House of Lords - European Union

Select Committee on European Union Written Evidence

Memorandum by Confederation of British Industry (CBI)

1. The Confederation of British Industry (CBI) is the premier voice of UK business, speaking for around 240,000 companies and 150 trade associations. Our membership stretches across the UK, with businesses from all sectors and of all sizes. Through their worldwide trading activities, UK businesses contribute 25% of UK GDP.

OVERVIEW

2. CBI has a long-held commitment to the principle of free and fair open markets, where companies can compete in a global economy without barriers to trade and other trade distortions. The EU can only maintain and increase its competitiveness through adherence to these principles and an open and progressive trade policy, as set out in the Commission's Communication, "Global Europe" (2006).

3. The World Trade Organisation (WTO), and the rules-based multilateral trading system over which it presides, are essential in providing business with the market access and certainty it requires. Along with other WTO members, the EU should make every effort to conclude the Doha Development Agenda (DDA) this year. The gains to the global economy would be substantial as a result of increased market access for goods and services, and reductions in subsidies.

4. The WTO is based on the legal principles of national treatment, non-discrimination, and the treatment of other countries as a most-favoured nation. These principles should not be violated in pursuit of non-trade policy goals, as the use of trade barriers to these ends can lead to unintended consequences and to a damaging downward spiral of protectionism.

5. Trade and development policy are complementary. Increased trade plays a large part in helping developing countries to achieve the type of sustained economic growth that results in substantial poverty alleviation. Development policies should, therefore, be aimed at making it easier to trade with, and invest in, developing countries.

MULTILATERAL TRADE NEGOTIATIONS

6. CBI has called for a balanced and ambitious conclusion to the DDA since its outset. The round promises to deliver gains for all WTO members that are only achievable through multilateral negotiations. We recognise the importance of agriculture to the round and have constantly called for negotiators to address the issues of reforming domestic subsidies, market access and export competition.

7. British business looks to the EU and other WTO members to achieve the greatest possible level of ambition in the DDA, in order to reduce applied tariffs in industrial goods and to create new market access in services that benefit developed and developing countries alike. While binding applied levels of market access would increase certainty, it is reductions in applied tariffs and restrictions in services that will create new market access for British business, and ultimately efficiency gains for the global economy.

8. In order to maximise gains to the global economy, and for the round to be a true development round, major emerging economies such as India, China and Brazil must be willing to reduce their industrial tariffs and to liberalise services. More open markets for industrial goods would reflect their level of development and facilitate the south-south trade which is vital in stimulating development, while services play an important role in accelerating growth.

9. We were encouraged by the release in February 2008 of revised agricultural and non-agricultural (NAMA) texts, and the release of a Chairman's Report documenting progress and positions in the services negotiations in the DDA. Progress in the negotiations is to be welcomed, though we need to see rapid and substantive momentum in the services element of the round in order for this area to catch up with the other two. Major gains from the round as it stands after the revised texts include:

— a maximum industrial tariff of 8-9% in the developed world, creating significant market access.

— a major reduction in bound tariffs in the developing world, eliminating tariff peaks, safeguarding against future protectionism, and providing valuable market access for south-south trade.

— a trade facilitation agreement speeding up the time that goods take to cross borders—where 7-10% is currently added to the cost of trading.

— duty free, quota free, market access for Least Developed Countries from 2010.

— elimination of agricultural export subsidies by 2013.

— a significant reduction of 66-85% in domestic agricultural subsidies in the developed world.

— minimum 54% reduction in average agricultural tariffs in the developed world.

— an end to the practise of tariff escalation from raw to processed agricultural goods.

10. In the negotiations for market access in industrial goods (NAMA), where the least developed countries and a number of other countries will not be required to make any commitments, major emerging countries should offer to lower tariffs in a way that cuts into applied, and not just bound tariffs. An anti-concentration clause should be included in the final deal so that emerging economies cannot use the flexibilities, which are provided to protect their vulnerable industries only, to unreasonably shelter entire tariff chapters from the tariff cuts stipulated by the core formula. Members should also commit to sectoral agreements, which will complement the core tariff cutting formula by seeking zero for zero tariff elimination within sectors.

11. Progress has been far slower in the services negotiations than in either the NAMA or agricultural negotiations; this reality was reflected by the release of only a guiding Chairman's Report. Multilateral negotiations must ensure that services play a central role in order to fulfil the potential benefits to the global economy.

12. We believe strongly that the DDA must move toward agreement on the core modalities during March and April, with a view to a ministerial meeting being held in late-March or April. Agreement on modalities at a ministerial meeting would allow technical work to be completed in time for the round's conclusion by this date. The round must be concluded by the end of 2008 otherwise a number of political developments, such as the change of US Administration, Indian elections, and the change of European Commission, will effectively mean that it will be never completed as envisaged. CBI will continue to do all that it can to ensure that this worst case scenario is avoided.

BILATERAL TRADE AGREEMENTS

13. UK business remains firmly committed to the multilateral system of free and fair global trade governed by the World Trade Organisation (WTO). This system provides the most effective means of pursuing progressive global trade liberalisation as it covers over 150 economies and benefits from a robust dispute settlement mechanism. By providing clear, effective and harmonised rules, the multilateral system ensures that international trade is conducted efficiently across all WTO members. Moreover, many trade issues, such as subsides, rules and standardisation, can only be dealt with effectively at a multilateral level. Importantly, WTO negotiations are inclusive of all, including developing, small and vulnerable, least developed, and developed countries.

14. While the multilateral route will always provide the optimal route for trade liberalisation, FTAs can bring important benefits for companies if they are framed in the right way. Firstly, they can provide new market access opportunities for businesses by reducing or eliminating tariff and non-tariff barriers, as well as restrictions on service providers. Even after any successful completion of the Doha round, severe obstacles will remain for traders, particularly in the emerging economies.

15. Secondly, specific levels of ambition in bilateral agreements can be higher than at the multilateral level. For example, a complication in the Doha round has been the fear of China's export competitiveness, which has limited the emerging economies level of ambition in industrial market access. This may be overcome in the bilateral context. Moreover, once arguments are won for liberalisation in the bilateral context, governments and electorates are more likely to understand the benefits of trade liberalisation in the multilateral context.

16. Thirdly, FTAs can include a range of trade issues that are not currently being negotiated in the DDA. The most significant of these include improved market access in government procurement, intellectual property rights (beyond TRIPS), certain non-tariff barriers and regulatory convergence. Moreover, some issues covered in a bilateral negotiation could improve the trading environment for all trading partners, in areas such as transparency in government procurement, and trade facilitation.

17. While there can be benefits from successfully concluding FTAs, they can, if undertaken for the wrong reasons or in the wrong way, have negative consequences. Firstly, a proliferation of overlapping regional and bilateral trade regimes could undermine the WTO multilateral system by shifting negotiating resources from the multilateral to bilateral spheres.

18. Secondly, one of the most serious problems is the potential for a proliferation of duplicative rules of origin schemes, which can significantly slow customs procedures, add costs, and cause confusion for businesses. The compliance costs with the rules of origin in NAFTA, for example, have been estimated to equate to an additional tariff of 4.3%.[2]

19. Thirdly, free trade agreements can cause substantial trade diversion rather than promoting trade creation. The preferential market access granted by a FTA often simply allows previously uncompetitive exports from one country within the FTA to supply at the same price as exports from a more efficient producer from a country outside of the FTA.

20. Fourthly, FTAs often lack a concrete dispute settlement mechanism. Where such mechanisms do exist, they are often less effective than WTO procedures and can arrive at different judgements to WTO dispute settlement mechanism on the same issue, as happened for example in the US-Canada softwood lumber disputes.

21. Finally, FTAs can be undertaken for a variety of reasons often wholly unrelated to trade. They can be motivated by a desire to improve political relations with third countries or to boost regional security. Weak FTAs that do not focus on economic priorities can cause all the disadvantages with none of the compensating advantages, and can often be complicated by non-trade provisions, such as those related to labour or environmental standards.

22. We believe that all FTAs must fully comply with the letter and the spirit of all relevant WTO rules. Agreements must seek to liberalise all trade and the aim should be the complete elimination of tariffs and very substantial reductions in non-tariff barriers. At the very least, FTAs should liberalise substantially all trade as required by GATT Article XXIV, meaning no less than 90% by range of tariff headings and volume of trade, both in agricultural and industrial goods. An equivalent level of ambition should be upheld in trade in services, as required by GATS Article V.

23. In addition, all FTAs must aim to include issues that are not currently part of the WTO mandate. These include access to government procurement markets and enforcement mechanisms for the protection of intellectual property rights. On investment, the CBI can support a mandate being given to the EU Commission by member states to improve market access for EU investors (pre-establishment). However, there should be no inclusion of investment protection rules (post-establishment).[3]

24. We also believe that all FTA provisions should be harmonised with relevant WTO rules as closely as possible. The risk of undermining the multilateral system is substantially reduced where FTA rules match their equivalents in the WTO as closely as possible. This also reduces transaction costs for businesses trading under FTA rules. In particular, rules of origin should be as simple and as closely aligned to WTO rules as possible. Internationally accepted standards, such as the International Accounting Standards, should form the basis of standards in FTAs.

25. The ultimate aim of all FTAs should be the eventual multilateralisation of the liberalisation achieved bilaterally. Bilateral trade agreements must be frrmly based on the need to enhance the competitiveness of European companies in the world economy. The long-term aim of these agreements should be to translate the liberalisation achieved in FTAs to the global level, since the benefits of liberalisation are most effective when applied multilaterally. The WTO Transparency mechanism for preferential trade agreements should be made permanent and be granted the necessary strength and status to ensure coherence and complimentarity between multilateral and bilateral agreements.

THE ROLE OF EUROPEAN TRADE POLICY IN STIMULATING GROWTH AND CREATING JOBS IN THE EUROPE

26. CBI welcomed the Global Europe Communication released in October 2006 by Commissioner Mandelson, which set out a progressive trade policy seeking to enhance European competitiveness through embracing globalisation, within the spirit of the Lisbon Agenda. This Communication should provide the guiding principles for EU trade policy decisions.

27. It argued that globalised supply chains, and ever increasing global trade and investment flows mean that the distinction between domestic and internal policy is becoming less relevant. The Communication rightly noted that in order for the EU to be able to capitalise on the intellectual property that exists within our knowledge based economy, support for an open trade and investment environment must be at the core of European trade policy. This means the pursuit of market opening at every available level, and steps to ensure the fair treatment of European business globally.

28. Sadly, some protectionist forces within Europe are trying to roll back EU trade policy from those stated aims. For example, CBI was disappointed by the blockage of Commissioner Mandelson's much needed proposals to modernise and clarify the EU's trade defence architecture, and we are very wary of environmental tax adjustments at the border and other measures targeted towards market closure. CBI would like to see EU trade policy fully embrace to the strategy and principles outlined in the Global Europe Communication.

29. There is a clear danger posed to European competiveness by politically expedient rhetoric and policies which exploit popular suspicions of globalisation, but threaten to harm Europe's competiveness. Trade policy is based on adherence to principles, and even threats to violate those principles can lead to a dangerous downward spiral of protectionism.

30. In order to serve the needs of European business and competitiveness the multiplicity of non-tariff and behind the border barriers and challenges to trade in goods and services must be tackled. While the WTO DDA should remain the priority, FTAs, which can address deeper, regulatory and non-tariff issues, such as government procurement and IPR enforcement, are also another vital element. Various other means of removal of barriers to trade, such as forums like the Transatlantic Economic Council, the EU Market Access Strategy, the EU trade barriers regulation, and regulatory and intellectual property rights (IPR) dialogues, can also playa role.

THE RELATIONSHIP BETWEEN EUROPEAN TRADE POLICY AND OTHER POLICY AREAS

Development

31. A European trade policy that enhances European competiveness, through eliminating barriers and creating market access, and one that supports international development objectives, are very much complementary. Unlike aid, trade can provide a self-sustaining and continuously growing source of economic prosperity. CBI supports initiatives such as that granting duty-free quota-free market access for least developed countries within the DDA, and the Economic Partnership Agreements that ensure that Africa Caribbean and Pacific (ACP) countries maintain market access to the EU.

32. CBI believes that broad liberalisation of the trading environment will lead to substantial gains for developing countries. Liberalisation in global trade in merchandise alone stands to boost developing country incomes by an estimated 0.8% by 2015. This increase in welfare gains would be relatively higher than for developed countries, whose incomes would increase by 0.6%, and would be considerably higher if they were to include services.[4] Welfare gains for developing countries from liberalisation in industrial and agricultural trade between developing countries alone has been estimated at over $65 billion.[5] This requires significant reforms not just of tariffs, but also of internal policies in developing countries, in areas such as trade facilitation and non-tariff barriers.

33. Trade liberalisation can be a win-win for all, as the then DTI's 2004 White Paper on Trade and Investment noted: "The evidence shows that those countries which have achieved the biggest reductions in poverty in recent years have been those which have been open to international trade". Reducing tariffs on imported goods lowers the costs of industrial inputs for developing country manufacturers, and consumers. Moreover, increased availability of cheaper inputs, technologies, and exposure to global markets and disciplines will make developing country businesses more competitive.

34. In terms of EU trade policy, the priority for aligning trade and development policy must be support of, and progress within, the WTO, in the DDA and beyond. The WTO provides commercial security to companies operating internationally by guaranteeing maximum bound levels of import tariffs that countries may apply according to its rules. A successful conclusion to the DDA would consequently provide the certainty traders require to establish trade and investment links in the developing world. This is especially true for south-south trade, as developing countries currently pay 70% of their tariffs to other developing world countries.

35. Economic Partnership Agreements, many of which are in the process of being concluded, will assist developing countries, to both continue to access the EU market and to pursue regional integration that will facilitate intra-regional south-south trade. These agreements should be comprehensive, and include services chapters, given that high quality services often lay the foundation for sustained economic growth.

36. CBI welcomes the re-focus on growth within DFID's development strategy, and also the commitment from the UK to spend £100 million annually on aid for trade by 2010. We also support the commitment from the EU to deliver €2 billion annually in aid for trade by 2010. CBI believes these resources should be focussed on improving and speeding up customs procedures, empowering private sector voices in the developing world, and aiding developing countries to develop the sound, and transparent trade and regulatory policies which are vital to enabling growth.

Environment

37. It is within an efficient and growing global economy, where intellectual property rights are upheld and free trade pursued, that the threat of climate change can best be countered. CBI supports the EU Emissions Trading Scheme and the UNFCCC framework for combating climate change. However, efforts to combat climate change must not violate our international trade commitments or principles, as doing so could lead to a downward spiral of protectionist measures with negative economic consequences which will eventually harm the fight against climate change.

38. CBI is concerned by calls from some at the European level to include imports within the European Emissions Trading System through a regime making importers purchase carbon credits. We have doubts concerning the legality of such proposals, as the rules-based multilateral trading system is rooted in principles such as non-discrimination, most favoured nation, and national treatment. These principles clash with the UNFCCC framework which is based on the principle of "shared but differentiated" responsibility.

39. Such a legal clash would place any system where imports are included in the ETS either in contravention of WTO rules or the rules of the UNFCCC framework. This would have potentially damaging implications for our trade policy commitments and our commitments and negotiations within the UNFCCC framework. Under the UNFCCC principles, developing countries are allowed proportionately a greater level of carbon emissions than developed economies. However, differentiating between WTO Members in this manner would be in violation of WTO rules which insist that all members be treated as most favoured nation and therefore treated identically.

40. In order to assist in combating climate change, barriers should be removed to trade in environmental goods and services. CBI supports the environmental element of the DDA NAMA negotiations, and would like to see progress in the DDA toward dropping barriers to environmental services and agricultural products such as biofuels.

Raw materials

41. CBI believes that in order to sustain the EU's competiveness, barriers to trade in raw materials should be removed. The EU imports as much as 80% of its raw materials,and access to raw materials relies on an open and level playing field.

42. Government-invoked trade distortions are creating difficulties for European industries' access to raw materials on the world market. An increasing number of countries restrict the export of raw materials by means of export taxes or other measures, operate dual-pricing schemes on the export of their natural resources or subsidize the import or local purchase of raw materials. These practices provide other countries' industries with a decisive supply advantage over their international competitors.

43. The EU should work to establish a level playing-field among countries and regions regarding access to raw materials. This will require a new approach to trade policy because the instruments or policies that create distortions are not traditional trade barriers and are difficult to address under current WTO rules whose trade disciplines and instruments were not conceived to prevent or tackle these kinds of distortions directly.

44. To address this challenge, EU trade policy should:

— seek the effective elimination of the causes of distortions by engaging firmly in bilateral consultations and negotiations whenever necessary.

— actively promote the development of new WTO rules and bilateral disciplines addressing export restrictions/taxes, import subsidies, dual pricing and other practices that result in discriminatory access to raw materials; and

— build support for recent EU proposals to classify export taxes and restrictions as non tariff barriers and dual pricing as an illegal subsidy in the WTO and the OECD.

45. The DDA and the EU's network of bilateral agreements should be used to secure meaningful progress in this important area. We believe the Council of Ministers should systematically include the abolition of the above mentioned trade distorting measures in future negotiating mandates given to the European Commission.

DEVELOPING COUNTRIES AND MULTILATERAL TRADE AGREEMENTS

46. Much of the progress within the DDA, which was captured within the texts issued on the 8 February 2008 (outlined above), has been directed toward reshaping the global trade system in order to allow developing countries greater opportunities to prosper from it. The most significant elements include the elimination of agricultural export subsidies by 2013, significant reductions in agricultural tariffs and domestic subsidies, and improved market access in both the developed and developing world, not least through a commitment to grant LDCs duty-free and quota-free market access to developed world markets. Accompanying these benefits will be an aid for trade package, enabling developing countries to participate more effectively within the multilateral trading system.

47. The role of services in development cannot be underestimated. Developing countries benefit greatly from both the movement of people in order to provide services in foreign countries, known within the WTO as Mode 4, and the provision by foreign services providers of telecoms, banking and insurance that are essential for sustainable economic growth. Therefore, in order for multilateral negotiations to truly serve the needs of developing countries there must be further progress in the services pillar of the DDA and advancement of the GATS beyond the DDAs conclusion.

48. Developing countries, especially landlocked countries, are those who suffer most from the time and cost involved in transporting goods across borders. A trade facilitation agreement within the DDA and a commitment to reduce transit times through borders, could have major benefits for developing countries.

49. UK and EU participation in the aid for trade integrated framework[6] for LDCs and in delivering aid for trade more generally will be key in ensuring that the appropriate hard infrastructure, and soft systems and skills are in place to execute an effective trade policy that eliminates behind the border impediments to trade.

50. A major gain from completion of the DDA will be to guarantee and strengthen the rules-based multilateral system and importantly the dispute settlement understanding (DSU) of the WTO. The DSU provides recourse for all members encountering a trade dispute. It has solved many disputes either between or involving developing countries.

TRADE DEFENCE INSTRUMENTS

51. CBI believes that strong, respected, transparent and predictable trade defence instruments (TDIs), such as anti-dumping measures, play a legitimate and necessary role in sustaining the free and fair markets upon which European competiveness depends. However, CBI is also concerned that on occasion TDls have been misused, both in the EU and globally, as tools of protectionism. CBI is, therefore, disappointed by the decision taken by the European Commission to postpone passage of Commissioner Mandelson's planned reform of the EU's trade defence instruments.

52. The EU's trade defence instruments need to reflect modem business realities. Many companies have chosen to relocate some production activities to third countries while retaining much of the value added, research, development, design, and marketing functions within the EU. This means that there is a need to differentiate between the concepts of EU production and EU manufacturing. For example, for shoes manufactured in China, the amount of value added in the EU can range from above 50% for a low prices shoe, to above 80% for some high priced shoes.

53. In order to reflect these new realities, the community interest test, used within anti-dumping investigations should give greater consideration to those relying on global supply chains, such as consumers, retailers, downstream industries, and businesses that have some production facilities abroad. Moreover there should also be reforms to reduce the amount of time taken to conduct a trade defence investigation, and to increase transparency through allowing greater access to information.

54. These reforms will improve on the current situation where trade defence instruments are open to abuse for protectionist reasons, parameters within some cases are seemingly fluid and procedures are often opaque. There is a pressing need to add certainty and balance to the process through the pursuit of reform.

INTELLECTUAL PROPERTY RIGHTS

55. The protection of intellectual property rights has become more important as the UK and EU economy has become more knowledge based. In addition, the achievement of many policy goals both domestic and global, depend on comprehensive enforcement of IPRs. IPR abuse is widespread and affects a broad swath of industries, from sports apparel, to pharmaceutical, to everyday household goods, and therefore needs addressing.

56. The WTO agreement on Trade Related Intellectual Property Rights (TRIPS) is the key agreement setting minimum standards of IPR protection. The EU should also enhance the provisions of the TRIPS agreement by pursuing IPR issues through the various bilateral agreements it concludes with third countries. Allied to these agreements, other fora such as regulatory dialogues allow for the EU to work with third countries to ensure that IPRs are effectively enforced.

57. CBI believes that the enforcement of intellectual property rules is as, if not more, important than their passage into law. In many countries there are serious problems with both the intellectual property legal frameworks and with the enforcement capacity. For example, in China and Turkey, while intellectual property law largely conforms to TRIPS obligations, an enforcement gap leads to widespread abuse of intellectual property, while in India the framework for regulatory data protection especially in relation to pharmaceuticals is inadequate.

58. CBI appreciates that there can be very rare cases where the principles of IPR protection should be adjusted in order to take into account of very specific market conditions. For this reason, we can support the TRIPS waiver that allows for compulsory licensing of medicines within the context of acute public health demands. In other areas, however, such waivers are unnecessary and could prove counterproductive through providing a disincentive to innovate.

SERVICES

59. Services make up 77% of European GDP and employment, but represent only 28% of European external trade. This disparity presents a major opportunity for EU trade policy to make a substantial contribution to European competiveness and prosperity. Services liberalisation at the multilateral level under the GATS enables broad reaching liberalisation as it locks WTO members into both horizontal commitments, such as most-favoured nation treatment and non-discrimination, as well as specific sectoral commitments across the four WTO modes of services liberalisation. However, the complicated nature of services liberalisation means that progress within the GATS can be slow, and can be complemented by processes at the bilateral level.

60. As stated above, if the DDA is to be truly successful, for developed and developing countries alike, there is a need for rapid movement on the substantive elements of the third pillar of the DDA, services. Such progress, in the form of improved indications of requests and offers is required around the same time as or very rapidly after agreement on the core agriculture and NAMA modalities. A signalling conference as has been proposed by the EU would provide a forum within which this could take place. Such a process will allow the WTO membership to move toward binding current levels of market access and towards creating new market access as part of the final DDA package.

61. Given the importance of services to the European economy, the EU's bilateral agreements must ensure that services liberalisation is at least as ambitious as goods liberalisation, in keeping with GATS Article V, and that its service providers are guaranteed to be treated as a most favoured nation in light of possible future market opening.

62. Achieving market opening for services is considerably more difficult than for goods. Market access for goods is achieved in the most part through reduction in tariffs, which are normally controlled through trade ministries. Services liberalisation requires a more complicated and difficult process involving a range of government departments and regulators. This makes ongoing dialogues and processes both at the European level and the Member State level, important in facilitating the exchange of information, and the regulatory and legislative adjustments necessary to open up services markets.

THE FUTURE ROLE OF THE WTO

63. As the above evidence displays, CBI feels that the WTO must continue to play the central role in global trade policy. Bilateral agreements can sometimes complement trade opening at the multilateral level, but present their own negotiating challenges. They can never result in the same broad and consistent results or the legal certainty that exists at the multilateral level. The WTO may have to consider adjustments to take account of the growth in preferential trade agreements, and in order to learn the lessons of the DDA negotiating process. These are discussions that can usefully be had after the conclusion of the current negotiations. Effective global trade rules will become ever more important as the process of globalisation continues. The WTO is the institution to provide the framework for and deliver the benefits to the global economy.

February 2008

Letter from Cooperation Internationale pour le Développemnt et la Solidarité (CIDSE)

It is with regret that we were unable to meet with the Inquiry Team from the Sub-Committee on Economic and Financial Affairs and International Trade whilst they were in Brussels. We welcome this inquiry by the UK House of Lords into the trade policy of the European Union (EU), which we consider an important and timely initiative. Prompted by the questions set in the call for evidence, our Working Group on Trade and Food Security has prepared this written submission which sets out some of our concerns and proposals with regard to existing and possible future EU trade policy.

CIDSE is an international network of Catholic development agencies that has been advocating on trade issues, and in particular on the impact of rules governing trade in agriculture on developing countries, for the past decade. Ever since their establishment, international trade rules have always protected and promoted a global trade system that has constrained development in the South and maintained the economic dominance of the North. Failure to achieve an outcome to the Doha round of World Trade. Organisation (WTO) negotiations that would mark a genuine step towards the resolution of this longstanding injustice, as well as the proliferation of numerous bilateral trade agreements through which certain developed countries are using their economic and political weight to pressure developing countries into agreements that run counter to their development needs, prove that we have yet to see the emergence of sufficient political will to ensure that international trade contributes a just international order and to the sustainable development of the South.

The EU is an extremely important player in international trade, representing the largest exporter of goods and the second largest importer of goods in the world. It is the biggest trading partner for several countries such as India and China, and is the main trading partner for most of the African Caribbean and Pacific (ACP) countries—and for virtually all African ACP countries. Through its participation in the WTO, and through its bilateral and regional trade and cooperation agreements, the EU has the potential to significantly influence the thrust and content of North-South trade.

Many econometric studies have successfully and conveniently convinced policy makers that developing countries will automatically benefit from global agricultural liberalisation. This assumption, however, ignores issues with important implications for most of the poor developing countries: in particular, supply-side rigidities or lack of capacity to take advantage of market opportunities, as well as losses caused by the erosion of trade preferences. The EU, the US and other powerful trading blocs must take stock of the failure of the dominant paradigm of liberal trade policies as part of export-oriented economic growth, promoted as the model for developing countries by the WTO and the international financial institutions. This model does not provide, and has never provided, an automatic path to poverty eradication.

The current food price crisis proves once again the dangers of the liberal approach to trade being aggressively pursued by many developed countries, resulting in food insecurity, violations of basic human rights and increasing conflict and insecurity in developing countries. In addition, the increasing impacts of climate change, global population growth, continued urbanisation, rising incomes in industrialising nations, and changes in global consumption patterns are amongst the myriad of factors which must be taken into consideration when planning future food, agriculture and trade policies.

Have developing countries benefited from multilateral trade?

What are the future prospects ofmultilateral trade agreements?

What effect will the rising number ofbilateral agreements have on the existence and further development ofmultilateral agreements?

The forum and driving force for multilateral trade agreements, the WTO, doubled its membership between 1995 and 2005, increasing the participation of developing countries significantly. This has created a new dynamic in the organisation which has resulted in new challenges in terms of co-ordination and negotiation.

With decision-making based on a consensus system, so each member has equal decision-making power, the WTO is held to be the most democratic of all the international institutions with a global mandate. The Seattle Ministerial of 1999, however, revealed how even such a democratic system is vulnerable to manipulation by an elite group of powerful members. Subsequent events surrounding the Seattle Ministerial made it clear that issues of content, as well as process and organisation, would make an agreement on new multilateral trading rules particularly challenging.

In its recent publication, "Agriculture in Regional Trade Agreements: a comparative analysis of United States and European Union Agreements", CIDSE has raised the question of to what extent the processes by which trade agreements are reached influence their content and therefore their likely impact. The stagnation currently being experienced in multilateral negotiations highlights significant shortcomings in the WTO process and has prompted a proliferation of regional agreements. The EU and the US in particular have stepped up bilateral North-South talks with the aim of establishing free trade agreements with their neighbours and with other regional groupings. The EU is negotiating Economic Partnership Agreements (EPAs) with ACP countries, and Association Agreements with Central American States, all of which focus primarily on trade, while the US is conducting a series of negotiations with South and Central American countries. Today the US and the EU have concluded, or are negotiating agreements with countries on all continents.

These negotiations are, in general, far more unbalanced than those taking place within the WTO. This is because, although a number of large countries with emerging economies such as Brazil, South Africa and India may be involved in some cases, it remains that one of the negotiators is a great economic power (the US or the EU) and the other party is either an individual, or a group of developing countries. This has a significant impact on the pacing and content of negotiations in comparison with WTO processes. The big powers take this opportunity to place issues strongly contested, and eventually discarded in the context of the WTO, back onto the negotiating table. This includes, in particular, advanced Iiberalisation arrangements on agriculture and services, leading many critics to refer to such agreements as "WTO plus". With regard to the EU, it is worth noting that, whilst the pursuit of EPAs originates from the Cotonou Agreement (2000), and thus predates the Global Europe Agenda of the European Commission (2006), this does not exempt EPAs from the Global Europe policy which spells out an aggressive agenda for trade negotiations with the South, as well as restructuring within Europe. Other serious concerns raised with regard to certain forms of regional agreements, such as the EU EPAs, are that they threaten to weaken regional integration processes amongst countries of a similar level of development.

CIDSE's recent report provides evidence of the fact that regional trade agreements frequently result in arrangements that are of primary benefit to the greater economic power, and that instruments available to protect local markets and food security in developing countries are neither automatically nor fairly incorporated into such agreements. It could be concluded, therefore, that although regional trade agreements per se are no worse than multilateral trade agreements for growth and for the protection of food security, the difference in the political dynamics involved in regional trade agreements means that they will often result in more inequitable trade arrangements in which the ability of developing countries to promote their economic development and protect the food security of their population is further eroded.

Advanced liberalisation arrangements emerging from regional or bilateral trade agreements result in a range of negative impacts on the populations of developing countries. Import surges and increases in food prices affect the rural and urban poor the most, and whilst a number of national and international traders benefit from such agreements, many poor and smaller farmers are forced to leave agriculture. Whilst economic restructuring may in many cases be in the longer term interests of the developing countries in question, without the necessary compensation and adjustment arrangements in place such changes will simply mean an increase in the wealth of a few, and the economic displacement of millions. The correlation between the impact of trade agreements on the population of poor countries, and the continuation and increase of legal and illegal emigration from the South to the North is unquestionable. Although it is too early in the case of certain agreements to define clear lines of cause and effect, the existing evidence and trends cannot be ignored and merit significant research over the coming years.

Whilst bilateral and regional trade agreements offer an alternative to the multilateral standstill, it is not necessarily a positive one for developing countries and certainly not for small farmers in these countries. The situation of the latter is one of the most important criteria for CIDSE to judge whether trade agreements promote poverty reduction, as the rhetoric often claims, or are causing more damage to those who remain voiceless in these processes. Clearly, the pursuit of new trade agreements—whether in a multilateral or bilateral forum -should not purposefully or inadvertently reduce a countries' policy space in pursuing human and economic development and the fulfillment of its national and international obligations, including human rights, food security, and the protection of the environment. It is thus essential to emphasise the need to take nontrade issues into account in such processes.

The WTO offers—relatively speaking—a more transparent forum for decision-making in comparison to bilateral negotiations, and one in which developing countries have more negotiating leverage. Clearly, however, if the WTO and the multilateral system is to have an effective future, internal and external transparency, as well as participation and accountability will need to be enhanced and improved. Furthermore, contentious institutional issues such as the review of the dispute settlement mechanism, the single undertaking and the consensus principle, which have contributed to the protracted nature of the Doha Round, will need to be addressed in order to make these important features of the WTO more effective.

What steps should European trade policy take to help less developed countries reap the benefits ofglobal trade?

What should be the relationship between European trade policies and policies on development?

In addition to its important role in international trade the EU is also a major donor, accounting for around 90% of global commitments to scale up aid levels. For this reason the coherency of EU policy is extremely important, and is something that the EU has up until now failed to achieve. First and foremost the aim should be to make EU policies consistent with Millennium Development Goal no. 8, of achieving a global partnership for development, and with the Monterrey Consensus on financing for development, in order to ensure the coherent pursuit of an overall objective of the eradication of poverty in the world. This requires coherency in trade and development policies. Failure to increase the coherence of global trade rules with global development goals thus far has not only prevented developing countries from harnessing the potential of trade for their economic and social development, but has resulted in a trade model which prioritises markets over people.

Small-scale farmers from developing countries have suffered from the dumping of Northern exports on their local markets for decades. The EU must end dumping and trade-distorting supports that devastate agriculture in poor countries. The EU should substantially reform its agricultural subsidy regimes to ensure an end to the dumping of products on global markets. In the context of the WTO, all developed country Members States should commit to a short deadline to eliminate, through a tiered formula, all Amber Box supports (trade distorting subsidies). A clear frontloaded schedule should be set up for eliminating export subsidies and support, and a thorough review of the Green Box is needed to ensure that any remaining domestic support has minimal trade-distorting effects and contributes to public goods such as environmental protection and securing the livelihoods of small farmers. Disciplines are also needed on the Blue Box and Green Box, in order to thwart "box shifting".

With commodity prices in the daily headlines, the urgency of agreeing trade rules which promote agriculture and support the food and livelihood security of the world's poor is clear. The WTO Agreement on agriculture should be rebalanced by guaranteeing developing countries the right to protect their borders via quotas and/or quantitative restrictions as long as Northern subsidies remain. Least Developed Countries need special treatment, including duty-free, quota-free access to richer countries' markets, and exemption from any reduction commitments. In a joint letter addressed to Trade Ministers at the beginning of June, more than 200 civil society networks and organisations around the world, including CIDSE, emphasised the importance of policies that support sustainable small scale farming, safeguard local production from dumping, and allow poor countries the range of instruments, including quotas and tariffs, that are necessary to build resilient food and agricultural systems. Specific attention was drawn to two measures in the current Doha Round of trade negotiations, namely Special Products (SP) and Special Safeguard Mechanisms (SSM). Special and Differential Treatment for developing countries must constitute an integral part of all elements of the Agreement on Agriculture. However, the WTO agriculture modalities paper issued on 19 May, in contrast to issues in other areas where various views are accommodated, fails to reflect proposals made by the 40 plus developing countries,known as the G33, who have been championing these instruments. If the current text were adopted these instruments' objectives of promoting foodllivelihood security and rural development would be totally undermined. CIDSE therefore supports the G33 call for a revised draft which is more balanced, factual and comprehensive. Such a text is essential before any further steps in the Round should be made and certainly before any Ministerial meeting. ClDSE urges the House of Lords to call on the UK Government to support the G33 request for a revised text and for the UK Government to support an agreement which includes operable and effective SP and SSM provisions.

CIDSE asks the UK government to work to ensure the principle of coherence in the formulation of EU policies with its Member States" international obligations and commitments with regard to development and human rights. This includes consideration of all policies that influence the capacity of countries to mobilise resources for financing development, including development and trade policies. The EU cannot and should not continue to use its development policies to compensate for trade policies at the multilateral and bilateral and regional levels which neither ensure global food security nor sustainable development.

Included below is a summary of the main points raised. We thank you again for this opportunity to contribute our views to your inquiry and we look forward to the results of your work on these important issues.

SUMMARY

The EU, the US and other powerful trading blocs must take stock of the failure of the dominant paradigm of liberal trade policies as part of export-oriented economic growth, promoted as the model for developing countries by the WTO and the international financial institutions. This model does not provide, and has never provided, an automatic path to poverty eradication.

Issues of content, process and organisation have made agreement on multilateral trading rules particularly challenging. Bilateral and regional trade agreements offer an alternative to the multilateral standstill, but this is not necessarily a positive one for developing countries and certainly not for small farmers in these countries. Bilateral negotiations are, in general, far more unbalanced than multilateral negotiations and frequently result in arrangements that are of primary benefit to the greater economic power. These include advanced liberalisation arrangements on agriculture and services, leading many critics to refer to such agreements as "WTO plus".

Advanced Iiberalisation arrangements emerging from regional or bilateral trade agreements result in a range of negative impacts on the populations of developing countries. The existing evidence and trends cannot be ignored and merit significant research over the coming years.

The pursuit of new trade agreements—whether in a multilateral or bilateral forum should not purposefully or inadvertently reduce a countries' policy space in pursuing human and economic development and the fulfillment of its national and international obligations, including human rights, food security and environmental protection. It is essential to emphasise the need to take non-trade issues into account in such processes.

The eradication of poverty in the world requires coherency in trade and development policies. Failure to increase the coherence of global trade rules with global development goals thus far has not only prevented developing countries from harnessing the potential of trade for their economic and social development, but has resulted in a trade model which prioritises markets over people.

The EU cannot and should not continue to use its development policies to compensate for trade policies at the multilateral and bilateral and regional levels which neither ensure global food security nor sustainable development.

10 July 2008

1 According to European Commission Study, Study into the Future Opportunities and Challenges in EU-China Trade and Investment Relations 2006-10, released 15 February 2007, (http://ec.europa.eu/trade/issueslbilateral/countries/china/legis/index_en.htm) Back

2 Razeen Sally, "FTAs and the Prospects for Regional Integration in Asia", January 2006. Back

3 Investment protection is, of course, a critical issue for UK business. However, the UK has a wide range of satisfactory bilateral investment treaties (BITs) that cover post-establishment issues. Including such post-establishment provisions in FTAs inevitably risks lowering these standards and complicating the relative legal standing of BITs versus FTAs. Back

4 Thomas Hertel and L Alan Winters Poverty & the WTO: Impacts of the Doha Development Agenda (Washington DC: World Bank, 2006), Note that the welfare increases mentioned are static gains and do not take account of dynamic gains resulting from altered investment patterns and boosts to productivity. Back

5 Thomas Hertel and L Alan Winters Poverty & the WTO: Impacts of the Doha Development Agenda (Washington DC: World Bank, 2006). Back

6 The multi-agency initiative comprised of UNCTAD, UNDP, WTO, IMF, World Bank, and the ITC. Back