Select Committee on European Communities Tenth Report


EU negotiating position[5]

"The Council, whilst noting that market opening, the development of trade and increasing technological advances have contributed to world economic growth, underlined that this growth should produce a fairer spread of the benefits of globalisation …The Council underlined the need to ensure that an appropriate balance between the further liberalisation of trade and the strengthening of multilateral rules contributes towards sustainable development, environmental protection, social progress, the reduction in poverty and consumer health" (paragraphs 3 and 4).

The benefits of international trade …

34. The argument that trade is beneficial is based on the theory of comparative advantage[6]. Total economic welfare is maximised if each trading partner concentrates on producing what it does best, and goods are traded openly. As the WTO itself puts it,

    "countries prosper first by taking advantage of their assets in order to concentrate on what they can produce best, and then by trading these products for products that other countries produce best … Liberal trade policies … multiply the rewards that result from producing the best products, with the best design, at the best price"[7].

35. It does not necessarily follow that all countries involved, or all individuals within those countries, will benefit equally. The classic example is the abolition of the Corn Laws, which initially damaged British landowners, but through international trade ultimately enabled the economy to grow more rapidly, as well as benefiting Britain's trading partners. In his presentation to us, Dr David Vines (Lord Thomson of Fleet Fellow and Tutor in Economics at Balliol College, Oxford) contrasted this example with that of Australia, where protection in favour of the products of urban workers had prevented specialisation on the basis of comparative advantage and led to relatively slow economic growth. Dr Vines concluded that well-managed trade liberalisation creates export opportunities which match or exceed the losses in the import-competing sectors—but he emphasised "well-managed", pointing out in particular that wide-reaching changes within domestic economies might be needed to secure the benefits.

36. Whatever the theory, some of our witnesses believe that in practice the expansion of trade makes the poor even poorer. For example, the World Development Movement[8] claims that

    "the weight of evidence is now that unregulated trade and investment is implicated in the increasing disparities between rich and poor (within and between countries), environmental damage and downward pressure on social and environmental standards" (p 62).

It argues that the assumptions underlying the comparative advantage theory are unrealistic. The pure theory assumes a perfect market (with a large number of small producers and consumers, no economies of scale or scope, immobility of capital and free availability of information), conditions which do not prevail in today's world—if indeed they ever did. So, says the World Development Movement, "the benefits of trade are realised by those with the market power to capture them". It quotes Mr Rubens Ricupero (the Secretary General of the UN Conference on Trade and Development) as saying that "no-one imagines a lightweight [boxer] should fight a heavyweight", and claims that the existing trade rules are distorted in favour of large countries and multinational corporations, and that any new rules should incorporate positive discrimination in favour of poorer countries (p 63). Friends of the Earth claims that the objective of deregulating international trade is based on the belief that benefits will "trickle down". This, it contends, is demonstrably false: the gap between rich and poor countries is increasing, and security and employment rights are diminishing.

37. Unfortunately, it is difficult to obtain reliable evidence on the benefits or disbenefits of trade to participating countries. The World Development Movement claims that the burden of reform in the trading system so far has fallen heavily on the poorest countries. The share of least developed[9] countries in international trade has halved over the past 20 years; whereas they have 10 per cent of world population, they account for only 0.3 per cent of world trade (p 62).

38. Two estimates supplied to us by the Department of Trade and Industry (DTI) (p 17) are reproduced below. Unfortunately the figures provided do not show how the likely gains relative to the present size of the economies, but both studies suggest that although the largest economies stand to gain the most in absolute terms (because of the size of their economies and the potential for removing large barriers), developing countries are also likely to make substantial relative gains.

Breakdown of the figure of around $400 billion

Gains anticipated from future trade liberalisation

$ Billion
Other Latin American and Caribbean50
Rest of the world63

Source: Nigel Nagarajan, The Millennium Round: An Economic Appraisal, European Commission Working Papers No 39, November 1999

Welfare gains from a 50% cut in protection in manufactures, agriculture and services

$ Billion
Eastern Europe9.8
European Union93.4
Latin America19.6
North America72.7
New Zealand1.9
Other OECD11.2

Source: Global trade reform: maintaining momentum", Australian Ministry of Foreign Affairs and Trade, 1999.

39. Dr David Evans (of the Institute of Development Studies at the University of Sussex)[10] says that "little is known at present about where and by how much trade liberalisation will contribute to poverty alleviation, and where it may even help those in poverty", though he suggests a range of possible interactions. Trade liberalisation in the global economy can be expected to yield an overall economic welfare benefit ("the gains from trade"), but these gains "are unevenly distributed between both countries and regions". There is some evidence that "trade openness hurts the poorest regardless of the structural characteristics of the countries observed", but results of empirical studies are ambiguous. It is often argued that trade policy liberalisation will increase economic growth, and is likely to have a favourable effect on the wages of unskilled labour, but Dr Evans suggests that the effects of other factors (such as investment) are likely to have more impact (pp 239-243).

40. It would obviously be useful to have more hard information on this issue. War on Want[11] suggests that the regular reports of the Trade Policy Review Mechanism (through which the WTO conducts regular reviews of trade policies of its individual member countries) should be broadened to cover the social and economic impacts of trade policies (p 292). Dr Evans suggests that the EU should promote the use of a general equilibrium trade model to work from trade policy changes to impact on income distribution (p 242). Both approaches could provide some of the information which is currently lacking[12]. And as to distribution within countries, a recent World Bank study gives further support to the argument that all benefit, claiming that:

    "Income of the poor rises one-for-one with overall growth. This general relationship between income of the bottom fifth of the population and per capita GDP holds in a sample of 80 countries covering four decades ... Openness to foreign trade benefits the poor to the same extent that it benefits the whole economy"[13].

In her evidence to us, Clare Short (the Secretary of State for International Development) took a similar view:

    "The fastest reduction of poverty for the largest number of human beings that has ever happened in human history was East Asia's progress over the last 25 years, and it is built on opening up their economies to inward investment and trade and export and a … concentration then on education of their people, a fantastic achievement … just in pure numbers of people getting out of abject poverty and seeing improvement in their lives".

In her view, the poorest countries now had the choice "to make [through trade] a big advance in the systematic reduction of poverty or to become more marginalised and stuck in greater poverty for a long period of time" (Q 525).

41. In describing the circumstances in which trade can be beneficial to all, we are tempted to say that it must be "fair trade". Unfortunately, that term tends now to be used in a rather narrow context, to refer to specific initiatives, normally initiated by NGOs, which operate through voluntary participation, with participants agreeing to pay a "fair price" negotiated on a case by case basis[14]. When we speak in this Report of the need for trade to be "fair" we have in mind a broader concept of fairness.

42. 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.

… within a "rules-based system" …

EU negotiating position

"The Council agreed that the further development of trade needs to be accompanied by the strengthening of rules. The Council also reaffirmed the importance it attaches to the primacy of the multilateral trading system and of its basic principles as guarantees against protectionism and unilateralism" (paragraph 3).

"The Council reiterated its firm conviction that a comprehensive trade Round involving a broad range of issues is the best way to address the challenges resulting from rapid and far-reaching economic changes, to manage properly and effectively the globalisation process" (paragraph 7).

"Decisions could also usefully be taken … on a balanced package of trade principles on electronic commerce, covering inter alia such issues as domestic regulation, anti-competitive practices and clarifying the application of GATS rules" (paragraph 12).


43. The stated objective of the WTO system is

    "to help trade flow as freely as possible—so long as there are no undesirable side-effects. That partly means removing obstacles. It also means ensuring that individuals, companies and governments know what the trade rules are around the world, and giving them the confidence that there will be no sudden changes of policy. In other words, the rules have to be 'transparent' and predictable"[15].

Thus the aim of the WTO is not to regulate the international trading system, but

    "to establish and implement, by consent of its members, a framework of agreed principles and rules which (a) limit the ways in, and the extent to, which national governments intervene or interfere in international trade, and (b) aim to reduce and remove barriers to such trade"[16].

Since the membership of the WTO is made up of governments, the system is based on the assumption that governments are in some sense responsible for the behaviour of firms located in their countries, and that if necessary they will act against those firms (for example to impose the sanctions resulting from a dispute settlement procedure).

44. The 1948 General Agreement on Tariffs and Trade (GATT) provided the first international framework for world commerce. Its successor, the World Trade Organisation (WTO) was established on 1 January 1995 as a result of the Uruguay Round of GATT negotiations[17]. The Uruguay Round also brought agriculture, services, intellectual property rights, trade-related investment measures, and textiles and clothing under the effective discipline of multilateral trade rules for the first time, as well as establishing a stronger dispute settlement procedure. And it mandated a "built-in agenda" for further negotiations on agriculture and services to start in January 2000, together with reviews of the other agreements and of the dispute settlement procedure.

45. The basic principles of the WTO are that "the trading system should be:

  • without discrimination—a country should not discriminate between its trading partners (they are all, equally, granted "most favoured nation" or "MFN" status); and it should not discriminate between its own and foreign products, services or nationals (they are given "national treatment");
  • freer—with barriers coming down through negotiation;
  • predictable—foreign companies, investors and governments should be confident that trade barriers (including tariffs, non-tariff barriers and other measures) should not be raised arbitrarily …;
  • more competitive—by discouraging "unfair" practices such as export subsidies and dumping products at below cost to gain market share;
  • more beneficial for developing countries—by giving them more time to adjust, greater flexibility and special privileges [known as Special and Differential Treatment]"[18].

Crucially, "WTO members have agreed that if they believe fellow-members are violating trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally. That means abiding by the agreed procedures, and respecting judgments"[19], which may involve the application of trade sanctions.

46. The benefits of a rules-based system are widely recognised. From the point of view of business, the Confederation of British Industry (CBI) supports

    "the maintenance and the advance of a liberal and global trading system within the framework of the rule of law, as represented by the WTO, which we regard as being a substantial advance on the former GATT and essential to the proper conduct of trade and investment world-wide" (Q 44).

Mr Ablasse Ouedraogo, one of the Deputy Directors General of the WTO, drawing on his experience as a Minister in Burkina Faso, said:

    "This world is lucky enough to have these rules set up within the framework of the WTO protecting small, big, rich and poor countries. Otherwise we would have been in the jungle, and peace, security and stability would have disappeared. This is the key element attached to the existence of the WTO" (Q 339).

47. There is not however universal support for the work of the WTO. For the World Development Movement, Mr Barry Coates claimed that "a large proportion of the public has lost confidence in international trade policy making", and that people were concerned that national rights over decision-making were being eroded by the WTO (QQ 91-92). Similarly, the Green Party claims[20] that there is

    "an unprecedented background of global opposition to ever-increasing trade liberalisation … If the protests in Seattle have proved anything, it is that people are ready for a wholesale redefinition of the process and purpose of international trade, and that there is a growing recognition that the invisible hand of free trade never favours the weak. It always makes the strong stronger" (pp 255 and 258).

48. The public lack of confidence arises particularly from perceptions of the WTO's objectives. Some of our witnesses saw it as being too narrowly focused on trade liberalisation, treating that as an end in itself rather than a means to an end. For example, the Royal Society for the Protection of Birds (RSPB)[21], while recognising that "international trade rules are required to regulate the actions of governments and companies", suggests that liberalisation may not always be the appropriate option. Instead, "international trade policy should be based on managing trade to benefit people and the environment" (p 276). English Nature[22] puts forward a similar argument:

    "The key lesson from the breakdown in trade negotiations is that society does not accept that trade liberalisation objectives should override important environmental and social priorities" (p 237).

It suggests that sustainable development should be built in to the remit of the WTO both as an explicit priority and as a measure of its success. According to Oxfam GB[23], the WTO does already have a somewhat broader remit; the problem, however, is that its success is judged on the basis of reductions in trade barriers and increases in international trade flows, whereas the explicit central objective should be poverty reduction (pp 269-270). Others argue for more specific interests to be factored in; for example, Compassion in World Farming wants the rules to be reformed "to provide a proper balance between free trade and other legitimate concerns such as animal welfare" (p 232).

49. There are dangers in seeking to expand the WTO's remit, which Clare Short highlighted in her evidence to us:

    "We need to tidy up and shape the roles of all the different organisations and make them complementary. I agree with you, that because the WTO has sanctions people are trying to smuggle other issues that belong in other institutions in to the WTO … That is enormously dangerous and would endanger international consensus around the WTO" (Q 559).

The CBI agrees that unless the role of the WTO is formally limited "it risks becoming the focus for issues which are not properly within its remit and which will overburden the system, if not break its back" (p 34).

50. Dr Peter Holmes and Professor Jim Rollo of the University of Sussex describe the suggestion that the WTO rules put free trade above all else as a misconception. The WTO actually works by laying down rules, agreed by all its members, which govern permissible departures from free trade. The issue is thus what criteria (which might if desired include environmental or labour standards) should be agreed to justify departures from the rules (pp 89-90).

51. 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".


52. A rules-based system is particularly crucial in the light of the inexorable pressures of globalisation[24]. The phenomenon of globalisation threatens sovereignty by effectively reducing the power of individual governments in the face of multinational corporations whose annual turnover may exceed the GNP of many WTO member countries. The WTO may help preserve the power of governments collectively in the face of these profound economic changes[25].

53. The debate on globalisation of course goes much wider than the debate on the WTO, and falls outside the terms of reference of this inquiry. In his evidence on behalf of DTI, Mr Tony Hutton said:

    "Much of the more violent opposition to the WTO which you saw on the streets of Seattle is actually directed against the phenomenon of globalisation, which is not exclusively an issue concerned with the WTO" (Q 1).

Clare Short warned us that

    "what happened at Seattle … is enormously dangerous to a stable world order in these globalising times when we need global institutions that manage the world economy and to ensure that all countries are included in the potential benefits of globalisation more than we have ever needed them… The rhetoric of the protesters is entirely the wrong way round. It is the developing countries that need global rules-based institutions … more than developed and wealthy industrialised countries … There is a sense across the world of fear of globalisation" (Q 525).

54. The Government believes that the WTO has a key role to play in ensuring that its member countries are in a position to benefit from globalisation, as well an important contribution to make to global political stability (p 1). As Mr Andrew Stoler, one of the Deputy Directors General of the WTO, pointed out:

    "Notwithstanding the popularity of regional trading arrangements … the only rules that exist today to govern trade relations between the largest trading partners are the WTO rules. If we did not have the WTO, how would you ever hope to resolve transatlantic disputes between the United States and the European Community or between the United States and Japan or between Japan and the European Community? … You need the WTO for other reasons as well. It has become almost a cliché for people who are making speeches to talk about the need for managed globalisation or some sort of accepted norms to deal with this globalisation phenomenon. As far as I can tell the WTO is the only place around where you have … effective rules that are backed up by this dispute settlement understanding when there is disagreement" (Q 458).

And the World Development Movement comments: "A core problem is that business has been globalised, but regulation has not" (p 65).

55. E-commerce is a crucial element of the rapid spread of globalisation. We did not specifically explore this topic, because it was the subject of a concurrent inquiry[26]. However, we note DTI's view that the WTO has an important part to play in ensuring that international trade rules do not act as a barrier to the development of e-commerce (Q 12). PricewaterhouseCoopers[27] argues that as one of its priorities the EU should "continue the debate in the WTO about the importance of e-business in the formulation of new trade rules and, in due course, seek to make permanent the moratorium on the duty-free tax treatment of e-commerce"[28] (p 275). The Association of British Insurers[29] emphasised the importance of this for insurance markets (p 223).

56. 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.

…within an international system of governance…

EU negotiating position

One of the "broad negotiating objectives" is "increased coherence on trade, monetary and financial issues through improved co-operation between the WTO and other international organisations, including the Bretton Woods Institutions and other UN organisations", specifically "to help developing countries to benefit fully from trade liberalisation" (paragraph 8).

"A work programme should be built providing … for enhanced co-operation and transparency in support of trade liberalisation between the WTO and the Bretton Woods institutions and for more efficient complementarity of action by international organisations in support of policy coherence" (paragraph 10).

57. There is considerable pressure to expand the scope of the WTO, both to link trade liberalisation with other issues (particularly those raised by globalisation), and because the WTO is the only international institution which has a fully developed dispute settlement procedure, with sanctions to back up its rules. We have therefore considered how the "increased coherence" desired by the EU mandate might best be achieved within what Oxfam calls "the broader framework of global governance" (p 269).

58. The WTO does not fall under the umbrella of the United Nations. This is in part a historical accident: the 1948 Havana Charter would have established an International Trade Organisation, either as a third arm of the Bretton Woods institutions[30] or as a UN specialised agency. But this plan came to nothing, because the US withdrew before ratification. Friends of the Earth suggest that the WTO should now be "brought into the UN" (p 48), and this is also supported by CAFOD[31] (p 227). But Mr Stoler suggested that this would be inappropriate:

    "We have a very extensive interaction with other parts of the international system even though we are not part of the UN system … The main reason why we are not part of the UN system is because of a difference in membership. Any country can join any UN agency if they just agree to pay the dues. There is a different price of admission here … Entry is not cost-free in WTO … You have to have an economy and a set of rules in your economy" (QQ 462-464).

59. But this is not an argument against co-operation and coherence. Clare Short said:

    "Now we can look at the world as one global phenomenon and we need to tidy up and shape the roles of all the different organisations and make them complementary" (Q 559).

There was broad support among our witnesses for encouraging closer links between the WTO and other international organisations. For example, the Food and Drink Federation[32] mentions the need for links with the IBRD, OECD, the ILO and UNEP (p 250). The RSPB says that the broader goal of sustainable development (agreed by the EU) should be pursued through coherence with other international mechanisms to which most WTO member countries are signatories (p 277). Mr Hoe Lim, External Relations Officer of the WTO, also took the view that the link between international organisations ought to be through the governments which are members of several such organisations (Q 345). In his written statement to us, Mr Juan Somavia, the Director General of the ILO, says:

    "The [ILO's] 'decent work' agenda will also require a closer integration of the ILO's work with that of other multilateral agencies, notably the World Bank, the IMF, the UNDP, UNCTAD and the WTO. We have set up a new small international policy group to develop strategies for closer engagement with these institutions. We also have a special Working Party of our Governing Body on the Social Dimension of Globalisation. The agencies I mentioned are invited to participate in that meeting and are picking up that offer. I think there is tremendous scope to improve the performance of the multilateral system as a whole. It sometimes seems as if each international organisation is stuck in its narrow bureaucratic box with little reference to what the others are doing. This has to be replaced by integrated thinking and coherent action. I want the ILO to be a leading player on a strong United Nations team" (p 136).

60. There is of course a question as to what joint working would mean in practice. For example, Mr Jan-Eirik Sorensen, Director of the WTO Trade and Environment Division, said that there was no difficulty in the Secretariats of the ILO and WTO working together as foreseen in the Singapore declaration (Q 397). But this is of course different from joint working between the two sets of members.

61. Friends of the Earth makes the more radical suggestion that a new independent body[33] should be established under UNCSD[34] to review social, environmental and economic aspects of existing trade rules and to consider future developments (p 48, and separate note at pp 59-60). Although Friends of the Earth supports the objective of "a rules-based multilateral trade system that promotes fair and sustainable local, regional and international trade" (p 47), Mr Duncan McLaren explained that it thought that the "history of distrust" which existed made the WTO an inappropriate forum to achieve the objective (Q 67).

62. 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.

… accountable to its members …

EU negotiating position

"The Council expressed its full support for the Commission to continue to promote the EU position in favour of a comprehensive new Round and to participate actively, with the assistance of the 133 Committee, [in] the concrete formulation of the elements of the draft Ministerial Declaration on the basis of the objectives as identified by the EU in the various sectors and issues. The Council agreed to follow closely the developments of the preparatory process for the Seattle meeting … It also decided to meet in special session in Seattle throughout the duration of the Conference and to be assisted by the 133 Committee in order to contribute to the final stage of negotiations, take a position on the draft WTO Ministerial declaration resulting from those negotiations, and to take the necessary decisions" (paragraphs 15-16).

63.   Although the individual EU Member States are members of the WTO, in the areas where the European Community has exclusive competence it is the Commission which handles negotiations, on the basis of a mandate agreed by all the Member States in the Council of Ministers[35]. In those areas, the Member States do not have individual voices[36]. This does not, of course, prevent the UK Government from having informal contacts with other WTO member countries. Nor does it prevent EU Member States "getting into individual trouble" (that is, being challenged under the dispute settlement procedure), though Mr Stoler explained that if such a dispute was pursued the EU insisted that it, rather than the individual Member State, should be the party (QQ 476-477). The competence (in the legal sense) of the Commission is not in question. Mr Mogens Peter Carl, the Commission's chief WTO negotiator, told us that there had never been any serious attempt by a Member State to challenge "the Commission's role as spokesman and negotiator" (Q 111). Some of our witnesses wished that this was not the case. Friends of the Earth, for example, suggest that the position should be reviewed, claiming that "it is not necessary for the Commission to have competence" (p 53). In his oral evidence, Mr McLaren said that Friends of the Earth felt "that the Seattle events raise a question mark over whether [giving competence to the Commission] is a wise move" (Q 79). In practice, however, the concern of Friends of the Earth turned out to be more with the way in which the Commission exercised the mandate (QQ 71-74).

64. It is clear from the EU negotiating position that the responsibility for identifying objectives rests with the Member States. However, it then falls to the Commission "to continue to promote the EU position". We explored the means available to the Member States for ensuring that the Commission did not depart from the mandate which had been granted, or interpret that (necessarily vague) mandate in a way which did not correspond to the wishes of Member States.

65. We understand that during the Ministerial Conference in Seattle the EU Council was in virtually permanent session. But in more normal times the interests of Member States are represented by officials sitting in the "133 Committee"[37]. There is however a question about the status of this Committee. In one of his answers to us[38], Mr Carl referred to "the way in which the Commission was being advised by Member States in the Council" during the negotiations in Seattle. Challenged on his use of the word "advised", Mr Carl said:

    "The 133 Committee is a consultative committee … It is the Council that decides at the end of the day, but … [it is] the Commission [that] is out there [negotiating]" (QQ 136-137).

In addition to the work of the 133 Committee, there is a heavy programme of co-ordination meetings among representatives of EU Member States in Geneva. Mr Ian Wilkinson (Minister and Deputy Permanent Representative of the European Commission to the WTO) told us that

    "For any period of six months … there are between 200 and 250 co-ordination meetings, that is to say, representatives of the 15 Member States plus the Commission and Council officials and so on … That is a lot of meetings, talking to ourselves … I really do believe that the Community set-up, with all its heaviness and apparent cumbersomeness to the outside world, does work" (QQ 297-298).

We wondered whether all those meetings would simply serve to confuse the mandate already given by the Council, but Mr Wilkinson explained that the issues discussed were of tactics and fine-tuning (Q 300).

66. We looked at two particular examples where it appeared that the Commission might either have departed from the mandate which had been given to it, or not even sought the views of Member States.

67. The first of these was the well-publicised incident in Seattle where Commissioner Lamy agreed on behalf of the EU that there should be a WTO working group on biotechnology, whereas the position of Member States was that this issue should be treated separately[39]. In his evidence to us, Mr Carl shrugged this off:

    "The confusion … arose out of the fact that Member States were taken by surprise because the Commission took a certain position … The Commission took the dramatic, revolutionary initiative of suggesting that one should set up a working group in the WTO with the mandate of looking at biotechnology issues generally speaking and at trade issues more specifically in an open-ended way. This was seen as a threat to the Biosafety Protocol negotiations … Frankly, to put it as gently as I can, we did not understand what all the fuss was about … This was our attempted down-payment in the direction of the US to persuade [it] to move away from its very, very negative attitude towards dealing with trade and the environment in the WTO … That was the background (Q 135).

Member States did not view the position so lightly. Referring to the incident, Mr Wilkinson said:

    "I was present at the discussions in Seattle when Member States sent—let me put it diplomatically—a very clear signal to Commissioner Lamy. One [the Commission] cannot win them all" (Q 308).

This is a particularly disturbing incident because it has been frequently cited to us by NGOs as an example of how the Commission was prepared to renege on environmental issues[40].

68. The second example which we considered arose during March 2000, when chairs of various WTO groups were being appointed for the next year. The Commission blocked the appointment of the highly-respected Brazilian Ambassador to the WTO, Mr Celso Amorin, as chair of the group to take forward the negotiations on the built-in agenda in agriculture, reportedly on the basis that the country he represented formed part of the Cairns Group[41]. Asked to comment on this, Mr Stoler said:

    "That is very unfortunate and the chairmanship question is the type of issue where WTO members, and GATT members before them, tend to behave badly and it is a stupid issue because who the Chairman is of any of these groups matters very little provided that they are somebody who knows how to run a meeting. The idea that any Chairman is going to successfully bring a national viewpoint into a WTO meeting and steer the direction one way or the other does not make any sense because that is not the way things work around here … It would not have mattered if we had put the man in the moon in this job so long as he knew how to run a meeting" (Q 455).

It was perfectly apparent from our informal contacts in Geneva with a range of Ambassadors from other WTO member countries that this decision had gone down very badly—at a time when one could argue that the EU could ill afford to lose friends.

69. Because we were concerned about the decision, we asked Mr Stephen Byers, the Secretary of State for Trade and Industry, how it had been taken. He agreed that "the difficulty … was one which was very divisive", but explained that:

    "Essentially the Commission is given a negotiating brief from the Council and it is for the Commissioner to go away and negotiate the detail and then report back to the Council of Ministers … [This decision] would have been taken as part of a negotiating position by the Commissioner, but it would have been reported back to the Council of Ministers. If there is a fundamental disagreement, then we would have said we are not supporting this particular approach, but you have got to give your negotiating team a degree of flexibility to take decisions as and when they need to be taken".

In this instance, the Government would have been content to accept the Brazilian Ambassador as Chairman, "but as part of the European Union there was a view that it would not have been helpful to have had a leading member of the Cairns Group chairing those negotiations at that particular time" (QQ 531-534) [42].

70. 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.

… and to civil society and parliaments

EU negotiating position

"The Council underlined the need to involve fully civil society in this process and to this end to continue the dialogue with it in order to take into account its legitimate interests and concerns … The Council stressed the importance that close contacts be maintained … with parliaments, including the European Parliament. The Council also encourages the Members of the Council to continue and intensify their dialogue with the organisations of civil society and expressed its appreciation for the efforts undertaken by the Commission in organising regular dialogue with the civil society at European level" (paragraphs 5 and 14).

71. In his opening statement to us for DTI, Mr Hutton said:

    "Among the criticisms which are made [of the WTO] is that it is unaccountable and undemocratic; it serves solely the interests of big business; it is damaging to the environment and it inhibits economic development. These criticisms are very far from the truth and reflect a basic misunderstanding of the nature of the WTO, what it is and what it does … The WTO is formed exclusively of national governments. It has no independent existence apart from its membership. It has few executive powers. It does not impose sanctions on others. The sole function of the Director General and Secretariat is to support the member [countries] in their work. They have no independent authority. The rules are made by national governments reflecting the interests of their countries. Those national governments are answerable to their parliaments and national assemblies" (Q 1).

Or, as Mr Martin Wolf put it before Seattle[43], none of the charges made against the WTO "is as mistaken as the proposition that the WTO is undemocratic. The WTO is not a State—and cannot be judged by the standards applied to States. It is something quite different: an agreement among States". Its decisions are reached by consensus, and legislated by parliaments.

72. As it should be, the accountability of the WTO is through governments, not through pressure groups representing—or claiming to represent—specific interests, whether they be the "social partners" (employers and trade unions) or non-governmental organisations ("civil society"), whatever they may claim about their legitimacy as compared to that of governments[44]. Clare Short was sceptical about the role of NGOs:

    "We have got lots of people from industrialised countries speaking on behalf of the interests of developing countries who, in the words of the Minister from Malaysia, are almost trying to save the developing world from development … I think the WTO is an instrument of greater justice and that the rhetoric of the demonstrators was profoundly wrong" (Q 525).

Professor JC McCrudden, Professor MR Freedland and Dr ACL Davies of the University of Oxford suggest that the credentials of NGOs

    "should be scrutinised with care. It is sometimes suggested that trade unions represent the views of a 'labour aristocracy' and may fail to represent some groups effectively: women and minorities, for example. It is not clear how representative some Western NGOs are of the disadvantaged for whom they purport to speak" (p 261).

Mr Giles Chichester MEP considers that "we should resist attempts by NGOs and by single issue pressure groups to claim seats at the table" (p 232). Dr Razeen Sally and Mr Stephen Woolcock (of the International Trade Policy Unit at the London School of Economics and Political Science) agree that the WTO should remain an intergovernmental mechanism:

    "Member governments—most of them democratically elected—are the only legitimate negotiating and decision-making parties within the WTO. Direct interest group participation, whether by business constituencies or non-business NGOs, would be inevitably unwieldy and unrepresentative; it would diminish, not enhance, democratic accountability" (p 281).

73. We were therefore interested in the composition of delegations to Seattle. The UK delegation included three representatives of social partners and NGOs[45] as full members, although they were not able to attend EU Council meetings during the Ministerial Conference. As for the Commission delegation, DTI initially told us that it had included no outside representatives, but later recorded that

    "the European Commission decided less than a week before the Seattle Conference to offer 11 places as advisers on the Community delegation to business (four places), non-governmental organisations (four places) and social partners (from the EU's Economic and Social Committee)" (Q 25 and footnote).

Mr Carl explained that the Commission itself decided on the composition of its delegation. It had consisted mainly of Commission representatives and members of the European Parliament, with 6 or 7 so-called 'advisers' "at the end of the list after a few little dots". They were identified on the list of delegates by name only, but they were actually from

    "the main trade union organisations, the main employers' organisation in Brussels, the European Services [Forum][46] and three or four NGOs who had agreed within the larger group of NGOs who were the ones who could be put on the list, so to speak. The purpose of this was not to subvert the way in which the Commission was being advised by the Member States in the Council but to ensure that we had sectoral advisers readily available … I really must insist that the fact that we have close and continuing contacts, not only with the European Services [Forum] but with a host of other representatives of European industry, agriculture, trades unions, NGOs and what have you, in no way detracts from the fact that at the end of the day it is the Council that decides what our negotiating mandate is. It goes without saying, however, that we have to know what people in civil society think and want" (Q 136).

He argued that it was crucial for the NGOs to be involved in the process, rather than being out in the streets[47].

74. There is also a question as to who should take the lead in the "dialogue with civil society" to which the EU mandate refers. The mandate expresses appreciation "for the efforts undertaken by the Commission in organising regular dialogue with the civil society at European level"[48]. We sought the Government's views on this. Mr Hutton said that "it is mainly the responsibility of national governments to remain in touch with their civil society" (Q 13), but Mr Byers was not worried by interest groups lobbying the Commission, because "in the end it is going to be Member States who have to ensure that the negotiating brief that we give to the Commission is [the] one that the Commission works to" (Q 536)[49].

75. According to DTI, the WTO itself also has a role in relation to civil society, especially in increasing transparency. Mr Hoe Lim, WTO External Relations Officer, told us that the organisation tried to be helpful, but the mandate given to the Secretariat was only to provide information "about what has been happening in a general sense in the WTO. That does not satisfy the NGOs. What NGOs really want is a consultative mechanism and they also want to have observer status in WTO meetings. We are not at that stage" (Q 342). Mr Ouedraogo was quite clear that

    "WTO belongs to the governments and to the people, because all the accords are negotiated and signed by the governments and ratified by [members of their parliaments]. It means it is the representative of the people" (Q 354).

If NGOs had a point to make, he thought they should do so to—and through—their governments. Nevertheless, as Mr Stoler told us, the WTO is open to dialogue with the NGOs, but

    "there are a lot of people who are genuinely not interested in having that type of dialogue because if the WTO is de-demonised their own organisation may lose some of its legitimacy as a forum in which to attack the WTO" (Q 486).

Dr Rorden Wilkinson (of the Centre for International Politics, University of Manchester) makes a similar point in one of the articles which he sent us:

    "For civil society associations, stepping into the committee rooms of the World Bank, the IMF and the WTO presents both opportunities and threats. While it offers the opportunity to influence policy, it poses the threat of being associated with the very institutions towards which many civil society associations have long been critical"[50].

76. The NGOs ask for access, but naturally what they really want is for their views to be adopted. Friends of the Earth told us that they appreciated "the way that the DTI has reached out to engage with civil society and with environmental and social concerns over recent months"(Q 82), but their real wish was that governments should "give due regard" to the input of civil society (p 48). And the World Development Movement complains that, although NGOs had had opportunities to meet Ministers and officials, "there is little sign that NGOs have been listened to in these consultations" (p 66). Sally and Woolcock, on the other hand, argue that "policy makers … have been pandering to a plethora of single-interest NGOs", rather than exercising political leadership in favour of free trade (p 281).

77. The question over the role of lobby groups applies at least as much to those representing business and commercial interests as it does to development or environmental NGOs—indeed, perhaps more so, given the need to show that the WTO is not a "rich man's club". In this context, we examined carefully the role of the European Services Forum (ESF)[51]. This body was formed at the request of Sir Leon Brittan[52] when he was Trade Commissioner, in order to give input direct to the Commission on "the real issues" (Q 222), and it has a wide range of members (listed at p 130). Mr Andrew Buxton, the Chairman of the ESF, explained that

    "[the Commission's] negotiators really do not know very much about the detail of the industry they are talking about, so that we were able to give them chapter and verse on individual countries' positions" (Q 229).

We had some concern that direct advice of this kind to the Commission might usurp the role of Member States governments. Mr Buxton rejected this:

    "I am absolutely sure the Commission accepts its mandate from the governments, and actually that is what has happened, but the Commission does find it useful to discuss some issues direct with industry representatives" (Q 239)

He explained that the ESF did also meet the Article 133 Committee, and its members could and did also make representations direct to their own governments (Q 240).

78. We also considered the reference in the EU negotiating position to "the importance that close contacts be maintained with parliaments". At present, the role of parliaments within the WTO is only in relation to their national governments (or, in the case of the European Parliament, to the EU)[53]. Both CAFOD (p 228) and War on Want (p 292) suggest increased Parliamentary oversight of the WTO through national parliaments. But Commissioner Lamy has gone further, floating the idea that there might be a WTO parliamentary assembly. Mr Carl commented that "anything that one can do to demonstrate that [the WTO] is not a closed opaque institution is worth pursuing", and said that proposals for a parliamentary assembly had been put to the 133 Committee (QQ 140-142). The Green Party supports the idea, provided that it is not just "a fig-leaf", but notes that it did not find favour with developing countries in Seattle (p 258). However, the House of Commons Environmental Audit Committee did support it[54].

79. 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.

80. 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.

5   Here, and throughout, the "EU negotiating position" quoted (also referred to in this Report as "the EU mandate") is that adopted by the General Affairs Council on 26 October 1999 and confirmed by it on 15 November 1999 as the mandate for Seattle. The text was re-confirmed by the March 2000 Informal Trade Council in Oporto. Back

6   A term coined by Ricardo, who used the example that even if Portugal could produce both cloth and wine with less labour than England, if the advantage was greater in wine it would be "advantageous for [Portugal] to employ her capital in the production of wine, for which she would obtain more cloth from England than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth" (The Principles of Political Economy and Taxation, 3rd edition, 1821, Chapter VII). Back

7   WTO, Trading into the future, p 8.  Back

8   "An independent research and advocacy organisation". Back

9   Defined by the United Nations as the 48 countries with annual incomes in 1994 of less than $725 per capitaBack

10   Who refers to a wide range of (mainly econometric) studies (see pp 242-243). Back

11   "An overseas development and campaigning charity founded by the UK labour movement". Back

12   Though Zhen Kun Wang and L Alan Winters suggest caution in the use of the conclusions from general equilibrium models, arguing that the absolute sizes of their results "should not be taken too seriously, and it should always be remembered that they reflect their authors' assumptions and approximations. However, provided they are carefully conducted and honestly reported, the results of such exercises are useful in suggesting the relative importance of different policies and in terms of highlighting broad issues": Centre for Economic Policy Research, Policy Paper No 4, Putting 'Humpty' together again: including developing countries in a consensus for the WTO, March 2000, p 7.  Back

13   David Dollar and Aart Kraay, Growth is good for the poor, March 2000 (unpublished, but available on the World Bank website). Back

14   A number of initiatives of this kind are discussed in 14223/99, Commission Communication: fair tradeBack

15   WTO, op cit, p 4. Back

16   Evidence from Mr Michael Johnson, submitted through the World Trade Law Association, p 253. Back

17   Which lasted from 1986 to 1994. Back

18   WTO, op cit, p 5. Back

19   Ibid, p 38.  Back

20   In evidence submitted by Dr Caroline Lucas MEP on behalf of the Green Party of England and Wales. Back

21   "The largest wildlife conservation charity in Europe", taking "action for wild birds and the environment, with a strong interest in conserving all biodiversity". Back

22   "The statutory body responsible for advising central and local government on nature conservation and for promoting the wildlife and natural features of England". Back

23   "A voluntary organisation involved in relief, development and advocacy work". Back

24   Recently debated in the House of Lords: HL Deb, 19 April 2000, cols 752-789. As the Overseas Development Institute says, "authors seeking to define globalisation … face difficulties … The common thread in most definitions of globalisation is the idea that the world is facing a qualitatively new level of integration in a variety of economic and non-economic spheres, and that this is driven by communications and transport innovations" (ODI Briefing Paper 2000/2, May 2000).  Back

25   We recall the conclusion in paragraphs 102 and 113 of our Report on Taxes in the EU: can co-ordination and competition co-exist? (HL Paper 92, 15th Report Session 1998-99), where we considered the possibility that joint action through tax co-ordination within the EU might be a weapon against the erosion of sovereignty by the "anonymous market place". Back

26   e-Commerce: Policy Development and Co-ordination (being carried out by Sub-Committee B of the European Union Committee: Report forthcoming). Back

27   "The world's largest professional services organisation". Back

28   It had indeed been hoped to achieve this in Seattle. Back

29   Who submitted evidence jointly with Lloyd's and the International Underwriting Association of London. Back

30   The others being the International Bank for Reconstruction and Development and the International Monetary Fund. Back

31   "The official aid and development agency of the Catholic Church in England and Wales". Back

32   Which "represents the interests of UK food and drink manufacturers, the UK's largest manufacturing sector"..  Back

33   To be known as IPTES (the Intergovernmental Panel on Trade, Environment and Sustainability). It would be able to receive academic advice and input from civil society, would be advisory rather than decision-making, and would have transparency built in from the beginning. Back

34   The UN Convention on Sustainable Development. Back

35   With the agreement of Member States, the Commission also takes the lead in negotiations on matters where competence is shared (see paragraph 164). Back

36   Though they do in relation to financial and administrative matters. Back

37   So called because it is appointed by the Council under Article 133 EC to assist the Commission in international negotiations in relation to the common commercial policy (it was formerly known as the 113 Committee, prior to the renumbering of Articles in the consolidation of the Treaties which took effect after Amsterdam). Back

38   See paragraph 73. Back

39   In the context of the Biosafety Protocol to the Convention on Biological Diversity (the Cartagena Protocol), already under negotiation at the time of the Seattle Ministerial Conference, and subsequently agreed in Montreal in January 2000.  Back

40   See for example paragraphs 127, 204, and 212-213. Back

41   The group of large agricultural producers (including Argentina, Australia, Brazil, Canada, Chile, Colombia, Fiji, Indonesia, Malaysia, New Zealand, Paraguay, Philippines, South Africa, Thailand, Uruguay), who are pressing for sweeping liberalisation of agriculture: see paragraphs 130-139. Back

42   The difficulty has since been resolved by the appointment to the chair in question of Mr Jorge Voto-Bernales, the Ambassador of Peru, which is not a member of the Cairns Group. In reporting this, the Financial Times notes that "by upsetting the delicately balanced package of appointments, the EU has lost the prestigious chairmanship of the body handling trade related intellectual property issues to Singapore's ambassador" (9 May 2000). Back

43   Financial Times, 17 November 1999. Back

44   For example, Friends of the Earth claimed that "we hear from civil society groups in Southern countries with concerns that perhaps are not reflected by their governments within the negotiations" (Q 66). As evidence that there were "widespread concerns in civil society", Mr McLaren told us that the statement for Seattle in which Friends of the Earth was involved had "sign-ups from over 1400 groups in 91 countries" (Q 69). Back

45   Mr Donald Anderson (CBI), Mr Rodney Bickerstaffe (TUC) and Ms Hilary Colby (chair of the UK NGO network). Back

46   See paragraph 77. Back

47   Though in fact it does not appear that the two were mutually exclusive in Seattle. Back

48   For example, on 19 April Commissioner Lamy held a meeting with "civil society and stakeholder representatives" (reported on the Commission's website). Back

49   Though Clare Short said that she did have concerns about NGOs in the development field having direct relationships with the Commission (Q 536).  Back

50   Rorden Wilkinson and Steve Hughes, "Labour standards and global governance: examining the dimensions of institutional engagement", Global Governance, forthcoming 2000. Back

51   Whose representatives gave helpful evidence to us on the liberalisation of trade in services: see paragraphs 161-173. Back

52   Now Lord Brittan of Spennithorne. Back

53   Though there was an informal inter-Parliamentary session in Seattle, on which the WTO Director General told the European Parliament that he wished to build (WTO press release, 21 February 2000). Back

54   World Trade and Sustainable Development: an agenda for the Seattle summit (Second Report, 1999-2000, HC45), paragraph 50. Back

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