Memorandum by Mr Jonathan Peel, Member
of European Economic and Social Committee
1. INTRODUCTION
1.1 I very much welcome this opportunity
to submit evidence to your Lordships for this important and timely
Inquiry into European Trade Policy.
1.2 This evidence is being submitted in
my personal capacity as a UK Member of the European Economic and
Social Committee (EESC), on which I sit as part of the Employers/Industry
Group (Group I). As the appointed Rapporteur I am currently drafting
the Committee's Opinion on the "New trade agreements negotiations"
which result from the Commission's "Global Europe" Communication
of October 2006. As this draft is not due to be considered by
either the EESC "REX" Section or the EESC Plenary before
April, it is not yet an official EESC Opinion. This submission
is mainly based on the research I have undertaken in preparation.
A French Member from the Various Interests Group (Group III) is
co-rapporteur. My expert has been Mr Michael Hindley, a former
Vice-President of the European Parliament's "REX" Committee.
Previously I have given evidence to the sub-committee (then on
behalf of the UK Food & Drink Federation) after the failure
of the WTO Ministerial meeting at Cancún, which I attended
(as I did the WTO meeting in Hong Kong two years later).
1.3 This submission does not attempt to
answer all the questions posed by the sub-committee or each question
equally. Some are dealt with necessarily at greater length than
others whilst the question "what role can European trade
policy play to stimulate growth and create jobs in Europe?"
is dealt with throughout.
2. WHAT ARE
THE FUTURE
PROSPECTS FOR
MULTILATERAL TRADE
NEGOTIATIONS? IS
THERE STILL
A ROLE
FOR THE
WTO IN THE
21ST CENTURY?
2.1 The conclusion of the Doha Round remains
a strategic political necessity, despite its original deadline
having been passed over three years ago. Only negotiations at
multilateral level can change the underlying rules of trade, such
as decrease globally the overall levels of tariffs and subsidy
(notably in agriculture). There has been an exponential growth
in world trade since the founding of the GATT in 1947, set up
not least to try and avoid the levels of protectionism prevalent
before the Second World War, but each of the eight Trade Rounds
before Doha has taken longer to conclude than its predecessor,
the most recent (Uruguay) Round taking eight years. The Doha Round
was launched nearly seven years ago, but has as yet no clear end
in sight.
2.2 With its emphasis on development, the
Doha Round rightly aims to encourage trade among lesser developed
countries, and growth in "South-South" trade in particular.
The longer this takes to conclude, it is this opportunity to help
less developed countries reap the benefits of global trade that
is being lost. Bilateral agreements do not often include such
countries.
2.3 Trade offers the most effective, deepest
and most enduring means of building contact between countries
and regions, from which other contacts and ties will most readily
grow. Indeed international trade and investment are the key drivers
of European economic growth and of the external dimension of EU
competitiveness. As the "Global Europe" Communication
stresses, "our prosperity depends on trade".
2.4 The encouragement of trade, the lowering
of tariffs and the removal of other trade barriers globally, is
seen by many to be of critical importance in achieving widespread
acceptance of the more positive and beneficial aspects of globalisation.
The major emerging economic powers like China, Brazil and India—all
included in the Commission's new strategy—are adopting less
restrictive trading practices, a key sign of how the pace of globalisation
is growing exponentially.
2.5 Increased economic ties through increased
trade enables cultural and contacts at civil society level to
be strengthened considerably. Many believe these ties will also
promote and encourage the acceptance and development of best practice
in the promotion of Sustainable Development and in environmental
improvement as well as the development of higher social and employment
standards, although this is not yet a certain outcome.
2.6 Nevertheless as stated global trade
Rounds have become progressively harder to conclude successfully:
there would appear to be three causes in particular for the length
of the current Doha Round negotiations. First, there is the major
emphasis on agriculture (only introduced in the Uruguay Round),
where the EU, US and many other developed countries (notably Japan
and Korea) have major defensive interests. Some countries are
major agricultural exporters (eg Australia, Brazil, Argentina),
whilst others, such as Egypt, are net food importers. Others are
largely dependent on a single, protected, crop, such as sugar,
whilst a country like India has huge rural populations living
at or near subsistence levels. The complexity of the issues involved
makes achieving a balanced deal very difficult, but that is an
essential goal if trade benefits are to be achieved here too,
which gives clear evidence for the need to persevere with the
WTO (or a similar institution) in this century.
2.7 Secondly, with over 150 Members, reaching
agreements within the WTO has become far harder. Gone are the
days of the "Green Room" when the larger players could
come to an agreement which other Members then had little option
but to accept. Now, as Cancún showed, smaller or less developed
countries are able and therefore more likely to hold out for "better"
terms, which effectively means that the threat of a veto is never
far away. Equally that gives clear evidence of the need to persevere
if the gains from progressive trade liberalisation over the past
60 years are to continue to be won, particularly for less developed
countries. The concept of the Single Undertaking may therefore
need revisiting if only to prevent certain agreed advances (eg
the EU offer in Hong Kong to phase out export subsidies) from
being lost.
2.8 A third major reason for the length
of the current negotiations may well be their overall complexity,
notably agriculture formulae, which makes the detail and substance
harder for some negotiators from smaller states to understand
fully without detailed training, which may be outside their affordability.
The issues being more remote from the world outside the WTO as
well, this could lead to uneven pressures on negotiators from
vested interests. However, a notable impression is that more commercially
oriented pressures for a successful outcome are far less in evidence
now than during the Uruguay Round. Perhaps as many of the key
goals of industrial trade liberalisation have already been achieved,
this has mainly left the more esoteric or fundamental ones outstanding.
3. MULTILATERAL
VERSUS BILATERAL
NEGOTIATIONS
3.1 Yet provided that bilateral agreements
are, and are seen to be, compatible with multilateralism these
may eventually strengthen the latter—provided that they
are confined to providing support for the multilateral approach
and do not thwart it.
3.2 In its "Global Europe" Communication,
the Commission reaffirmed its overall commitment to multilateral
trade liberalisation. It stressed that this initiative was not
in place of multilateralism but a commitment to keeping momentum
going. This new initiative was clearly the result of the lack
of practical progress in the Doha Round. As such it is welcome
as a statement of intent to pursue a liberalising agenda. These
new FTAs must "serve as a stepping stone, not a stumbling
block for multilateral liberalisation", as the Communication
states.
3.3 At the time of publication of the Communication,
it very much appeared that the Commission was sending a strong
signal that the EU had lost faith in the multilateral process
and were unilaterally turning their backs on progressing the Doha
Round negotiations. This impression was strengthened by the clear,
renewed emphasis both on the more "middle income" trading
partners (as opposed to "ldcs") as well as on the three
outstanding "Singapore Issues", namely competition,
investment and public procurement. These the Commission aimed
to reintroduce into these negotiations, having been forced to
drop them from the Doha agenda during the WTO Ministerial meeting
in Cancún, not least due to opposition from developing
countries.
3.4 In retrospect the Commission's initiative
appears to look more practicable. There is still a lack of clear
progress in the multilateral agenda, with the original deadline
for modalities now five years ago, and a very real sense that
unless some sort of deal is now reached quickly there will be
a further long delay. Within 12 months there will be a new US
President, whilst the current Commission term of office is due
to expire in 2009—when elections in India are also due.
3.5 Gains made bilaterally can stimulate
the multilateral process as a result of the more in-depth discussions
and the closer alignment of positions brought about by these bilateral
approaches. The bilateral approach may also allow more respect
to regional and national differences than is the case with multilateral
agreements which per force follow a broader approach.
3.6 The incompatibility of bilateral agreements
with multilateral commitments under the WTO may only be theoretical
for as yet none have been reported for investigation. The complexities
here have been very clearly set out by Professor Patrick Messerlin,[8]
who makes the point that human (and financial) resources are so
scarce in some small states and regional configurations that multilateral
or bilateral negotiations is a stark and critical choice. Indeed,
the Commission itself may find difficulty in finding sufficient
resources to progress the Doha Round negotiations if these were
to resume in depth with a number of key FTA negotiations at a
critical point.
3.7 It is essential, therefore, that the
Commission negotiates FTAs that can be shown to provide real added
value. There must be a qualitative change in the approach to this
new series of negotiations: simply to try to repeat on the bilateral
level the policies which have not succeeded at the multilateral
level is insufficient. However, the inclusion of the outstanding
"Singapore Issues" seems to be readily acceptable to
S. Korea, India and ASEAN in the negotiating briefs for these
three proposed FTAs. Together with Trade Facilitation (the fourth
"Singapore Issue") significant, beneficial progress
can be made here.
3.8 The Communication specifically refers
to a number of potential negotiations, including:
— Partnership and Co-operations Agreements,
notably with China, Russia and the Ukraine.
— New Free Trade Agreements, notably
with S. Korea, India and ASEAN, although the latter two had already
been proposed at earlier Summits.
— Continuation of existing slow-moving
negotiations, including Mercosur and the GCC.
— Central America and the Andean Community,
where developmental goals are also being sought by the EU.
3.9 FTAs are by no means new to Europe.
In the past they have been used to bolster economic and regulatory
ties with many neighbouring countries and to support the EU's
development objectives (a key goal of those agreements now proposed
with Latin America). Most of the proposed new agreements are with
Europe's "main trade interests", the Communication making
it clear that "the key economic criteria ... should be market
potential (economic size and growth) and the level of protection
against EU export interests (tariffs and non tariff barriers)".
As the Communication also notes, the EU has to take account of
negotiations between other major trading countries and some of
the states in question, not least the growth in the number of
FTAs concluded by US negotiators, notably with S Korea, Central
America and the Andean Community. With the latter, the EU objectives
as stated above go much wider than the strictly commercial objectives
of the agreements concluded by the US.
4. AREAS WHERE
THE PROPOSED
EU FTAS MAY
ADD VALUE,
AND STIMULATE
GROWTH AND
JOBS IN
EUROPE
4.1 These three proposed FTAs are with countries
and regions of very different levels of development and with very
different problems. The Koreans wish to open up their economy
and have already concluded such an agreement with the United States.
There is warm interest in India for concluding an FTA with the
EU, where an ambitious deal that liberalises trade would offer
significant economic benefits to both sides. There are of course
wide variations of development within India itself. The negotiations
with ASEAN are further complicated due to the lack of developed
structures between its ten member states as well as the very different
levels of development and capacity within ASEAN, whose three "ldc"
(least developed countries) members may not actually be included
in the negotiations.
4.2 The EU will need to appreciate that
in each case the negotiating partner will want to proceed at a
pace and manner in keeping with their own traditions. There are
wide differences in approach between Europe and Asia in many areas,
which need to be respected. The EU cannot extend its standards
without negotiation. However, opportunities to add value through
FTAs whilst awaiting the outcome of the broader multilateral approach
should exist in the following areas:
4.3 Technical barriers to trade in
many countries these now constitute a greater impediment to trade
creation and economic growth and pose more barriers to market
access than those provided by tariffs (not least as many countries
have now unilaterally reduced tariffs to develop trade and investment).
In this regard standards, particularly in the field of human,
animal and plant health, are regularly a major point of contention,
especially as the EU maintains some of the highest standards in
the world. To achieve results and avoid suggestions of "back-door"
protectionism here, the EU must be prepared to intensify the training
and wider capacity building already available and otherwise build
on the success of its existing Trade Related Technical Assistance
(TRTA) programmes.
4.4 Tariff barriers will be a key
issue in each of the negotiations. India in particular has some
very high tariffs, backed by further duties, notably the Additional
Duty and the Extra Additional Duty, with in some cases an aggregate
tariff of over 500%.[9]
Lack of harmonisation among ASEAN countries will be a major problem,
with wide differences in applied tariff levels, and with discriminatory
excise tax systems.
4.5 Negotiating the removal of as many non
tariff barriers (NTBs) as possible must be a priority, although
here the underlying problems will be as a result of overgrown
bureaucracies, stifling levels of local regulation, lack of alternative
employment for superfluous officials and even corruption. The
WTO estimates, for example, that 93% of imports into India face
NTBs of some kind, compared with just 22% for Brazil.[10]
NTBs are also high in ASEAN countries, but with wide variations
in extent too (for example affecting 31% of imports into Indonesia,
against just 2% in Singapore). For S. Korea the figure is 25%.
4.6 Huge potential gains are at stake for
each negotiating party in services—possibly the most quantifiable
in trade terms. Free movement of capital and finance will of course
be of key importance here if all parties are to gain maximum benefit,
especially negotiating an end to key Indian restrictions (including
telecom, retail distribution, banking and insurance, and their
ban on legal services). Major problems arise particularly over
the movement of people, notably in "Modes" 3 and 4.
To resolve these successfully will be especially challenging,
including the granting of more open access to individual EU Member
States for qualified professionals from each trade partner in
turn. This may prove easier with specific FTAs.
4.7 EU SMEs would particularly benefit from
agreements on trade facilitation, especially in advance
of a final Doha agreement here. SMEs could gain more in the short
term from an ambitious trade facilitation agreement than from
tariff reductions. Small businesses are the most exposed to customs
trading costs and often do not have necessary critical mass (in
terms of economies of scales, size of sales, distribution networks,
transport facilities, etc.) to deal with high customs costs arising
from administrative delays, corruption and other factors, with
the result that potential markets are lost. Of particular benefit
would be agreements to ensure accelerated and simplified procedures,
procedures for legal recourse and appeal, publication of trade
regulations, minimisation of fees and charges, and above all the
establishment of a "single window"—an exponentially
increased use of IT for customs procedures, especially where several
different government departments require virtually identical information.
4.8 This will be of particular importance
in the negotiations with India. According to the World Bank,[11]
it takes an average of 10 days to export goods from India (7 from
Brazil) and an average of 41 days to import goods into India (against
24 for Brazil). There is as well a wide variation between ASEAN
members, especially between Singapore and Thailand.
5. WHAT BENEFITS
COULD BE
GAINED BY
INCLUDING THE
THREE "SINGAPORE
ISSUES"?
5.1 Public, or Government procurement, as
the EU states, is an area "of significant untapped potential
for EU exporters". The EU should look to emulate its existing
FTA with Chile which sets the Government Purchasing Agreement
(GPA) of 1994 (the renegotiation of which is not part of Doha)
as the minimum standards to be sought, and which should be backed
by the EU offering technical assistance and other "capacity
building" if required to enable other parties to comply.
The US has been looking to achieve this goal too, but that will
not be easy here, especially with India.
5.2 Improving investment conditions in third
countries will be important in ensuring growth both in the EU
and in the "receiving" countries. Many of the EU's key
trading partners maintain a high degree of protection from foreign
direct investment through discriminatory regimes, authorisation
rules that involve major administrative and/or bureaucratic costs,
whilst in addition there are too many sectors that are entirely,
or partially, inaccessible to European investment, especially
in the services sector (notably in India as described above).
The key to the negotiations will lie with the removal of unnecessary
restrictions, and to ensure that the negotiations and the process
then in place are fully transparent and that the resulting authorisation
procedure within the FTA partner should be fair, quick and efficient.
The US FTA model also involves a comprehensive approach, including
investor protection.
5.3 The EU's aim to include some provisions
on competition in FTA negotiations is welcome, although results
will be hard to achieve. Many of the problems regarding investments
and trade facilitation stem from the lack of adequate competition
regimes (or by a serious lack of implementation) in other countries,
which together with resulting market distortions impede and distort
global trade and investment flows. These all remain fundamental
issues of global governance. The existing EU agreements with South
Africa and Chile both provide for co-operation between the Commission
and the local Competition authority.
6. IPR
6.1 The emphasis in the Communication on
strengthening IPR provisions is welcome, in particular its offer
of support to SMEs and others trading with the emerging economies.
Developing the EU's strategy for protecting intellectual property
rights and strengthening enforcement activity is essential if
the EU is to meet its aim to reduce IPR violations and the production
and export of fake goods. Enforcement is key here. The TRIPs agreement
must be fully implemented by FTA partners: a primary objective
for the EU in concluding these FTAs should be to obtain solid
commitments for concrete enforcement of existing IPR legislation
together with sufficient control and measurement of results achieved,
rather than start afresh. Europe's Research and Development capacity
and capabilities, rightly emphasised in the Lisbon Strategy, are
a significant factor in maintaining EU competitiveness in a world
where strong economic challenge is increasingly coming from outside
Europe.
7. DEVELOPMENT
AND CLIMATE
CHANGE
7.1 As Sustainable Development includes
economic, social and environmental considerations the inclusion
of environmental considerations in the EU's brief for these negotiations
is timely. One possible route would be to extend the special incentive
arrangements relating to the environment in the EU's current "GSP
Plus" package, already in effect with Latin American but
with notably few countries in Asia, to all negotiations. The ratification,
implementation and monitoring of the relevant international conventions
could form the basic starting point, backed by appropriate financial
assistance where necessary, dependent on the levels of development
and the institutional capacity for effective implementation of
the countries concerned.
7 March 2007
8 Jan Tumlir Policy Essay (ECIPE, 2007). Back
9
CBI Briefing Paper, March 2007. Back
10
WTO "Market access: Unfinished Business-Post Uruguay round
Inventory", 2003. Back
11
World Bank, "Doing Business 2007"; September 2006. Back
| 
