Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)


Ian Pearson MP, Ms Julia Sutherland and Ms Amanda Brooks

  Q1  Chairman: Minister, would you like to introduce your team?

  Ian Pearson: Yes, I would be delighted to. On my left I have Amanda Brooks, Director of Trade Negotiations and Development based at the Department of Trade and Industry; and on my right I have Julia Sutherland, who runs my private office.

  Q2  Chairman: Thank you very much indeed. Is there anything you would like to say at the beginning?

  Ian Pearson: Just to emphasise the importance that the UK Government attaches to the World Trade Organisation talks in Hong Kong in December. We do want to see real progress being made in December. We want to see a balanced outcome being achieved and the Doha Round being closed in 2006 and achieving a pro-development outcome. We are on record on many, many occasions as stressing the UK's view in this matter.

  Q3  Chairman: If you read the press, you might get the view that things were not going all that well. How hopeful are you of reaching a satisfactory outcome?

  Ian Pearson: We are at a critical point. This is a huge negotiation and in any sort of negotiation people will take up positions and then they will move and the timing of their moving in negotiations will vary a great deal. We have seen over the last month some real progress, I think, with the first offer that was made by the United States. We have also seen two offers made by the EU and we have seen an offer from the G20. We are optimistic that we can make progress in Hong Kong in December and we can achieve a successful round.

  Q4  Chairman: What do you see as the difficult points?

  Ian Pearson: I think clearly agriculture is the key to unlocking the round. When you look at the different pillars within the agricultural negotiations on domestic support and on export support, the major negotiators are not that far apart. I think it is really in the area of agricultural market access that there is still quite a way between the different parties, and that has been the focus of recent debate and negotiations and I think will continue to be. However, I would also want to stress the EU's view and indeed the UK's position as well is that we do need to see a balanced outcome. We need to see concentration on the other elements of the DDA dossier, on non-agricultural market access and on services as well. We hope that we can see progress being made in these areas very shortly.

  Q5  Lord Kerr of Kinlochard: I think we would all very much agree with you, Minister. The difficulty in a way perhaps is that some—and one could cite Brazil—seem to argue that more has to be put on the table by the EU on agriculture before on these counterpart dossiers anything much is done. How do you break out of that circle? The EU has made its two moves on agriculture. Do you think it is now time for a move from the likes of Brazil?

  Ian Pearson: Yes I do. I think it would be enormously helpful to see a movement from Brazil, India and other countries when it comes to non-agricultural market access in particular. I think we should not under-estimate the significance of the second EU offer. The 38.9 per cent average tariff reduction offer is higher than the Uruguay Round and is building on the Uruguay Round as well, so it is a significant offer that the EU has made. We have been encouraging Brazil, India and other countries to consider the offer and to say, "Well, if we are really going to make progress in what is a single undertaking to deliver a balanced outcome, we need to start seeing some signs of progress now. I do not speak Portuguese but if you read the Brazilian newspapers it is quite clear that they have got an offer on NAMA in their back pocket. There has been extensive discussion within Brazil on it. We think it is time for them to actually make some movement and we are actively encouraging them to do so."

  Q6  Lord Cobbold: Might that be happening in Geneva in the meeting today?

  Ian Pearson: Obviously as we get closer and closer to Hong Kong there is an increasing pace of meetings taking place. There was a meeting here in London yesterday. My understanding is that that is being reconvened in Geneva today. I would certainly like to see progress made at that meeting. I understand that it is the intention of Pascal Lamy to actually produce draft texts by round about the middle of this month and if that is the case—and you do need I think texts in advance of Hong Kong—then we need some greater clarity than we have at the moment as to what is going to go into those texts, so some movement today or very shortly afterwards I think would be beneficial to the whole talks process.

  Q7  Lord Cobbold : Does the fact of still having to agree the Financial Perspective make the negotiations easier or more difficult, do you think?

  Ian Pearson: I do not think it makes a significant amount of difference in the sense that Peter Mandelson and Mariann Fischer Boel have a negotiating mandate that has been set by the Council of Ministers and they are negotiating within that mandate at the moment and we firmly believe that the second EU offer is within the mandate, so the circumstances do not really arise that there is any read across to discussions on the future financing of the EU.

  Q8  Lord Jordan: Could you expand a bit on the non-tariff barriers and whether you believe that there will be any success in this area. Which ones are proving problematical and why?

  Ian Pearson: As you drive tariffs down then non-tariff barriers become an increasing cause for concern. We do not expect Hong Kong to actually go into any great detail about non-tariff barriers and many of those countries that originally notified non-tariff barriers have since concluded that they can be discussed and negotiated and addressed more appropriately through a forum, such as the area of technical barriers to trade. So it is an area where we do not expect to see substantial progress in Hong Kong but we think a lot of progress can be made in other areas. Of course, one person's non-tariff barrier might be another person's decent labour standards or decent environmental practices, so there is a whole set of issues there when it comes to non-tariff barriers that we are happy to discuss, but in some cases it is better that they are discussed outside of the WTO negotiations process on the talks.

  Q9  Lord Blackwell: Minister, given what you have said about non-tariff barriers, how realistic is it to expect significant progress on the services agenda (where non-tariff barriers are quite important)? If I can just add to that, in your note here you raise concerns about parallel plurilateral discussions and multilateral negotiations. If it is an area where it is difficult to make progress, is there not the risk that other countries do start going down that route and unless the UK is flexible in recognising that it may be able to negotiate a deal that could not be negotiated in Open Plenary that the UK ends up being left behind on that?

  Ian Pearson: We believe that services is a very important area. 69 per cent of EU industry will be classified as services, so it is an area where the EU has a strong concern. Of course, from a UK perspective we have world-class financial and legal services and we believe that it would be beneficial to other countries if they opened up their markets and got some of the expertise that is readily available in the City of London. Where we are at the moment I am personally disappointed about the level of services offers that have been secured so far. You will be aware that the Commission has been looking at alternative approaches to the request-offer process. There has been some controversy in that and the UK position is that we would have been prepared to support reluctantly the Commission in going down the benchmarking approach when it comes to services, but we have said very clearly that we do not believe in forcing countries to liberalise their services and we think the best approach would be the request-offer process. However, it seems to be a little bit stalled at the moment. I would hope that out of Hong Kong in December we could see some sort of agreement that moves the debate forward on services. The sort of things that I think might be possible would be to agree another date at which revised best and final services offers could be secured. It is an area where we need to continue to do work and it is important for the EU that we see a balanced outcome to the negotiations. So it is not just an agricultural round—although agriculture is the key to unlocking a successful conclusion to that—we do see progress on services and in NAMA and on trade rules as well.

  Q10  Lord Blackwell: If I could follow up quickly. Given that services, particularly financial services are more important to the UK than some of our other EU colleagues, you could imagine a situation where if it is difficult to make progress there could be a significant interest in the UK in reaching some kind of way forward with major countries—China, India, et cetera—that will take much longer to reach through the existing process. Is there a point at which the UK would say we have tried our best but we now have to consider our own interests in this and try and push the EU into that route?

  Ian Pearson: We strongly believe that the multilateral approach is the best approach. What we do not want to see is a failure of the Round which would bring into question the whole WTO system and would, in my view, be likely to see a further impetus to bilateral free trade agreements. I think in those circumstances it is the least developed and less advanced developing countries that lose out and that is not what the British Government wants to see happen. So we would be very reluctant to go down that route and we have been strongly supporting the Commission in focusing its energies on a successful conclusion to the Doha Round.

  Q11  Lord Steinberg: If I can change the tone a little bit. Everybody recognises that China is becoming one of the top two trading countries in the world and in fact speculation exists that they will take over from the United States some time within the next 20 years as being the number one power economically, militarily, financially, people wise, and so on. We have had a lingering problem for many years about human rights abuses and they just do not seem to go away. I know that when you are doing a lot of business with a big customer it becomes very difficult to question their morality in certain areas. Does the British Government make representations about human rights abuses in China, how regularly, and would they be raised during this next series of talks?

  Ian Pearson: Yes, we do raise the issue of human rights at every appropriate opportunity with the Chinese. The Prime Minister raised the issue of human rights in September during his visit to China. I have got no doubt that he will raise the issue of human rights with the Chinese over the next couple of days. When I visited China in July I raised human rights issues. The Foreign Secretary has raised them this year. I spoke in the debate in the House of Commons about the human rights situation and raised the issue of China there. We are very clear as a UK government that we have concerns about human rights abuses in China and we do seek to raise them, as I say, at every appropriate opportunity. Could I just say something about China and indeed India and Asia and its significance for the future because I believe China and India and the Asia region have the ability to transform our world over the next 20 years. The way I see it is if the UK was the first nation to go through the industrial revolution and the 19th Century was Britain's, you can plausibly argue that the 20th Century belonged to the United States in terms of its economic power, but I firmly believe that the 21st Century will belong to Asia, and China and India in particular. We will also see strongly growing economies throughout Asia. That presents an enormous challenge in trade terms but tremendous opportunities, I believe, for EU and UK businesses. It is one of the reasons why these trade talks are very important. Trade rounds do not come round every few minutes; they take sometimes, as everybody's experience with the Uruguay Round proved, a long time. So we need to bear in mind the growing economic strength of China and India and to a lesser extent Brazil and South Africa when we are engaged in negotiations as part of these trade talks.

  Q12  Lord Steinberg: Chairman, if I can come back. I am pleased to note that representations are continually being made but would you agree with me that as China becomes more powerful the possibility of persuasion lessens because of the dependence the rest of the world has on their efforts, and would you say that the lead that the Government has taken in relation to trying to help the African countries escape from poverty, that whilst it is good to make protestations and so on are there not some practical steps that could be taken that would make China realise that the rest of the world is extremely unhappy with the human rights abuse?

  Ian Pearson: I would like to say that you talk about poverty and it is important to recognise that over the last 20 years China has taken something like one-third of a billion people out of extreme poverty, largely as a result of its trade performance. Clearly we want to improve the lives of Chinese workers, we do want to address human rights abuses, but we believe that the way forward is to engage with China and so support its integration into the world trading system rather than limit it through trade and investment. I think that that is the fundamentally right approach to take.

  Q13  Lord Kerr of Kinlochard: Yes. Disagreeing slightly with Lord Steinberg, it seems to me that economic autarchy is a licence to run your internal affairs without much concern for world opinion. Take, for example, Russia—human rights abuses in the Soviet Union were, as we all know now, very severe. Contact including through trade but also through the CSCE Basket One process of human contact had an effect, as we now know. I believe that the more open the Chinese economy becomes, the more liberal Chinese society is likely to become. I do not think outside influence diminishes as contacts grow; I think it increases. On your point about India, Minister, I very much agree with you; India is becoming a service economy. Linking three of your points, I mentioned Brazil but is not India the place where one could expect to see a real interest in a move on services? Is it not surprising that the Indians seem reluctant to move? Would not a move by the Indians be most likely to deal with the problem that Lord Blackwell has drawn attention to?

  Ian Pearson: Can I support your view on the development process? I do think that there are strongly positive aspects to China's development. Its further development can help take people out of poverty and can help deliver the progress on human rights issues which we all want to see. But we will not forget those human rights issues and we will continue to raise them as a UK Government, including through the regular human rights dialogue process that we have. We have that process with other countries such as Russia, as was mentioned. You are right as well to emphasise the interests that India has when it comes to services. I think that if you talk to Kamal Nath, the Indian Trade Minister, he will tell you very clearly about the benefits of Indian services companies and what they have to offer and that he wants to see progress on the services efforts at the negotiations. He will also tell you that when it comes to non-agricultural market access that he is not particularly worried about opening up markets to the EU or indeed the United States but he is concerned about opening up markets to China. These are some of the dynamics of the negotiations that are taking place at the moment, which just gives you a flavour of how complex some of these are.

  Q14  Chairman: What you have just mentioned there is an interesting point. What would India have to gain from China to make a deal possible? I know it is not a bilateral deal but how would the Chinese position become more acceptable to India?

  Ian Pearson: My reading of the situation—and let me emphasise it is my reading of the situation and I cannot speak obviously for the Indian Government and their negotiating position—is that India has offensive interests when it comes to services. It would like to be able to see substantial services liberalisation. It believes that it would benefit by selling services into the EU, the United States and indeed, I believe, China as well. India has defensive interests when it comes to industrial goods particularly relating to China but, as I say, not particularly relating to the EU or indeed the United States. It has those concerns for some fairly obvious reasons, I think, when you look at the Indian economy and its relative proximity to China, and given the competitive nature of industrial goods in China at the moment.

  Q15  Lord Blackwell: That does go back to the argument I was making that if India could see that it was in its interests to have an arrangement to open up trade with Europe but did not want to do it in a framework that exposed itself to China, both the EU and India could benefit from doing that and yet within a total negotiation it may not be a possible outcome. I just wonder if there is not a point where we need to recognise that the suboptimal that is achievable may be better than the optimal that is not achievable?

  Ian Pearson: I think we need to be very careful that the best does not drive out the good and that we actually achieve a good outcome to the Doha Round. You are right, you can envisage specific areas where bilateral agreements might achieve more than a multilateral agreement. But I still believe fundamentally in the importance of having a multilateral agreement across 148 member countries: this has got to be the best way forward in terms of producing a pro-development outcome. This is what was envisaged at the start of this round and we are very keen as a UK Government to make sure that we deliver on these development objectives that were set right back in Doha.

  Q16  Lord Cobbold: Are the American and European negotiating positions now more or less in harmony? There was a time when there were worries that the dispute between Boeing and Airbus might poison the run-up to the Hong Kong meeting?

  Ian Pearson: I do not believe the dispute that is currently taking place between Boeing and Airbus has any influence at all on the WTO negotiations. I think we are mature and grown-up enough as an EU to be able to recognise that that is in a different place and is being dealt with in a different way to the negotiations. I think there is quite a good level of personal chemistry between the key negotiators, not just the EU and the United States but also with India and Brazil as well. We are not in the same place when it comes to agricultural market access when it comes to the United States. There is absolutely no doubt about that. There is an average tariff reduction in the EU proposal of 38.9 per cent, the G20 are asking us for 54 per cent and the Americans are asking for 60 per cent. So there is a significant gap at the moment, which is why there have been such intensive negotiations over the last few days.

  Q17  Chairman: The way you have described it means that it is very problematic whether there is going to be a successful outcome given the different expectations on the agricultural access side by the different parties.

  Ian Pearson: This really gets to the nub of it, does it not? The EU has made its second offer. It is very difficult to see—

  Q18  Chairman: — It cannot make a better one.

  Ian Pearson: It is very difficult to see it can make a better one within the mandate it has agreed. There are some countries within the EU that believe the Commission may already have exceeded its mandate. We emphatically do not believe that. The last time this was discussed at the General Affairs Council there was support for the Commission in its approach and them acting within their mandate.

  Q19  Lord Steinberg: That answers that question!

  Ian Pearson: I wanted to re-emphasise as well that the average 38.9 per cent reduction was higher than was achieved in the Uruguay Round and it is, I believe, a deal worth having. I would like to see us making more progress when it comes to the least developed countries and them securing duty-free and quota-free access. I do believe that we should be able to get developed countries and the more advanced developing countries to sign up to making sure that there is a round for free for the LDCs and to kick the door open so that LDCs can trade without duties or quotas in world markets. That was envisaged as part of the July 2004 Framework Agreement. It has not been delivered yet. I would like to see it being delivered as part of the negotiations over the next few weeks.

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