Select Committee on European Union Minutes of Evidence


Memorandum by Ian Pearson MP, Minister for Trade, Foreign and Commonwealth Office and Department of Trade and Industry

INTRODUCTION

  1.1  Government policy on the Doha Development Agenda (DDA) is led and co-ordinated by the Europe and World Trade Directorate of the Department of Trade and Industry (DTI).

  1.2  DTI has responsibility for all dossiers of the DDA, with the exception of the Agriculture negotiations and elements of the Trade and Environment negotiations which are led by the Department for Environment, Food and Rural Affairs. A number of other Government departments have a significant input into the development of trade policy, notably the Department for International Development, HM Treasury and the Foreign and Commonwealth Office. Policy is developed in close contact with the UK Permanent Representation in Brussels and the UK Mission in Geneva.

DETAIL

  2.1  I set out below responses on each of the areas on which the Sub-Committee have requested comments:

Outcome the UK would like to see from the Hong Kong Ministerial

  2.2  The UK is committed to achieving a successful outcome to the Hong Kong Ministerial. The Ministerial should deliver a package that would allow a conclusion to the Round by the end of 2006 that is pro-development and—through liberalising developed world markets—helps build a more competitive European economy.

  2.3  Building a freer and fairer multilateral trading system has the potential to lift millions out of poverty. A pro-development outcome in the DDA would result in improved participation by developing countries in the world trading system, particularly through substantially increased market access and the dismantling of trade-distorting subsidies by industrialised countries. A development-friendly result will also ensure poor countries are given the flexibility to decide, plan and sequence trade reforms as part of a wider poverty reduction and development strategy.

  2.4  WTO Members have adopted an unofficial end date of the end of 2006 for the Round. In June 2007, US Trade Promotion Authority (USTPA) expires, with uncertainties over whether it will be renewed setting an effective deadline for conclusion of the DDA. USTPA (also known as fast-track authority) means that Congress must accept or reject any agreement in its entirety, rather than being able to unpick aspects of the agreement.

  2.5  To meet the end 2006 deadline, WTO members are aiming to make significant progress at the Hong Kong Ministerial Conference, 13-18 December 2005. A successful outcome at Hong Kong would see agreement on substantial liberalisation of agricultural and industrial goods, significant steps forward in services and trade facilitation, wide-ranging Special and Differential Treatment measures for developing countries across the dossiers and a "round for free" for LDCs.

Work which has been done by the UK to contribute to a successful outcome

  2.6  The UK is an active player in trade policy and champion of the multilateral trading system. The UK set out its distinctive trade philosophy in the July 2004 White Paper "Making globalisation a force for good". Liberalisation can offer huge opportunities but done too quickly it can be disruptive—especially for developing countries—as seen by the experience of "shock therapy" liberalisation in the 1980s. Developing countries need flexibility when implementing trade reforms, while many will also need assistance to develop their supply side capacity.

  2.7  The UK government has a large programme of research in trade policy, much of it commissioned by the Department for International Development, which is used to inform UK policy and influence the international trade debate. In addition, the UK provides considerable assistance to developing countries and LDCs to develop their capacity to negotiate effectively in the field of trade policy. UK funding to developing countries for Trade Related Capacity Building stands at £178 million since 1998.

  2.8  UK work has been focused on the following areas:

    —  Influencing the Commission and other EU Member States. Under the Common Commercial Policy, the Commission negotiates on trade matters on behalf of the 25 member states. The UK plays an active role in EU working groups, notably at the weekly meeting of the Article 133 Committee (the Council's working group on trade policy). Ministers and senior officials also have regular programmes of bilateral contacts with Member States to discuss trade policy. The UK has consistently made the case for bold steps in DDA negotiations, such as the EU's offer in May 2004 to eliminate export subsidies, and moving away from a mercantilist approach to negotiations where reforms are seen as "concessions".

      —  During the Presidency the UK has supported the Commission in its role of negotiator. In particular it has pushed for improved transparency between the Commission and Council and looks to deliver through the Council an ambitious European approach in Hong Kong, with development at its heart. The requirement to act as an impartial chair of the Council during the UK's Presidency of the EU has meant that although the UK will still intervene where necessary on issues of critical national importance, the UK has significantly reduced its national interventions in EU fora.

    —  Ministers and senior officials engage regularly with key WTO Members (notably the members of the so-called G4—EU, US, India and Brazil—which act as the negotiating dynamo for the DDA—alongside G90, G20 and LDC representatives) through telephone calls, meetings and visits.

    —  The UK has used its Presidency of the G8 in 2005 to highlight aid, trade and debt. A statement on trade at Gleneagles in July helped to display the level of commitment from world leaders to an ambitious conclusion to the DDA and highlighted the need for aid for trade for poorer countries.

    —  The UK has been making the case for the development of an effective package of trade related technical assistance and capacity building to help unlock the development benefits offered by the DDA. Such a package would help poorer countries build their capacity to trade to take advantage of increased access to international markets. At Gleneagles, the G8 countries committed to "increase our help to developing countries to build the physical, human and institutional capacity to trade, including trade facilitation measures". A DFID-funded high-level group developed proposals on aid for trade which have informed World Bank proposals in this area. As a major donor, the UK is actively involved in discussions with other donors and recipients on the detail of the World Bank proposals. There will be a World Bank hosted side event at Hong Kong. In addition to the World Bank initiative, the UK is pressing for countries to make financial pledges on trade related aid ahead of Hong Kong.

Role the EU should play in the Ministerial

  2.9  The EU is one of the major players at the WTO and will have a fundamental part to play in putting together a package at the Hong Kong Ministerial. The EU is a member of both the Five Interested Parties (a small grouping, representing a range of opinions which negotiates on agriculture) and G4 group (a core group covering negotiations across the piece).

  2.10  The aim of the WTO Membership is to whittle down the number of issues to be decided at Hong Kong to a small core. Taking an overloaded agenda to Hong Kong risks recreating the conditions for similar failure to the Cancun Ministerial in September 2003. This means that there will need to be rapid progress on the DDA during November.

  2.11  One lesson learnt from Cancun is that it is not enough for the EU and US alone to agree a deal and expect the rest of the Membership to fall into line. In particular, Cancun saw the emergence of strong developing country voices in the WTO and the G20, G33 and G90 (all groupings of developing countries and LDCs) now have real negotiating weight in Geneva. It is telling that the G4 now has two developing country representatives alongside the EU and US, whereas the old Quad contained Canada and Japan.

  2.12  At the Conference, the EU will need to play a constructive role to help forge a consensual deal, which provides sufficient balance between the different dossiers to be acceptable to the Council of Ministers.

Statement of 10 October by the EU's Trade Commissioner on the EU's negotiating proposals

  2.13  The EU offer of 10 October, alongside the US offer of the same day, has helped to re-energise agricultural negotiations in Geneva. The Commission is working within the parameters set by the Council of Ministers in a series of Council Conclusions which form the mandate. Of particular importance in this regard, as reiterated at the General Affairs and External Relations Council on 18 October, is that the Commission must not go beyond CAP reform in the offers that it makes in WTO negotiations.

  2.14  The UK has a long-established position of encouraging the EU to make ambitious offers to help deliver a genuinely pro-development outcome. The latest EU offer went considerably further than previous EU positions, notably on domestic support where the EU put a 70 per cent cut in its "amber box" (the most trade distorting forms of domestic support) on the table. The EU called on other WTO Members to develop more detailed proposals to match the EU offer to eliminate export subsidies. In the judgment of Ambassador Falconer, the Chair of the Agriculture Special Session, WTO Members are sufficiently close together in the pillars of domestic support and export competition that it is possible to see the shape of the deal at Hong Kong in these areas.

  2.15  The 10 October offers revealed the distance between the WTO Membership on market access. Whereas the US called for cuts of between 55 and 90 per cent, the EU proposal would mean an average tariff cut of around 24 per cent. Within the Five Interested Parties, the EU offer on market access was rejected by the US, Brazil and Australia, with pressure on the EU to table a second offer. Brazil called for a minimum 55 per cent average tariff reduction by the EU.

  2.16  The challenge for the Commission since 10 October has been to construct a second offer on market access that is sufficiently ambitious for the WTO Membership, while still staying within CAP reform. The Commission tabled a second offer on 28 October that envisages an average reduction of 38.9 per cent in EU tariffs, which takes the Commission very close to the edge of its negotiating mandate. Initial reaction from members of the FIPs has been mixed—the offer has not been rejected but the US and Brazil have demanded that the EU move further. Bridging this gap over the coming weeks will be of central importance to the delivery of a successful outcome at Hong Kong.

Removal of agricultural export subsidies

  2.17  Agricultural export subsidies are highly trade distorting, having the effect of lowering world prices for commodities by dumping high volumes of subsidised goods onto the world market. These goods can undercut developing country farmers in their own markets, while their effect on world prices means that competitive exporters earn less for their produce. In the short term, elimination of export subsidies could be expected to cause some difficulties for Net Food Importing Developing Countries by increasing their food bills. However, in many cases we anticipate that higher prices will result in a supply response, allowing these countries to move towards self-sufficiency.

  2.18  In an open letter of 10 May 2004, then Commissioners Lamy and Fischler offered to eliminate all EU export subsidies on agricultural goods, conditional on parallel movement in DDA negotiations by other WTO Members to address the trade-distorting forms of their export competition instruments. The Commission for Africa Report recommended an end date for export subsidies of 2010. Her Majesty's Government have adopted this recommendation and are pressing the WTO Membership to agree an end date of 2010 for export subsidies at the Hong Kong Ministerial. WTO Members must also agree equivalent disciplines on the other forms of export competition—export credits, export guarantees, food aid and State Trading Enterprises.

Achievement of solutions on agricultural market access which are acceptable to all sides

  2.19  Agriculture remains the most heavily protected sector of the global economy, with trade flows highly distorted by subsidies and tariffs. Agricultural negotiations are the motor of the Round, with the G20 (a grouping of developing countries led by Brazil, which co-ordinates on agriculture) making it clear that progress in agriculture is a pre-condition for any movement on non-agricultural goods or Services. While the agriculture sector is politically sensitive in many developed countries, gains in these sectors are central to the delivery of the development aspect of the DDA. In the poorest developing countries, on average, agriculture represents 40 per cent of GDP, 35 per cent of exports and 50-70 per cent of total employment.

  2.20  The welfare gains that could be realised by a substantial liberalisation of market access dwarf the benefits on offer in the pillars of domestic support and export competition. Market access is the most contentious pillar, with less progress having been made in the Framework Agreement of July 2004 than on domestic support or export competition. As mentioned above, even after the set of offers triggered by the US offer on 10 October, WTO Members are some distance apart on market access.

  2.21  Whether WTO Members will be able to reach an accommodation on market access goes to the heart of whether Hong Kong—and the DDA in general—will be able to deliver a development-friendly outcome. As mentioned above, despite the EU offer having been rejected by the US and G20 as insufficiently ambitious, several Member States consider that the offer goes to the edge (or even over the edge) of the Commission's negotiating mandate from the Council. Breaking the current impasse will require the EU to put a further offer on the table, or for other WTO Members to row back their overall ambition for the round. We believe that it will be possible to develop an EU offer that would be acceptable to a critical mass of the WTO Membership.

  2.22  From the UK perspective, we need to see Special and Differential Treatment mainstreamed in the market access negotiations so developing countries can design and pace liberalisation in a way that suits their needs. We want developing countries to have lower reduction commitments than developed countries in any formula and to have access to meaningful Special Products (based on food security, livelihood security and rural development) and a Special Safeguard Mechanism. We also want LDCs to emerge from the round free of any new obligations.

Liberalisation of trade in services and goods

  2.23  Studies suggest that liberalisation of trade in services and goods has the potential to deliver substantial welfare gains for developed countries, and for developing countries also if done in the right circumstances and appropriately sequenced. A successful outcome in goods and services in the DDA would be a powerful impetus towards the creation of a more competitive European economy, helping the EU deliver on the Lisbon Agenda. Consistent with our trade philosophy, we are clear that developing countries should not be forced in DDA negotiations to liberalise in these sectors.

Non-Agricultural Market Access (NAMA)

  2.24  An ambitious result on NAMA (covering industrial goods, fish and fish products) will be a critical element of a deal for the European Union, particularly for the developed Member States with the strongest export potential. Many Member States want to see increased market access in NAMA (and progress on Services), as a trade-off for the opening up of European markets in agricultural goods. The EU priority in NAMA has been characterised as improved real access to third country markets. The UK is working hard within the EU to ensure no new obligations are imposed on LDCs and that any NAMA agreement for developing countries respects the principle of less than full reciprocity and maximises Special and Differential Treatment. We recognise the importance for developing countries of maintaining flexibility.

  2.25  The parameters of the current NAMA negotiations are set by Annex B to the Framework Agreement of July 2004, which was a re-statement (with some additions) of the Derbez text prepared at the 5th WTO Ministerial Conference in Cancun. WTO Members share a common goal of agreeing full modalities on NAMA and Agriculture at Hong Kong. But, as mentioned, there is a shared perception that progress on NAMA and Services negotiations is contingent on progress on Agriculture. Agreement on a market access formula and reductions of domestic support in agriculture has the potential to trigger progress in NAMA negotiations. Pascal Lamy (Director General of the WTO) has recently called for parallel movement on NAMA and agriculture but this is yet to translate into movement in negotiations.

  2.26  Negotiations since the Framework Agreement have focused on agreeing the tariff reduction formula. There are currently a number of tariff reduction scenarios being discussed, involving two types of formula: known as the Swiss and ABI (Argentina/Brazil/India, also known as the Girard formula).

  2.27  The Swiss formula is a non linear, harmonising formula that is effective at reducing high tariffs and peaks and narrowing tariff escalations. This means that those countries with higher initial tariffs are therefore required to make larger cuts under a Swiss formula. A simple Swiss formula takes the following form:


  2.28  The problem with a single coefficient Swiss formula is that developed and developing countries with the same tariff level would make the same reductions, which would not deliver on the Doha concept of "less than full reciprocity"—especially as developing countries tend to start with higher tariffs. This would make it inappropriate given the UK's principles. Use of multiple coefficients is one way of addressing this, ensuring that developing countries and developed countries are treated distinctly.

  2.29  Norway, Pakistan, EU and US have proposed variants on the Swiss formula. Pakistan and the US have proposed dual coefficient formulae, where A is a single coefficient, with one value for developed, and another for developing country Members. EU and Norway have also suggested the use of credits, where developing countries use credits (given, for example, for high binding of tariffs) to increase their coefficient. Throughout, as set out in the Framework Agreement, the poorest countries (LDCs) will not be required to make reductions.

  2.30  The ABI formula is a variation of the Swiss formula but uses a national bound average of the base rates and a coefficient, B, that can be varied to reflect different initial tariff levels. The ABI formula, whilst still a harmonising formula, is less harmonising than a single coefficient Swiss formula, giving developing countries lower proportional cuts. A proposal by Caribbean states also takes this form.


  2.32  There has been a perception in 2005 of an emerging consensus around a Swiss formula with variable coefficients. Finalising the formula and its coefficients will require agreement on the treatment of the flexibilities set in paragraph 8 of Annex B to the Framework Agreement. A priority for the UK will be maximising flexibilities for developing countries. The formula must address the issues of tariff peaks (defined either as greater than 15 per cent or more than three times national average applied tariff), high tariffs and tariff escalation identified in the Doha Ministerial declaration.

  2.33  Agreement on a formula should open up discussion on deeper than formula cuts for certain sectors, with special attention paid to sectors of interest to exporters in developing countries. In addition, a number of developed countries, notably Japan and the US, have a particular interest in elimination or harmonisation in a number of sectors of key interest. Negotiations on sectors are less important for the EU than for either the US or Japan with the EU likely to ask for special treatment for fewer sectors than the US.

  2.34  Throughout negotiations, ensuring the integration of adequate Special and Differential Treatment for developing countries in a package at Hong Kong will be a critical. As stated in the Framework Agreement, it is proposed that LDCs and weak and vulnerable developing countries should not be required to make formula reductions or, in the case of LDCs, participate in any sectorial approaches. Developed countries, and developing countries in the position to do so, should grant duty-free and quota-free market access for non-agricultural products from LDCs. Further, the UK will argue that all developing countries should be given optimal flexibility to sequence their trade reforms and not be forced to liberalise.

  2.35  On other elements within the NAMA mandate, there is little prospect of significant progress on Non Tariff Barriers by Hong Kong. Preference erosion is an important issue for a number of WTO Members and will need to be addressed in a broader package at Hong Kong.

  2.36  Across the DDA mandate, the UK will look to ensure that negotiations contribute towards the goal of sustainable development. In the Committee on Trade and Environment Special Session is negotiating under paragraph 31(iii) of the Doha mandate to liberalise the trade in environmental goods and services. The aim is to agree tariff cuts for environmental goods which go beyond those that will be agreed across the board in the main NAMA negotiations. By Hong Kong, it is hoped that the CTESS can agree on a list approach and perhaps also on a core list of mutually agreed environmental goods. However, this is ambitious, not least because India has tabled an alternative approach to fulfilling the mandate that does not include the elaboration of a list.  

Services

  2.37  In order to try and progress the services negotiations, a number of WTO members (including the EU) have begun to explore negotiating methods to complement the bilateral request-offer process. A number of proposals have involved the request-offer process being supplemented by complementary plurilateral and multilateral negotiating methods.

  2.38  The UK believes that departing from the current request-offer process could be counterproductive and could derail the services negotiations in the short time available before Hong Kong. Whilst not opposed in principle to the exploration of complementary approaches to the services negotiations, a number of countries—including the UK—are determined that proposals should take into account the need to respect in full the architecture and flexibilities built into the GATS. It will be important to avoid setting up structures that will put pressure on developing countries to liberalise.

  2.39  Current EU proposals recognise a distinction between developed and developing countries in setting targets and the need for balance in the negotiations. But of course Commission proposals always have to reflect the overall balance of all member states' views, rather than that of the UK alone. The UK's established preference is for a settlement that avoids all new mandatory requirements on developing countries to liberalise services, and we will continue to work towards this goal. We are particularly determined to ensure the maintenance of flexibilities to reflect the individual circumstances of developing countries and preserve Members' ability to respond to targets based on their own national policy objectives.

  2.40  The UK has three overall objectives for the current round of WTO Services negotiations:

    (i)  To ensure progressive liberalisation in developed countries and to increase the opportunities for developing countries in international services trade, while fully respecting WTO Members' national policy objectives and right to regulate;

    (ii)  To ensure any further liberalisation of trade in services ensures legal certainty, creates an enhanced and predictable business climate and so secures new economic opportunities; and

    (iii)  To secure an overall balance—across services, agriculture and NAMA negotiations—to promote a successful conclusion to the Round.

  2.41  A lot of work remains to be done in order to progress the WTO services negotiations by the Hong Kong Ministerial Conference. Ultimately this will depend on the political will of WTO Members and capacity of developing countries to participate fully in the negotiations. It is vital that WTO members begin to focus their attention on a common understanding of objectives for Hong Kong and an agreed level of ambition for the negotiations.

  2.42  Exploration of complementary approaches to the services negotiations must not become a substitute for the bilateral request-offer process. All WTO members have underlined the primacy of the request-offer process and the need to intensify bilateral engagement. Crucially the exploration of complementary approaches should seek to underpin the current flexibilities within the GATS, allowing all developing countries to decide in which sectors—if any—they make market opening commitments and the extent and type of market opening they grant. All countries must retain the ability to make commitments which are consistent with national policy objectives and levels of development.

  2.43  Hong Kong must provide a strong statement towards delivering on the development aspects of the services agenda. This means underlining the need to operationalise the LDC modalities with regards to improving their effective participation in the multilateral trading system and continuing to make positive efforts to ensure that LDCs secure a share in the growth of world trade commensurate with the needs of their economic development.

  2.44  Progress must be made on the rules elements of the services negotiations in order to strike an overall balance with market access ambitions. Political guidance is required to establish clear objectives and a way forward on both the domestic regulation and the GATS rules (ie Emergency Safeguard Mechanism, Subsidies and Government procurement) components of the current negotiations.

  2.45  The current process of informal discussion within the Council for Trade in Services has helped to tease out different positions and explore concepts and ideas. In the run-up to Hong Kong work should focus on building consensus on an agreed way forward. Meetings in Geneva should allow Members to begin to move beyond known positions and to start work towards establishing a higher level of convergence.

Government procurement

  2.46  Transparency in Government Procurement was one of the so-called Singapore Issues (alongside trade facilitation, trade and investment and trade and competition) included in the DDA mandate when the round was launched in Qatar in 2001. However, the 5th Ministerial Conference in Cancun in September 2004 ended without agreement, with Members in deadlock over the inclusion of the Singapore Issues in the Single Undertaking. In advance of the Framework Agreement of July 2004, the Commission helped to break the post-Cancun impasse by offering to drop all the Singapore Issues (apart from trade facilitation) from the DDA mandate. There will be no negotiations at the WTO on transparency in government procurement within the DDA mandate.

  2.47  Outside the trade round, the review of the text of the Government Procurement Agreement (the WTO's plurilateral agreement of 1979 covering public procurement, with signatories including US, EU, Japan and Canada) is nearing completion, with negotiations starting on the listing of purchasing authorities to be covered under the agreement. The signatories are committed to agreeing the final text by Hong Kong if possible. This deadline is strongly supported by the European Commission and the UK.

2 November 2005


 
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