Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 25 - 39)

TUESDAY 15 NOVEMBER 2005

15 NOVEMBER 2005Mr Roger Liddle

  Q25  Chairman: Welcome. We are very grateful that you have come to the UK to tell us about what is going on with the World Trade Organisation negotiations. Is there anything you would like to say first?

  Mr Liddle: I would like to say just a little about my own position, because I now work in Peter Mandelson's Cabinet in the European Commission. I suppose, of the seven members of the Mandelson Cabinet, I am the political generalist. Before that I worked at Number 10 Downing Street as Tony Blair's European Adviser. I was the Political Adviser appointed in 1997 and had the great pleasure of working with far more expert people on European questions than I am from the Diplomatic Service, like Sir Stephen Wall, who taught me an awful lot. I come from that political background rather than being a European expert or specialist.

  Q26  Chairman: You have probably picked up a bit of expertise on the way, I should think! As you know, we are doing a short report on the WTO following up a longer report published last year. Can you help us on what is actually going on? Where are we? Can you give us a feel, a steer?

  Mr Liddle: There is an upside and downside my Lord Chairman. The upside is that serious negotiations have started. Instead of dancing around the issues by talking about the principles and the structures of tariff formulae and issues of that kind, actual numbers are beginning to be put on the table. That is the good point. The bad point is that the consensus within the WTO is that it is not possible to bridge the differences either before or at Hong Kong and therefore, without lowering our ambitions for the Round as a whole, we cannot expect to see decisive progress at Hong Kong itself. Peter Mandelson, my boss, was extremely disappointed by that, but felt that he had no alternative but to bow to the consensus that we should have modest ambitions for Hong Kong itself.

  Q27  Chairman: The Prime Minister's speech last night was not quite an accurate one. It was not really describing things as they are but describing what he would like to see. It is not going to happen, is that right.

  Mr Liddle: The Prime Minister, I think, was saying, "Look, in the interests of the world, in the interests of jobs in Europe, as well as a policy for the poor in the developing world, we can't just let this slide. What we have to do is see if we can restore impetus at Hong Kong". I interpret his speech as a call to all parties involved in the negotiations to get their acts together and try and do more. I know that my Commissioner would welcome that. I am not sure what kind of response it will get from other people. I paid a recent visit to the United States and talked to Mickey Cantor who had been the US trade representative at the time of the Uruguay Round. He told me that in the crucial negotiations on Uruguay a key role was played at the very, very top level. Particularly the very close relationship between the then President Bush and Helmut Kohl, as Chancellor of Germany, played a key role in moving the parties along and breaking the decisive logjams. I do not know whether Tony Blair envisages, as it were, going above the heads of the trade negotiators and himself trying, with the United States, Brazil, India and other key countries, to secure progress at a top political level. I am afraid I do not know that; but I would very much welcome it, if that is what he did have in mind.

  Q28  Chairman: Whereas Chancellor Kohl was able to persuade the European Union to move on matters on the Uruguay Round, would Prime Minister Blair be in a position to persuade President Chirac to make movements at this time?

  Mr Liddle: That remains to be seen. I think that the majority opinion in the Council is very much in favour of a successful conclusion to Doha. That does not mean that they are prepared to give everything away on agriculture overnight, as it were. That is certainly not the case! Peter Mandelson is working within a mandate that was set by the Council of Ministers which says that he can only make agricultural offers within the context of the present agriculture reform. I think that there is a will in the Council to secure agreement. The problem for Europe is that Europe has already made big moves. Under Pascal Lamy, when he was the Commissioner last summer, Europe made a move to get rid of export subsidies if other countries would do the same. There was no immediate response by other developed countries. Last month Europe tabled a serious, credible offer on agriculture that involves tariff cuts up to 60 per cent at the top end. There are lots of arguments about the detail of this, but it is a serious, credible offer; but so far there has not been a response from the advanced developing countries which would really enable us to get into a serious negotiation. The grand bargain, as it were, in the Round is that in the advanced developing countries—where there is a growing middle class, with growing markets for the kind of top quality products that European companies produce and for the kind of services that European companies can offer—have to cut industrial tariffs and allow more service access in return, for the EU offering all that it can offer, which is greater agricultural market access. That is basically the grand bargain; but until we see movement on the other side I think it is very, very difficult to see what further progress can be made.

  Q29  Lord Jordan: I would like to ask you about the ingredients of this grand bargain. The Prime Minister and you yourself have used this word "logjam" and we know that the European Union's position on agriculture is seen as one of the bigger "logs". It is worrying that you are saying it is a credible offer when all those it is addressed to are saying that it is not a credible offer. However, what I would like to know is: is there any negotiating room on agriculture in Europe? Is it something you can bargain with, or are the number of countries that were outraged by what Peter Mandelson said sufficiently heavyweight to say, "There is no move movement on that issue"? How does that issue fit in with what you see as perhaps the limited number of major crucial logs in this jam—American and perhaps China? Could you tell us a bit more about what you think might be this grand bargain? I know that when we do actually get to Hong Kong there is a tendency for everyone to want an agreement, but the last three failures have made a fourth failure a bit more acceptable rather than unacceptable.

  Mr Liddle: A fourth failure is not acceptable to Peter Mandelson. He is desperately anxious to secure a successful outcome to this Round. He believes it is vital for jobs and growth in Europe that we get additional market access opportunities in the rapidly developing world. He also believes that there are a lot of measures we can take which will help development and help the position of the very poor in the world, including greater agricultural market access. He does not want to see failure. Obviously some people did react badly to the EU's offer on agriculture. Pascal Lamy, who is now WTO Director General, however described it (if I remember rightly) as a "serious offer" that ought to be taken seriously by the rest of the world. Peter has said that he does not intend to make another offer before Hong Kong, but he does want to explore with his partners what is in his existing offer. There are lots of details: like the number of sensitive products; like the way the tariff formula operates in the bottom tier where there is what they call a "flexibility margin". There are various things one can talk about within the offer. May I just make some remarks as an adviser, on the basis that advisers advise and ministers and Commissioners decide. So speaking frankly as an adviser, the mantra is that we cannot make any further offers that go outside the current reform of the Common Agricultural Policy. What does that mean? The Common Agricultural Policy is reforming all the time; sugar reform is going on now; vegetable and wine reform are coming next year; a review is promised in 2008; and Bulgaria and Romania joining the EU will require further reform because the cost all has to be fitted within a financial limit. What is clear to me is what is meant by "within the present agricultural policy" is a bit of a moving feast, as it were. However, the one thing that is clear is that the Financial Perspective (the financial limit that was set by the European Council in 2002 until 2013) is not going to change; that is pretty clear to me. Of course, that takes Europe up to 2013. The question is: what happens after 2013? Trade agreements are about very, very long timescales. For instance, the Uruguay Round agreed to phase out the multi-fibre agreement over a ten-year period. 2013 is the point where the present EU policy is fixed and that in itself is, as I have said, an ongoing a reform process; and then there is the world beyond 2013. I would have thought that that was where political leaders ought to be looking at scope for compromise.

  Q30  Lord Cobbold: Is this agriculture question the principal logjam or are there other logjams that might be broken which would lead to some progress?

  Mr Liddle: I think the principal logjam is the failure of our partners to come up with any kind of matching offer on industrial tariffs and on services.

  Q31  Chairman: You mean the EU's partners?

  Mr Liddle: Yes. I think the Brazils and Indias are partners in the WTO. I think that is the real logjam. Until that happens, you cannot get into a serious negotiation—until they put something on the table.

  Q32  Lord Jones: With your expertise in mind and the British agriculture industry specifically of interest. The British agriculture industry is very quiet at the moment it seems to me. I presume from this that it is content. My question to you as an adviser, as an expert of some years on this matter, is: are we giving away too much? Is the British agricultural industry going to be alright in its generous posture to an enlarged Europe? I have in mind particularly, say, the difficulties of the upland areas of Britain, Welsh, Scottish and Cumbrian and those other areas. Are we going to be able to look after our own interests as well as be generous to developing countries?

  Mr Liddle: Of course from Cumberland, as I am, these issues are very close to my heart. It has to be said that in terms of lobbying, in addition to the French, the people who are really worried about what is going on in Doha are Irish farmers. We have had quite a lot of pressure from Irish farmers in both north and south about the impact of the reform. As I understand it, the Irish Government's position is that they persuaded their agriculture sector to accept the current lot of reforms. They want that commitment to be maintained. In other words, they do not want any more reform before 2013, but they recognise that in the long-run further reform will have to take place.

  Q33  Lord Inglewood: First, I am reassured that the Cumbrian interest is in the forefront of these negotiations! I am interested in what has been said about the concerns that have been expressed that perhaps the Commission has exceeded its mandate in putting an offer on the table. My first point is: is the Commission satisfied it is actually within the terms of reference it has been given by the council? Secondly, we can all think of one country which has been more vocal in voicing its belief that the Commission has exceeded its mandate; is this a genuine belief or do you think it is simply a spoiler? If it is a spoiler, do you think they might take that spoiling tactic further and try and impugn any possible arrangement to derail it, not necessarily because they have got a good case but because politically it is an outcome they would like to see?

  Mr Liddle: Peter has been scrupulous at all stages and of course he acts with the Agriculture Commissioner Mariann Fischer Boel and all these proposals have got to go through the College, so it is not just him. It is important to be clear about that. He has sought comfort at every stage from DG Agri that what is being offered is within the parameters of the present reform. People may find this argument a bit theological, and difficult to follow, but allow me to try and put it in my own terms: What has happened under its present reform is that payments to farmers have been decoupled from production. Some of you will know far more about this than me. This means farmers no longer have the same incentive to produce. Some farmers will actually produce less without reducing their incomes that they presently receive, because of the decoupling arrangement. In some cases. Because they are getting their money in subsidy anyway, farmers will not be able to meet the costs of farming through the price that they get on the markets, so that production in Europe will fall. The question at this juncture is: how much will production fall sector by sector as a result of the decoupling? To the extent that happens, that gives Europe the scope to cut its external tariff and allow in more imports without getting into the very difficult economic circumstances that would otherwise happen. I think we have been scrupulous in trying to avoid that. The second point is about France. I think the French are very committed to their position, and they have made that known to Commissioner Mandelson with great force. He has had several meetings with French ministers, including two meetings with the French Prime Minister this autumn; so he is in no doubt about the French Government's views. France, however, does not have a veto on this matter. The Commissioner operates within a mandate given him by the council and he has to make sure that he has a qualified majority in the Council behind him. There has been concern at various stages in negotiations about what the EU was offering, but so far the vast majority of Member States have gone along with what the EU has offered. In particular I think what is crucially important in terms of the politics of the Council is the Spaniards and the Italians have withheld from backing the French position to the full, which has given Peter scope to continue to make the offers that he has.

  Q34  Lord Maclennan of Rogart: We have been shown a rather interesting letter that appeared last week in the Financial Times from two officials of the FAO who suggested it was not clear that if there was a radical liberalisation of agricultural products the least developed countries would benefit, because many of them had preferential access on certain commodities which were important to them, with a downward trend in prices; and consequently they might understandably not be enthusiastic about this pressure. Do you in the Commission seek in any way to ensure that the Least Developed Countries who do enjoy preferential access will not suffer from any agreement on agricultural market access, like at Hong Kong?

  Mr Liddle: That is a very important issue. Europe does recognise that simplistic ideas about liberalisation are not necessarily the answer to problems of world poverty. The Indian Trade Minister, Kamal Nath, is not a mad enthusiast for agriculture liberalisation either and, in fact, is very cautious about agriculture liberalisation. He is very, very concerned about the prospect of food imports from other parts of the world, perhaps including the United States, upsetting the very stability of the hundreds of millions of people living the Indian village life, and basically the political stability of India. As a Congress minister he is very, very cautious on these questions. It is certainly the case that not all ministers from developing countries are ardent advocates of agri-liberalisation. It is also the case that members of the G90, the very poor countries, and the ACP countries—the Afro-Caribbean Pacific countries with whom we in Europe have a particular relationship—are very, very concerned about the impact of lowering tariffs on their preferences; on what, in the jargon, is called "preference erosion". They are very concerned about that. They see the pressure being mounted by the United States, Brazil and Australia as a pressure group of highly competitive agricultural producers, not as a third world lobby. Sometimes when you listen to the way the debate is presented in Britain, any call for agricultural liberalisation is seen to be a crusade on behalf of the world's poor. I do not think members of G90 quite see it in those terms. Certainly they have been expressing very grave concerns to Mr Mandelson about the issue of preference erosion. The Prime Minister dealt with this in his speech last night, and I am sure what the Prime Minister basically says there is right. In the long-run you want to get rid of all these preferences. In the long-run you want a world where we do not have these artificial distortions of trade, and that everybody is able to compete on the basis of their natural and proper comparative advantages. The difficulty is in getting there. It is easy to say—and I think that this is the ideal solution—that people should be compensated for loss of preferences; that there should be massive aid and assistance for countries that are losing preferences. The EU is trying to do this, for instance, in the case of sugar, where the EU is reducing the sugar price and, as a result, some of the sugar producers who have relied on EU preferences, rather uncompetitive, poor countries, are going to lose out and we are going to give them some kind of compensation. A lot of people say it is not very much. The amount that has initially been allocated is 40 million euros. Clearly, if you are going to compensate for preference erosion worldwide you would be talking about massive sums of aid being necessary to give to countries through the international financial institutions. The Prime Minister last night proposed an increase in Britain's contribution to so-called "aid for trade", to help countries cope with these things. That is extremely welcome; but I think the only way of dealing with this problem of preference erosion in the short-term is if everyone else was stepping up to the table to say, "We will help out", but I do not personally see that happening. This is why we have to proceed in a very measured way on a very long timescale.

  Q35  Lord Maclennan of Rogart: May I ask if you see it as being compensation that ought to be contemplated by the Union itself? Are you looking to the member countries individually to come to the table?

  Mr Liddle: I do not think there is any way the Union itself could afford the compensation within the kind of budget limits within which it is operating. I think it would have to be a partnership between the Union and its Member States.

  Q36  Lord Steinberg: To switch away from agriculture and talk about trade and services, could I preface my comments by saying that I am a comparatively new boy on the block here, and as a simple businessman (I would describe myself that way, others might not) I find that a lot of the intrigue that goes into trying to reach these agreements sometimes reminds me of Emperor Nero and his fiddle! What I am wondering is: from a protective point of view Britain is particularly becoming more and more a service nation, is there any way in which the EU can cut across a lot of this, "I'll wait and see what you offer and you wait to see what I put on the table"? Is there a way in which we can benefit each other and ourselves on trade and services?

  Mr Liddle: I am just looking at the figures in our offer. First of all, this is extremely economically important to Europe. There is no doubt about that at all. Secondly, the existing way of dealing with this within the WTO, the so-called "request and offer method" has not produced very much. Thirdly, it is an absolutely vital part of the overall package deal. What the EU is proposing now is that for everybody except the very poor countries (the LDCs and other small and vulnerable developing countries like the Caribbean countries, Mauritius and places like that) you list 163 sectors of services in all; and that for developed countries they have to make commitments in 139 of those 163 services, and for developing countries in 93 of the 163 sub-service sectors. Why are there some exemptions? Even in Europe we have kept health and education out of our services offer on the basis that many Member States have reservations about competitive trade in various aspects of public services. It is not a complete coverage. What we are trying to do is to be much more precise about the sectors where people have got to open up. Our negotiators are trying to negotiate benchmarks in each of these sectors which would make clear whether there was a genuine opening up or not; for instance whether rules, about majority ownership of a service company or perhaps you are restricted to only 49 per cent ownership, are specifically addressed in the WTO agreement. This has met an awful lot of opposition from the advanced developing countries, particularly from Brazil. India is much more open to opening up trade in services; but Brazil is playing very hard to get on this. Brazil sees this as the big prize that it has vis-a"-vis European agricultural market access. So far very, very little progress has been made.

  Q37  Lord Steinberg: In business we very often, when trying to buy something, offer less than the price we are prepared to pay, and when we are selling something we ask for more than we are prepared to take. Do these criteria not apply?

  Mr Liddle: I do not really think we are at that stage. I think that this is the situation we would like to get into in the next six months: to have a serious negotiation in each of these sub-sectors and see what kind of compromise could be arrived at. At the moment we are facing a kind of "in principle" objection to even discussing this, which has not yet been overcome, and I think that is the problem we have.

  Q38  Lord Blackwell: I have two points. Firstly, on the agricultural discussion, as I listened to what you were saying it seemed to me you could break the agricultural issue down into three problems: firstly, the domestic subsidies to keep farmers on the land; secondly, the access into European markets, where you have the problems you set out, dealing with preferences; and thirdly, the export subsidies we give which lead to dumping of goods in other local markets and the distortions that occur there. In terms of priorities, I wonder whether it is not easiest to deal with restricting our export subsidies in order to avoid problems in other markets. Going back to what Lord Steinberg was asking about, if the difficulties of getting progress on services are as complicated as you set out, with all the ramifications, are you saying that Mr Mandelson is very keen to make progress and come away with an agreement? Is there a point at which in these negotiations we would have to say getting all these nations to agree at the same point in time on a whole set of complex provisions is just not possible; and actually what we should settle for in this Round is taking China and India and agreeing some way forward with them, which does not fulfil all the WTO requirements but at least would be a template which subsequently we could work out with other countries?

  Mr Liddle: Can I deal with the second point first. What we would effectively be doing there is saying that we were going to go for bilateral agreements. We would be rejecting the multilateral approach, which has been an important foundation of prosperity in the post-Second World War period. We would be going for far more bilateral agreements. We have looked at this since we arrived in Brussels last year. There are quite a lot of advantages in bilateral agreements. For instance, you can pursue issues that were excluded from the multilateral agenda you can talk about, the so-called Singapore issues you can talk about intellectual property and competition rules—so you can get those into bilateral agreements, which you could not get into the multilateral agreement. There is a role for a bilateral agreement, but I think bilateral agreements should be seen as supplementary to the multilateral process. What Mr Mandelson wants to do is to get Doha out of the way, on as ambitious a platform as we possibly can and then use the rest of his mandate, his period as Commissioner, to pursue bilateral agreements, perhaps with Asia, perhaps with Mercosur in South America. But of course we do have this huge separate bilateral process of Economic Partnership Agreements with the ACP countries going on as well. There is a bilateral agenda, but his viewpoint is that we should get the multilateral side sorted first and then we can pursue bilateral agreements.

  Q39  Lord Blackwell: Is it mainly a question of which comes first, and whether it is easier to use bilateral agreements as stepping stones to multilateral agreements, or the other way around?

  Mr Liddle: The fear is that if the multilateral negotiations break down this time we will never again be able to negotiate another multilateral agreement. That is the fear, that you produce such a spaghetti bowl of bilateral agreements that it proves impossible to reconcile them on a multilateral basis. On your first question about agriculture, yes, I think in a way export subsidies were easier for the European Union to tackle, and anyway they have been on a declining trend. Export subsidies are only now running at about a third of what they were 10 or 15 years ago. There has been a very big decline in export subsidies. They are still quite important in some sectors; so there is still a bit of pain in getting rid of them. However, the commitment was made last July that we would if the Americans responded. The Americans still have not responded satisfactorily on this point. We need to get a much tighter definition of food aid from the Americans. We are all in favour of humanitarian food aid, but the US food aid programmes are, by all accounts, basically used as ways of subsidising US agricultural exports without any real emergency humanitarian purpose. That certainly is an issue that is near the top of the agenda; but there is no doubt that the issues of subsidies and market access are much, much bigger. What triggered the fact that Europe had to make an offer on market access was that the United States had made an offer to cut its domestic subsidy support. This was quite a bold offer; it was around 60 per cent cuts in domestic support. The way that domestic support has worked in the United States, as I understand it, has been a barrier to imports from other countries. The Brazilians are very, very interested in reducing US domestic support because, again as I understand it, the Americans have a system of protecting farmers from price falls due to a glut in the market; so that if you have a system of subsidy to farmers which effectively makes up their incomes as the price drops (rather like our old deficiency payments system in Britain) this obviously acts as a very big trade barrier, because people can never get into the market because as the price drops there is no incentive for American farmers to cut their production. The American offer to cut their domestic subsidies was a very important move. The only way they can justify to Congress the cut in subsidies is on the basis that they will get additional market access overseas. Of course, this is particularly important in the Senate—where the smaller agricultural states are particularly well represented—and particularly important to the Bush administration because the farm states are the Republican heartland. I did actually go on a trip to Washington and talk to a lot of people on the Hill, and it is absolutely plain to me that in the US mind their cut in domestic support is very, very much related to moves by other people, particularly by Europe, to allow increased market access, so we have to look at the two together. That is why we are in the present impasse on agriculture.

  Chairman: Very well explained, if I may say so.


 
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