The EU's approach
129. The EU introduced a moratorium on bilateral
deal negotiations in 1999 (Q 285) in order to focus on multilateral
talks, but this ended in 2006. Mr Jonathan Peel, a member
of the European Economic and Social Committee, noted that the
2006 decision had seemed to indicate a lack of faith in the multilateral
process at the time, but that in retrospect it appeared to be
more pragmatic (p 3). In its 2006 policy document Global
Europe, the Commission set out with which countries it would
choose to negotiate bilateral Free Trade Agreements (FTAs), and
the content of the FTAs:
"The key economic criteria for new FTA partners
should be market potential (economic size and growth) and the
level of protection against EU export interests (tariffs and non
tariff barriers). We should also take account of our potential
partners' negotiations with EU competitors, the likely impact
of this on EU markets and economies, as well as the risk that
the preferential access to EU markets currently enjoyed by our
neighbouring and developing country partners may be eroded.
"Based on these criteria, ASEAN, Korea and
Mercosur (with whom negotiations are ongoing) emerge as priorities.
They combine high levels of protection with large market potential
and they are active in concluding FTAs with EU competitors. India,
Russia and the Gulf Co-operation Council (negotiations also currently
active) also have combinations of market potential and levels
of protection which make them of direct interest to the EU. China
also meets many of these criteria, but requires special attention
because of the opportunities and risks it presents.
"FTAs would need to be comprehensive and
ambitious in coverage, aiming at the highest possible degree of
trade liberalisation including far-reaching liberalisation of
services and investment ... Where our partners have signed FTAs
with other countries that are competitors to the EU, we should
seek full parity at least. Quantitative import restrictions and
all forms of duties, taxes, charges and restrictions on exports
should be eliminated.
"FTAs should also tackle non tariff barriers
through regulatory convergence wherever possible and contain strong
trade facilitation provisions. They should include stronger provisions
for IPR and competition, including for example provisions on enforcement
of IP rights along the lines of the EC Enforcement Directive.
We will seek to include provisions on good governance in financial,
tax and judicial areas where appropriate. We should also ensure
Rules of Origin in FTAs are simpler and more modern and reflect
the realities of globalisation. We will put in place internal
mechanisms to monitor the implementation and the results of new
FTAs.
"In considering new FTAs, we will need to
work to strengthen sustainable development through our bilateral
trade relations."[33]
130. Dr Balas told us that he expected the
majority of Member States to support a move towards bilateral
deals to fill the vacuum created by the inability to conclude
a multilateral deal this year; European business was reporting
that bilateral agreements already signed between Asian nations
were having a negative impact on European exports (Q 114).
Lord Mandelson, in his role as European Commissioner for Trade,
was blunter and explained why he had begun bilateral talks in
2006: "I wanted to be ready for what I anticipated would
be the completion of the Doha Round in 2007 ... and, also, because
in the event of the multilateral talks failing, I felt Europe
should be in a position where it could make up, in trade terms
through bilateral agreements, some of what it had, I hope, temporarily
lost through the temporary failure of the multilateral. I cannot
stand still. I cannot see the United States or Japan and others
concluding bilateral agreements of their own and have Europe left
so far behind the curve" (Q 257).
131. Mrs Kinnock MEP criticised the Commission's
approach, arguing that bilateral negotiations undermined the multilateral
approach and saying that FTAs would harm non-signatories in nearly
every case (p 238). None of the industry groups which submitted
evidence objected to the Commission's approach and choice of partners,
particularly given the slow progress of the multilateral talks
(pp 214, 218, 226, 234, 246). The Sporting Goods Industry
Association and EEF/UK Steel added that the Commission should
focus on removing raw material export restrictions during its
negotiations (pp 228, 246).
132. Prior to the July Ministerial, we asked
Lord Mandelson, in his role as European Commissioner for Trade,
whether, given that the multilateral talks had not concluded,
the aims set out in Global Europe remained compatible with
continued negotiations at the WTO. He said that the multilateral
deals sat alongside the plurilateral and bilateral deals, with
the latter extending benefits to trading partners that it was
not possible to secure through the multilateral process. The bilateral
deals that the EU hoped to sign would not be narrow and trade
diverting but WTO compliant, trade creating and capable of multilateral
expansion (QQ 247, 256). In addition, he made it clear that
he would not focus on agreements with other developed countries
as to do so would damage international trade (Q 260)
133. Dr Balas was not optimistic about the
possibilities of plurilateral agreements (Q 125). His colleague
Mr Garzotti provided us with an update on negotiating priorities:
in India and Korea, the EU is working to address competitiveness
issues for EU firms; talks with the Gulf Co-operation Council
have market access as the priority (Q 145).
134. We also asked the European Commission about
the inclusion of social clauses in bilateral trade agreements.
Mr Gareth Steel, Expert, Sustainable Development, DG Trade,
European Commission, said that requiring potential trade partners
to reform their social practices (such as labour or environmental
standards) would be counter-productive. He noted that these practices
had not been put in place to act as trade barriers and that bilateral
agreements were a chance to discuss good practice and encourage
co-operation on social issues (QQ 151-152). (Fairtrade agreed
and advocated a stronger role for the International Labour Organisation
to enforce labour rights (Q 206).) Mr Jean Charles van
Eeckhaute, Deputy Head of Unit, Policy Coordination, DG Trade,
European Commission, noted that there were strong demands within
the European Parliament for a more coercive approach to these
issues (Q 152). We did not collect enough evidence to be
able conclude on social clauses.
135. We also heard evidence of a lack of capacity
to handle multilateral and bilateral negotiations concurrently.
BusinessEurope, which supported the development of bilateral agreements,
including in the long term those with other OECD countries, noted
that India was prioritising its resources towards the WTO talks
to the extent that it was delaying the bilateral talks with the
EU (Q 274). Mr Peel expressed a concern that the Commission
might face similar resource shortages (p 3). ICC UK suggested
that the Commission should systematically undertake an impact
assessment of any proposed bilateral deal involving the EU, to
include its consistency with the WTO rules, the impact upon rules
of origin (see chapter five), compatibility of regulatory structures
and standards, and the proposal's impact upon the Commission's
administrative capacity to negotiate multilateral agreements (p 3).
136. Mr Thomas MP, Under-Secretary
of State for Trade and Consumer Affairs, told us that the failure
of the July WTO Ministerial to agree a deal would lead to these
potential bilateral agreements receiving greater attention and,
he hoped, accelerated progress towards their conclusion (Q 568).
Blending bilateral and multilateral
agreements
137. The ITC and Mr Biswas suggested that,
over time, as the "spaghetti bowl" got increasingly
complex, pressure from business would lead to renewed interest
in either a multilateral approach or agreements between the major
regional trade blocs (p 2, QQ 442-448). If the latter were
to occur, Mr Biswas expected that LDCs not included in free
trade agreements would be brought in through a WTO multilateral
deal (QQ 442-448). He outlined two scenarios for the future:
the first saw bilateral deals working alongside the WTO process,
with the WTO working to multilateralise bilateral deals; the second
saw bilateral agreements taking over from the WTO and the Organisation
becoming paralysed (QQ 453-455).
138. Professor Higgott summed up the view
of many witnesses when he outlined the approach of the Warwick
Commission[34]: "it
was not sufficient ... simply to condemn the rise of preferential
trading arrangements. Recognising that they are sub-optimal is
not a sufficient reason for saying they will go away, so the question
was: 'How do you live with these arrangements?'" (Q 48).
His colleague Professor Evenett suggested that the WTO should
do more to publicise the contents of newly signed bilateral agreements
and promote those clauses in agreements which had broad trade
promotion effects. This would require placing the transparency
mechanism of the WTO, adopted in December 2006, on a permanent
footing (Q 74). Mr Lamy accepted that the WTO rules
concerning bilateral agreements could be clearer (Q 416).
The Commission also supported an enhanced role for the WTO in
monitoring bilateral agreements (Q 130).
139. Ambassador Falconer, Chair of the WTO Negotiating
Group on Agriculture, expected the WTO to maintain a central role,
but as a consolidator of national decisions rather than a body
"that changes the way people do things". Barriers to
trade would fall unilaterally or bilaterally, and the Organisation
would be the place where states "promised" to their
"fellow states in the international community not to do certain
things" (Q 513). ICC UK suggested that, with this approach,
bilateral deals would be the "building blocks" of future
rounds of multilateral liberalisation (p 242).
140. We recognise that bilateral agreements
are now a fixture of the trade negotiation landscape, and they
can contribute to economic growth and liberalisation, both by
making progress beyond the WTO remit and acting as the foundations
for future multilateral deals. Some witnesses took the view that
their proliferation has not been conducive to a multilateral settlement.
To minimise the risk we recommend that the Government and the
Commission should work with the WTO to enhance the Organisation's
role in the monitoring of bilateral negotiations, and allow it
to encourage good practice and the inclusion of provisions in
bilateral agreements which help to minimise damage to non-signatories.
141. The Commission's work on bilateral agreements
has not undermined its commitment to multilateral trade agreements.
We were particularly reassured that the previous Commissioner
opposed agreements with developed nations which would freeze out
poorer countries and hope that the new Commissioner will maintain
this stance. We recommend that the Government and the Commission
look at ways to help developing countries deal with the complexities
of negotiating bilateral agreements, and welcome the Government's
commitment of funds for this purpose. Aid for Trade facility is
a suitable source of funds for such help and the Sussex Framework
one possible instrument.
31 Denis Medvedev Preferential Trade Agreements
and Their Role in World Trade, World Bank Policy Research
Working Paper 4038, October 2006. Back
32
International Cooperation for Development and Solidarity: an international
network of Catholic development agencies. Back
33
COM (2006) 567 Back
34
The 2007 Warwick Commission, coordinated by the University of
Warwick, was a group of international trade practioners and analysts
who considered the multilateral trading system. Back
