Select Committee on European Communities Tenth Report


5. We believe that the benefits of increasing world trade within a rules-based system can—and ought to—outweigh the disbenefits for all parties. However, we stress the term "rules-based", which implies that those participating in the process adhere to mutually respected "rules of the game". The world therefore needs an international organisation to agree the principles on which the rules are to be based, and to set and police the rules. This was the original basis of the GATT, the predecessor of the WTO, with its emphasis on reciprocity and equal treatment for all trading partners. In an increasingly globalised world, the big multinational companies which play a large role must also adhere to the rules. With this caveat, we broadly support the EU negotiating position on the desirability of further trade liberalisation. We particularly note that the mandate recognises the need for an "appropriate balance" between trade liberalisation and the other desirable objectives referred to in the negotiating position. We consider that, although the largest economies stand to gain the most in absolute terms from liberalisation, developing countries are also likely to make substantial relative gains. We underline the need for the EU mandate to reflect a firm commitment to the achievement of a fairer spread of benefits (paragraphs 34-42).

6. We consider that a rules-based trading system prevents a slide back into protectionism and strengthens the position of parties with less bargaining power. We therefore concur with the EU's re-affirmation of support of "the multilateral trading system and of its basic principles as guarantees against protectionism and unilateralism" (paragraphs 43-51).

7. We agree with the assumption in the EU mandate that globalisation accentuates the need for a rules-based trading framework, which only an international organisation such as the WTO can provide. But since it is companies, not countries, which trade, the liberalisation of trade needs to be considered in conjunction with other issues and not in isolation—and the WTO needs to work in co-operation with other international institutions (paragraphs 52-56).

8. We recognise that the matters dealt with in the WTO may overlap with matters where lead responsibility rests with other international organisations. We see no need for yet another international body to arbitrate in such cases. Nor do we believe that it would be appropriate to bring the WTO formally within the UN family. But, mindful of the need to prevent the use of WTO rules and dispute settlement procedures for matters unrelated to trade, we agree strongly with the EU position that there should be better co-operation between the WTO and other international bodies so that each can fulfil its proper function within the framework of international governance. We encourage the EU to press for a process to be established to achieve this (paragraphs 57-62).

9. We recognise that under the EC Treaty it is inevitable that the Commission will negotiate in the WTO on behalf of Member States. The terms of the mandate which has been given to it allow considerable flexibility, but it is important that the Commission should act strictly within the limits of its authority—and disturbing that some important decisions seem to have been taken without reference back to Member States (paragraphs 63-70).

10. It is crucial for the voices of the social partners and of the NGOs concerned with WTO issues to be heard. We believe that they have been. It seems to us that the UK Government, the EU and the WTO itself have been commendably open over the issues, and that the complaints of NGOs about lack of transparency must sometimes be interpreted as complaints that their lobbying does not have the desired effect (paragraphs 71-77 and 79).

11. We naturally support the proposition that the Government should involve Parliament as closely as possible in its preparations for WTO negotiations, and there must also be a role for the European Parliament. We consider, however, that the establishment of a WTO parliamentary assembly would not be likely to serve a useful purpose (paragraphs 78 and 80).

12. We have considered the causes of the collapse of negotiations in Seattle. The demonstrations were obviously not helpful, and were a distraction from the real issues; if NGOs want to be kept in touch with the progress of negotiations, they will have to realise that they cannot throw bricks at the same time. But the demonstrations were not the prime cause of the failure. It must be largely attributed to the lack of the thorough and sustained preparation which is crucial before a Conference of this kind. The problem was not, on this occasion, made any easier by the fact that the Conference was being held in the country, and therefore under the Chairmanship, of the United States, one of the major trading nations, with a presidential election casting its shadow before. We urge the EU to seek to ensure that the next Conference is held wherever the WTO Council considers that it will have the greatest chance of success; above all, the choice of venue must not be driven by political imperatives in potential host countries. Finally, it is clear from the reactions of developing countries after the Conference that their participation was handled insensitively. None of this must be allowed to happen again; there is too much at stake (paragraphs 81-97).

13. We acknowledge that the rules-based trading system has survived similar setbacks in the past, and that postponing this Ministerial Conference would itself have been seen as a failure. But the highly-publicised collapse in Seattle has done severe harm to public confidence in the system, and a further failure cannot be contemplated (paragraphs 98-101).

14. As to the institutions and procedures of the WTO, it has been suggested that the current consensus decision-making is a charade. We think that the experience of Seattle proves the exact opposite: it was precisely the lack of a consensus which caused the Conference to break down. A wholesale move away from consensus decision-making would undermine one of the main strengths of the WTO—the fact that it gives an equal voice to rich and poor, to strong and weak. But practical considerations suggest that the preparation of proposals needs to take place in smaller meetings, where groups of countries could usefully select a single member to represent their interests in discussion, subject to a formal procedure for reporting back. We suggest that the EU should support this as a useful way forward. We also think that consideration should be given to the role of the Secretariat; in order to ensure more adequate preparation for the new Round than was apparent at Seattle, the EU may wish to argue that the initiative of the Director General should be strengthened (paragraphs 102-109).

15. It seems that the demand for "transparency" covers a range of issues. As far as we can see, the WTO is remarkably transparent compared with many other institutions, making a wide range of documents available on its web-site and (its officials told us) welcoming visits and enquiries. Nevertheless, we think that the EU could usefully encourage the WTO Council to consider possible increases in transparency—for example holding dispute settlement procedures in public. However, we note that some of the organisations calling for transparency may also be looking for a seat at the negotiating table (which we consider inappropriate in an international organisation whose members are governments) (paragraphs 110-113).

16. We were struck by how well the WTO Secretariat was performing with very limited resources; comparisons with other international organisations were telling. We were glad to hear that the UK was one of the member countries giving adequate financial support, but we find it extraordinary that some of those member countries which stand to gain most from the smooth operation of the WTO are apparently denying the Secretariat the resources which it needs to operate effectively in accordance with the mandate which it has been given by its members. We do not think that the WTO should have to beg for resources to do its job properly: the EU should insist that its financing by member countries be put on a firmer footing. We considered whether the WTO might accept commercial private sector contributions to some aspects of its operation, but concluded that this would risk damage either to its impartiality or to perceptions of that impartiality (paragraphs 114-117).

17. We think that the EU Council of Ministers should have reviewed its mandate to the Commission in the light of what happened in Seattle. The EU must be seen to have considered whether there are lessons to be learnt from the strongly-expressed views of other member countries. This is presentationally extremely important; not to have done it will reinforce the preconceptions of others about the intransigence of the EU (paragraphs 118-126 and 128).

18. From the beginning the GATT has depended on a process of wide negotiation and trade-offs—and it has worked well. We consider that the EU should maintain the principle of a comprehensive mandate, but that it will need to be pragmatic and flexible in its execution of that mandate (paragraphs 127 and 129).

19. We should like to see explicit acknowledgement within the WTO of the fact that agriculture serves many purposes (though preferably avoiding the barbarous term "multifunctionality"). But we do not agree that this provides a justification for continuing the Common Agricultural Policy in its present form—and we understand why others deride the EU's position on the agenda for the next WTO Round as "anything but agriculture". In our Report in November 1999 on the enlargement of the EU we said that, in order for the EU to be ready to accept new members, "we remain convinced that more radical reform of the CAP is needed, and we hope—and expect—that the forthcoming WTO negotiations will bring renewed pressure for this". We have certainly detected such pressure in the course of the present inquiry, though it was suggested that on the present timetables the needs of enlargement might now overtake those of WTO negotiations. Whichever motive is the main driver for CAP reform, radical reform there must be. Continued delay in such reform can only make further progress in WTO negotiations extremely difficult (paragraphs 130-139).

20. If the developing countries are to be persuaded to continue to co-operate in the multilateral trading system, they will need to be convinced that the system has the ability and the will to understand and address their problems. We therefore regard it as crucial that the EU should sustain its efforts to make this a real development Round. First, the EU must change its agricultural policies both to prevent the dumping of its surplus production on to world markets in a way which is damaging to developing countries, and to allow access to its markets for the agricultural exports on which developing countries depend. Secondly, the EU should press for co-ordination of the help which developing countries need if they are to play a full role in the WTO (as in other international fora). This can best be achieved through the "Integrated Framework", which has already been formed to assist in capacity building. If there is a resource constraint, then the EU should ensure that it is addressed (paragraphs 140-159).

21. On trade in services, we note that regulation can easily be used as a protectionist measure. We recognise that some controls may be necessary, but we emphasise particularly the importance of applying the principle of national treatment (so that the same rules apply to both foreign and domestic firms). We also note the comparative success of the "opting-in" approach in the General Agreement on Trade on Services (GATS), and consider that the EU should support its application in other sectors where full liberalisation is likely to take time (paragraphs 161-170 and 173).

22. On public procurement, we note that the EU negotiating position recognises the need to "take account of national policies and practices as well as the different levels of development of WTO members". We underline this, and with it in mind, broadly endorse the substance of the mandate on this point (paragraphs 171-172 and 174).

23. Investment and competition rules are linked. We see no realistic expectation of early agreement on either, even though we believe that such agreements could potentially be of benefit to all member countries. But in such controversial areas we believe that progress is likely to be possible in the short run only through an approach similar to that of the GATS, allowing member countries to liberalise at their own pace. The current EU negotiating position looks extraordinarily ambitious; we think that it should be read as placing emphasis on the need to "begin" negotiations—or at least to begin informal discussions. We should not expect more than that to be achieved in the near future, and we believe that the EU should not allow the prospect of advancing on other fronts to be jeopardised by failure to achieve its long-term objectives in these areas (paragraphs 175-187).

24. On intellectual property, the EU mandate is unusually non-committal, perhaps reflecting the difficulty of balancing opposing arguments, as well as recognising the challenge faced by developing countries when they are required to set up their own patent organisations. In principle, we support the universal application of patent rights as the only way of encouraging investment and innovation. In practice, developed countries may well find humanitarian grounds for making concessions to developing countries. The recent move by US pharmaceutical companies is encouraging in this respect, and we consider that it would be beneficial if EU companies followed suit. But such concessions should be made through the use of explicit exceptions to the normal rules, rather than by turning a blind eye to failures to observe them (paragraphs 188-198).

25. We believe that increasing trade can be compatible with sustainable development. We support the need for studies to examine the actual and potential effects of trade on the environment, and we are glad to note that the EU is one of those to have commissioned such a study. But for these studies to carry credibility, they should not only be thorough, but should be based on a tried, tested and generally accepted methodology (paragraphs 200-206).

26. We consider that it is only a matter of time before a case arising from a conflict between WTO rules and the provisions of a Multilateral Environmental Agreement (MEA) is brought for resolution to the WTO dispute settlement procedure. This could well result in a decision which would be undesirable in the broader context, and would inevitably lead to adverse publicity for the WTO. So we think that it is important to prevent such a conflict from happening. The EU went to Seattle committed to a "clarification" of the relationship between WTO rules and MEAs, but without any stated policy on how this should be achieved. We urge the Government to press the EU to come forward with concrete suggestions, preferably involving explicit modifications to WTO rules to allow action taken in pursuance of obligations under an MEA, with an appropriate dispute settlement procedure. And we also urge that the Government and the EU should ensure coherence between their trade policies and their environmental policies (paragraphs 207-214).

27. We applaud the EU for having prompted discussions in the WTO on the precautionary principle, but we have not ventured far into this complex area. We look forward to the Government's overdue reply to our letter on the issues raised by the recent Commission Communication (paragraphs 215-222).

28. Distinguishing between products on the basis of the method of production is a very sensitive matter. It is essential that the approach adopted should both be consistent and reflect the legitimate interest of consumers, and we believe that the EU should press for the issue to be explicitly considered in the WTO (paragraphs 223-227).

29. Eco-labelling responds to questions of immense popular concern. In view of this, we think that governments should be allowed to make it mandatory. It is not clear whether WTO rules permit this at present. If they do not, we think that the EU should press for them to be changed to allow mandatory eco-labelling. We see no reason to give the WTO a scrutiny role over the use of this power, though misuse of it would of course be subject to challenge through the dispute settlement procedure (paragraphs 228-231).

30. We note that the definition of core labour standards has been agreed by the member countries of the ILO. These standards are defined by the "relevant ILO Conventions, including those on the prohibition of forced and child labour, the freedom of association, the right to bargain collectively, and the principle of non-discrimination". They do not include such matters as a global minimum wage or other elements of a benefits package, since the ILO recognises that the terms and conditions of employment can and should vary. We also note that the ILO works by promoting respect of its Conventions, not by applying sanctions. It is therefore understandable that some should wish to call the powerful sanctions mechanism of the WTO to the aid of the laudable objective of ensuring that core labour standards are respected. It is also understandable that developing countries may have fears as to how this mechanism might be used, fuelled by the utterances and protectionist behaviour of some developed countries. We agree that an early ministerial-level meeting should be convened to consider these issues (paragraphs 232-247).

31. The WTO's dispute settlement procedure is a crucial element in the rules-based system. It is still novel, but to date it seems to have worked quite well. We were however surprised at a number of features which emerged in the evidence presented to us on the Bananas case. Even if the difficulties reported are teething troubles, it is important that they should be sorted out as soon as possible, both for the sake of parties to disputes and because the outcomes of dispute settlement cases form one of the most public faces of the WTO. In particular, we think that hearings should be held in public, and that consideration should be given to improving the position of third parties, to establishing a permanent and more representative roster of first-level panellists, and to allowing evidence from specialist witnesses. Some of these changes may require revisions to rules already agreed in the WTO, but we urge the Government to press the EU to make constructive proposals on them as a matter of urgency. As to the provision of help to developing countries in making use of the procedure, we congratulate the Government on its material support for the Advisory Centre on WTO Law, which we see as an important contribution, and we suggest that it might also take a lead in establishing a legal aid fund. Finally, we urge that the dispute settlement procedure should not be used to resolve issues which should properly be the subject of decisions in negotiations between WTO member countries (paragraphs 248-265).

32. The conclusions of the WTO General Council at the beginning of May 2000 give some grounds for optimism as to the way forward. But there is still a long way to go. In particular, we agree with the Director General of the WTO when he says that although the concessions on access offered by 13 developed countries "are beginning" to add up to tangible and meaningful market access improvements in favour of least developed countries, "there is, of course, more that can and should be done in improving least developed countries' market access". While the EU procrastinates on the Common Agricultural Policy, and thus continues to impose restrictions on agricultural imports, it weakens its bargaining power in persuading others to go further in the concessions they offer to developing countries. We think that the EU should seriously consider giving a lead by allowing duty-free access for all imports from least developed countries, without waiting for other developed countries to follow suit. Meanwhile, in the light of what happened at Seattle, we are disturbed that EU and the US have agreed to try to launch a new Round during the course of this year; it is in our view more important that that the Round should be properly prepared and successful than that it should be launched this year rather than next (paragraphs 266-290).

33. In conclusion:

  • We believe that there are lessons for the EU to learn from the collapse of last year's Ministerial Conference in Seattle, and that it should be seen to be learning them. The EU would be ill-advised to go into the next stages of negotiations without a full review of the mandate by the Council of Ministers: that would be seen by other members of the WTO as a very Bourbon thing to do. We understand that the EU will not want to disclose the whole of its negotiating hand in advance, but it should nonetheless be possible to formulate the mandate in a way which demonstrates the EU's readiness to participate in a constructive process of the kind we have in mind.
  • We envisage that this may involve the EU in being prepared, as the negotiating process goes forward, to narrow the range of issues to be addressed in the Round. We think that at the end of the day the EU should be going for a Round which concentrates on the issues where progress is most likely to be achievable, rather than looking for trade-offs on the broadest possible canvas. This would be greatly facilitated by the EU making sensible changes to the Common Agricultural Policy of its own accord, and in advance of the next Round, rather than keeping them as bargaining counters.
  • We believe that the EU should give very careful consideration to its position on the timing of the next Ministerial Conference (whose aim will be to agree on an agenda for a Round). This should not take place until preliminary discussions among all the participants (including developing countries as well as the major trading nations) have identified the list of issues where progress may be possible, and have reduced the number and range of decisions to be taken at ministerial level in the bright lights of the Conference. This will be a long, painstaking exercise. We therefore deplore the agreement reached by the EU and the US to try to launch a new Round during the course of this year. It is much more important to get it right than to get it soon.
  • We believe that the EU should recognise the danger that the WTO, and in particular its dispute settlement procedure, will become overloaded with issues which would be better dealt with in other fora. We can see the difficulty of endorsing conflicting worthy objectives with no means of determining a hierarchy among them. We therefore welcome the emphasis in the EU mandate on the need for policy coherence, to be achieved through co-operation between all the relevant organisations forming part of the system of international governance.
  • We note that the WTO is an organisation under strain, and will become more so as its membership increases. Seattle was damaging to its credibility, and to the confidence in it of many both inside and outside the organisation. Another failure would be a serious setback which could damage its usefulness, perhaps even lead to its demise. If we believe in the global benefits of free trade on the basis of a rules-based system so as to ensure as far as possible that it is fair, that it really does benefit all members, and that it is not exploited to the disadvantage of the poorer countries who most need markets for their exports, then we need the WTO. The organisation simply cannot afford another spectacular failure, so—to quote Commissioner Lamy—"when it comes to the next Ministerial, whenever it is, a Round has to be a sure-fire bet" (paragraphs 291-295).

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