Select Committee on European Union Seventeenth Report


CHAPTER 2: THE MAIN ISSUES FOR HONG KONG

Agriculture

16.  As we noted above, disagreements over agriculture were viewed by many as central to the failure of the Cancún Ministerial. Indeed, much of the evidence we have received for this inquiry continues to indicate that agriculture is the key to unlocking the Doha Round.

AGRICULTURAL MARKET ACCESS


17.  For the developing countries, improved access to protected EU and US agricultural markets is a key aim of the Doha Round. It was also one of the main commitments of the original Doha Declaration. In the build up to Hong Kong, much of the debate has focused on the negotiations in this area.

18.  The EU and US both tabled offers improving access to their agricultural markets on 10 October 2005. According to Ian Pearson MP's written evidence, these "offers revealed the distance between the WTO Membership on market access. Whereas the US called for cuts of between 55 and 90%, the EU proposal would mean an average tariff cut of around 24%". (p 3) The EU offer on market access was rejected by, amongst others, the US, Brazil and Australia, and the Commission was pressured to table a second offer, with Brazil in particular calling for a minimum of 55% average tariff reduction.

19.  In response the EU tabled, on 28 October, a further offer of an average reduction of 38.9% in EU tariffs. This second offer was heavily criticised by some EU Member States, and in particular by France, who argued vociferously that this took the Commission beyond the mandate given to it by the Council. However, the majority of Member States have not associated themselves with this criticism. On this point, we were told that, in addition to support from DG Agriculture, what is "crucially important in terms of the politics of the Council is that the Spaniards and Italians have withheld themselves from backing the French position to the full, which has given Peter Mandelson scope to continue to make the offers that he has" (Q 33). From the British point of view, the Minister told us that the British Government believed that the Commission's second offer was "firmly within its mandate". (Q 7)

20.  Although the EU remains willing to explore the details of this second offer further with WTO members, the evidence we have received suggests that Commissioner Mandelson will not make another offer before Hong Kong. Whilst we are firmly of the view that the EU should reduce tariffs still further over time, we consider that this offer from the EU deserves serious consideration from the developing countries, who have not yet formally responded. As we mentioned above, we consider that developing countries now have a responsibility to work towards the successful conclusion of the Doha Round. This may mean that they have to develop more realistic expectations for what can be achieved as part of the Round. We support the Commission's offer to reduce agricultural tariffs by an average of 38.9%, and consider that the developing countries should now respond constructively.

21.  We have noted concerns raised in some of the evidence presented to us that increased access to the EU's agricultural markets for all may have a detrimental effect on those countries who already enjoy preferential access. In particular, this would affect the Least Developed Countries (LDCs) and the African, Caribbean and Pacific Countries (ACPs). We do not believe that this is a reason to abandon the aim of increasing access to agricultural markets. However, we do consider that it is important to ensure that LDC and ACP countries do not suffer disproportionately as a result of the erosion of their preferential access to the EU's agricultural markets. We accordingly urge WTO members to agree appropriate temporary transition measures to compensate these countries. These measures should be designed to distort trade as little as possible.

AGRICULTURAL EXPORT SUBSIDIES


22.  In our previous report, we expressed support for a broad agreement to reduce agricultural export subsidies with a view to eliminating them entirely by a specified date. We note with satisfaction that the Commission, in an open letter on 10 May 2004, made an offer to eliminate EU export subsidies providing that other WTO members also do so. To date, no firm agreement has been reached. On the date for the elimination of export subsidies, we agree with the recommendation of the Commission for Africa Report[1] that export subsidies should be eliminated by 2010, and are glad to see that this recommendation has been adopted by the Government. We support the Government's decision to push for the removal of all agricultural export subsidies as well as the EU's May 2004 offer to eliminate these subsidies if all other WTO members agree to follow suit. We urge WTO members to agree to do so by 2010.

Trade in goods and services

23.  Whereas many of the developing countries see agriculture as the area from which they stand to gain the most, richer countries are keen to see agreement reached on liberalisation of trade in goods and services. They believe that there are substantial gains to be made for both developed and developing countries through increased trade in these sectors. Our previous report recommended that significant reduction in barriers to trade in non-agricultural goods and services should be achieved through the Doha negotiations.

NON-AGRICULTURAL MARKET ACCESS (NAMA)


24.  From an EU perspective an ambitious result on non-agricultural market access (NAMA) will be a critical element of a wider deal contributing to a successful conclusion of the Doha Round. Such a result would, in practical terms, involve improved real access to third country markets. As the Minister states, "many Member States want to see increased market access in NAMA (and progress on services), as a trade off for opening up European markets in agricultural goods" (p 4). If this is achieved, it will provide significant economic gains for EU countries, and especially for those with the strongest export potential.

25.  However, it is clear that an agreement on NAMA remains a long way off because there is an objection from a number of developing countries to opening up their non agricultural and services markets. These countries argue that liberalisation of trade in services could have a detrimental impact on their ability to pursue national industrial policies and industrial reforms. In their evidence to us, Oxfam even goes so far as to assert that "if NAMA negotiations continue along their current trajectory, they will prevent developing countries from pursuing effective industrial policies" (p 34). However, one of the dangers is that protecting infant industries can lead only to protecting uncompetitive industries. Furthermore, we note that a high proportion of tariffs levied by developing countries are levied on imports from other developing countries.

26.  Brazil is a good example of a country unwilling to open markets in non-agricultural sectors to outside competition. This is fuelled by memories of severe debt caused by an IMF package which required drastic tariff cuts during the 1980s. This resulted in high levels of unemployment in the, previously highly protected, industrial sector.

27.  In the case of Brazil, whilst we understand that, in the light of these experiences in the 1980s, politicians may be reluctant to open markets to outside competition, we believe that the Brazilian economy is now in a much stronger position. This is especially so with regard to agricultural exports, from which they stand to make significant gains if agreement is reached on agricultural market access. We were told by one of our witnesses that he was "amazed to look at the statistics of how sector by sector the Brazilians are now dominating agricultural exports in the world" (Q 41). Furthermore, we note that there has been extensive discussion in Brazil on this topic. The Minister told us that in the Brazilian media "it is quite clear that they have got an offer on NAMA in their back pocket" (Q 5). As a result, we firmly believe that it is now time for developing countries such as Brazil to respond before Hong Kong to agricultural offers from the likes of the EU with serious proposals of their own in access to non-agricultural markets.

Trade in services

28.  One of the commitments of the Doha Declaration was to pursue negotiations on trade in services with the aim of promoting the economic growth of all trading partners. We fully support the idea that countries should open their service markets to external competition as we consider that both developed and developing countries stand to gain from this. For developing countries such as India who have a growing service sector, liberalisation of global markets in services is a great opportunity.

29.  For the EU, agreements on trade in services also represent also a significant potential gain for Member States' as 69%[2] of the EU's economy is currently classified as part of the service sector. From the EU's point of view, agreements on services and NAMA are crucial to a balanced outcome from the Doha Round. As the Minister told us, "it is important for the EU that we see a balanced outcome to the negotiations. It is not just an agricultural round—although agriculture is the key to unlocking a successful conclusion—it is imperative that we do see progress on services and NAMA and trade rules" (Q 9).

30.  We note the concerns raised with us that an agreement on trade in services appears unlikely at Hong Kong. However, opening up service markets remains a vital aspect of a successful outcome from the Doha Round. We therefore urge countries to secure a commitment at Hong Kong to a date by which revised best and final offers on trade in services will be tabled.

Commitment to Doha: Multilateral versus bilateral and plurilateral agreements

31.  In our previous report we received evidence questioning whether a multilateral (viz. WTO) approach to trade agreements was the best way to proceed. We concluded that, whilst prioritising progress in the WTO forum was indeed the best way forward, it was not necessarily contradictory to pursue bilateral negotiations at the same time. These bilateral agreements, we felt, could add value but would not replace the multilateral approach, which includes both the weak and the strong, and through which greater gains have been achieved and are achievable in the future.

32.  We continue to believe that governments should strongly pursue multilateral arrangements. Were the Doha Round to break down, this would bring serious pressure to bear on governments to pursue bilateral and regional agreements as a way forward. It would be a paradox if a breakdown of the Doha Round were to lead to bilateral agreements between the major trading blocks from which the developing countries would be excluded to their detriment. We therefore urge all WTO members to work for a successful outcome to the Hong Kong Ministerial as a very high priority.



1   Our Common Interest, Report of the Commission for Africa, March 2005 Back

2   Q 9 Back


 
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