often have submissions from officials asking me what I think our position should be on proposals. I hope I can reassure the hon. Gentleman that more than nine times out of 10 this country takes the free-trade position. Some of the issues are quite complicated and we will have to study the detail to see where the overall interest lies, but by and large we are concerned about the way that some of the measures are used. It is interesting that Commissioner De Gucht is reviewing the measures over the coming months and years, and we very much want to participate in that debate.
The hon. Gentleman spent time worrying about sensitive issues; I understand why he is worried about frogs legs. I have been told by a friend that he was sitting in a restaurant eating frogs legs when a frog came into the restaurant in a wheelchair and said, “I hope you enjoyed that meal.” It was clearly very sensitive about the issue. We can see how important some of these issues are to nations, but the debate has been a good one and I am pleased that we have agreement across the Committee.