Select Committee on European Union Thirty-Seventh Report


Letter from Ian Pearson MP, Minister for Trade, Investment and Foreign Affairs, Department of Trade and Industry, Foreign and Commonwealth Office to the Chairman

  Further to my letter of 23 January[15] updating you on the outcomes of the Hong Kong Ministerial, I am now in a position to provide you with responses to the conclusions of the Committee's very helpful report.

29 January 2006

Government Response

The current status of the Doha Development Agenda, and the forthcoming Hong Kong Ministerial

33.  We urge WTO members to work for the completion of the Doha Round by the end of 2006.

  We agree.

The changed landscape of negotiations

34.  As we noted in our earlier report, it remains important that the developing countries recognise that they have a responsibility to work for the successful completion of the Doha Round, as well as power to influence the outcome.

  We agree that developing countries will have a major influence on the outcome of the Doha Development Agenda, to a much higher degree than in previous trade rounds. This is an important step forward both in terms of the accountability of the World Trade Organisation and in the ability of multilateral trade negotiations to create a world trading system that brings benefits to developed and developing countries alike. With seats in the Five Interested Parties and the G4 and G6 groupings, Brazil and India will have a major role in shaping a final deal. However, we need to be alive to concerns among the G90 that their membership is not represented in these small groupings. We will aim to ensure that representatives of the LDCs and other poorer and more vulnerable countries are properly consulted and content with the negotiating process.

Agricultural market access

35.  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.

  We continue to want to see ambitious reductions in agricultural tariffs in order to ensure substantial improvements in market access and the benefits this can bring to developing countries. We support the Commission in its work towards resolving this very difficult issue. Its offer of 28 October 2005 has yet to provoke any meaningful engagement from other WTO members. We fully support the Commission's position that the Round has to be balanced across the main issues, and that the EU cannot make any further unilateral moves without movement from others in return. We continue to seek to persuade other WTO members of the need for constructive engagement.

36.  We 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.

  We strongly support multilateral trade liberalisation but appreciate that reductions in the EU's MFN tariffs will have an impact on preferences received by developing countries under the EU's preferential trade agreements. Similarly we support reduction of the EU's domestic and export subsidies but appreciate this will have an impact on developing countries that benefit from high price guarantees on particular commodities (eg sugar).

  We and our European partners are committed to helping developing countries to combat the effects of preference erosion through trade adjustment assistance, and by providing additional aid for trade to tackle other barriers to their ability to benefit from greater trade liberalisation, such as poor infrastructure. The EU has adopted a "development package" that encompasses these aims and that includes commitments to substantially increased development aid.

  The July 2004 Framework Agreement states, "The importance of long-standing preferences is fully recognised. The issue of preference erosion will be addressed." The EU's development package was discussed at the Hong Kong Ministerial. Not all developed countries were able to follow the EU's lead and mirror all of the commitments entered into by the EU. However, both the US and Japan announced—around the Hong Kong Ministerial—very substantial increases in aid for trade. In addition, at Hong Kong the developed countries committed to introducing an equivalent arrangement to the EU's "Everything but Arms" measure—ie duty and quota free access for all 50 LDCs.

  Disappointingly, this commitment is only for 97% product-coverage, which limits its potential value. We will seek to persuade developed countries to go beyond 97% coverage when the time comes to put this commitment into effect.

  Increased developed country duty and quota free access for LDCs will create new preferences that will partly offset the effects of preference erosion. With this exception, none of these proposals involves trade-distorting actions or measures. Trade adjustment assistance and aid for trade represent development aid funding this will improve opportunities to trade for developing country recipients, but does not involve any trade-distorting intervention in markets.

Agricultural export subsidies

37.  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

  At the Ministerial in Hong Kong WTO members agreed to eliminate all export subsidies by 2013. While this was a later date than we would have liked, the agreement is welcome.

  Some EU Member States came to Hong Kong reluctant to put forward an end date. The compromise reached was for an end date of 2013. The date is both specific and fixed and, furthermore, the elimination is progressive. There is a commitment to phase out a substantial proportion by the mid-point between the beginning of the implementation period and the 2013 end-date, ie by around 2010.

  On export subsidies WTO members agreed to the parallel elimination of all forms of export subsidies and disciplines of export measures with equivalent effect to be completed by 2013. This includes an agreement to ensure elimination of all commercial displacement in the form of food aid. This will have a big impact on the US. It also includes ensuring that all trade-distorting practices of State Trading Enterprises are eliminated (which potentially affects Canada, Australia and New Zealand in particular).

Non-agricultural market access

38.  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.

  It is clear that larger developing countries such as Brazil and India have much to gain from liberalisation of trade in both the agricultural and industrial sectors. They are not confronted by the same problems that face the weak and vulnerable or smaller developing countries. We believe that it is important for larger developing countries to participate actively in all aspects of the DDA negotiations. Therefore we are disappointed that at Hong Kong, Brazil and others were unwilling to negotiate meaningfully with the result that NAMA became a hostage to agriculture. However, Paragraph 24 of the Hong Kong Ministerial Declaration established parallelism between the NAMA and agricultural negotiations. We are of the view that this means real increases in market access by all developed and larger and more advanced developing countries—in both sets of negotiations.

Trade in services

39.  We 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.

  The Ministerial Declaration agreed at Hong Kong, together with the annex on services—"Annex C", builds on the package agreed by WTO Members in July 2004 by providing a clear framework to define a way forward for services liberalisation in the Doha Round. The Ministerial Declaration reaffirms that negotiations shall proceed with a view to promoting the economic growth of all trading partners, particularly developing and least-developed countries. The Declaration urges all Members to participate actively towards achieving a progressively higher level of liberalisation in trade in services, with due respect for the right of WTO Members to regulate to meet national policy objectives and with appropriate flexibility for individual developing countries.

  Annex C reaffirms that the request-offer process remains the main method of negotiation and clarifies the non-prescriptive nature of the proposed plurilateral approach. Despite a number of proposals from WTO Members calling for their inclusion, Annex C omits any reference to multilateral numerical targets and indications. This outcome is in line with the UK preference for a settlement that avoids mandatory requirements on developing countries to liberalise services and maintains the flexibility for developing countries to choose whether or not to make any GATS commitments at all. The Annex calls on WTO Members to submit outstanding initial offers as soon as possible and sets target dates for the submission of plurilateral requests by 28 February 2006, a second round of revised offers by 31 July 2006, and final draft schedules of commitments by 31 October 2006.

Commitment to Doha: Multilateral versus bilateral and plurilateral agreements

40.  We 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.

  We are strongly committed to pursuing a more liberal trading environment through multilateral negotiations. Developing countries have real negotiating power in the WTO, with each country having an equal vote. Well- designed bilateral agreements can be a positive force both economically and politically, and can provide an important compliment to the multilateral system. They cannot and should not, however, be viewed as an alternative to the multilateral trading system, which must continue to take centre stage.

15   Correspondence with Ministers, 45th Report of Session 2005-06, HL Paper 243, pp 87-88. Back

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