Memorandum by Glenys Kinnock MEP, European
Parliament
MULTILATERALISM AND
BILATERALISM
1. Currently, the EU's over-riding priority
is to ensure a successful, and timely, conclusion to the DDA negotiations.
But DG Trade, it seems, remains willing to take new initiatives
and risks that could detract from the EU's ability to achieve
that goal. On 4 October 2006, the European Commission adopted
a Communication setting out its new trade policy strategy Global
Europe: Competing in the World. This represents a contribution
to the EU's Growth and Jobs Strategy, but more significantly,
a desire to be part of the race for Free Trade Agreements.
2. In the current situation, some of Europe's
main developed and developing trading partners are increasingly
engaged in bilateral and regional FTAs. The Commission proposes
to conclude a series of agreements with partners, mainly advanced
developing economies, for example, ASEAN, South Korea, Mercosur,
India, Russia and the Gulf Cooperation Council.
3. This kind of approach is entirely consistent
with the EU's trade practices since the mid 1990s. This has involved
the adoption of a twin-track approach—multilateral and bi-lateral—intended
to promote a single, integrated trade policy agenda. If that agenda
gets blocked in one channel (the multilateral) then it is taken
up in the other channel (the bilateral). Most recently this approach
was demonstrated in the EPA negotiations, when, following the
rejection of negotiations on a wide range of trade related issues
at the Cancun WTO Ministerial, and again at the Hong Kong WTO
Ministerial, the EC began to aggressively advocate these issues
in an EPA context, with, in the immediate months following Ministerials,
"new generation issues" (particular services and investment),
becoming the focus of EU presentations in meeting after meeting
on EPA negotiations. The EC was and is still consistently advocating
a WTO+ approach.
4. It is maintained that the EU's new trade
strategy "will help pave the way for the next generation
of global trade liberalisation, ensuring that FTAs are a stepping
stone for progressive liberalisation, within the WTO system"
(Mandelson). But do FTAs really strengthen the multilateral system?
Surely the multilateral trading system continues to be the most
promising venue for broad-based and non-discriminatory trade liberalization
and should continue to be the EU's priority and preference. Providing
equal opportunities for trade would enable both EU members, and
others, to exploit their comparative advantage in ways that are
not narrowed or distorted by bilateral and regional preferences.
5. With respect to bilateral and regional
free trade agreements, there should be demands for rigorous evaluation
of the likely impact on EU members, chosen partners and third
countries that might suffer erosion of their preferences. There
may, indeed, be cases in which the interests of the EU and potential
partners could be served through well-tailored bilateral FTAs
without harming others but they are likely to be rare.
6. The EC's current list of criteria for
choosing FTA partners inevitably excludes least developed and
marginalised countries, and the implications of this "spillover
effect" must be addressed before bilateralism is pursued.
The difficulties of bilateral negotiations, and the risk of unintended
side effects, suggest that we should adopt a cautious and case-by-case
approach to any proposed negotiations.
EU TRADE POLICY
AND INTERNATIONAL
DEVELOPMENT
7. The overall aim of the EU's trade strategy
is to support internal processes of reform and to work towards
the more effective engagement of the EU economy with the challenges
of globalisation.
8. It is clear that for the EU, particularly
in the agricultural sector, internal reform and restructuring
comes first, and market liberalisation follows. This is why complete
Duty Free Quota Free (DFQF) access for rice, bananas and sugar
were deferred under Everything But Arms (EBA) in favour of least
developed countries. EU rice sector reform was only agreed in
2003, sugar sector reform was only agreed in 2005, while proposals
are only now on the table for the reform of the internal EU banana
regime.
9. At the appropriate juncture (i.e when
internal reforms are approaching completion or are firmly in place),
and only at the appropriate juncture, does the EC abandon systems
of tariff based protection domestically and seek to promote greater
market openness in those markets where European companies feel
themselves best placed to compete. Eg: The EU-South Africa Free
Trade Area Negotiations: In 1994 the South African government
proposed an approach to liberalisation of food and agricultural
product trade which accepted as its starting point "full
liberalisation in principle, with a limited number of exceptions
for sensitive products". The EU firmly resisted this approach
because at that time the process of CAP reform was only just beginning
and the EU had a long way to go in its internal reform processes
before it could contemplate such an open approach to trade liberalisation.
The net effect of this EU position was that after five years of
hard negotiations South Africa was able to secure the elimination
of duties of only 61% of its agricultural exports to the EU.
10. Only after 14 years of CAP reform, which
has seen the EU shift assistance for its agricultural and food
products sector from support for agricultural prices to support
for agricultural producers, has the EC become able to advocate
such an approach.
11. As the expansion of EU financing of
agricultural programmes since 1992 illustrates, the EU approach
to the creation of an environment of free trade is limited to
the elimination of tariffs and those trade related areas to which
the EU gives priority. In 2005 the OECD estimated that farmers
in developed countries received $279 bn in subsidies—an
amount equivalent to more than 60% of the GDP of all sub-Saharan
African countries combined.
12. The UK has taken forward the issue of
CAP reform as part of the wider debate on the future of Europe.
The UK Presidency achieved a consensus on a general review of
the EU budget structure at priorities—an important part
of the Budget review will be the CAP. The UK's starting position
has never been that it should simply be abandoned or slashed overnight
but that we need a properly planned process of reform.
13. The EC approach evidently does not extend
to the elimination of all forms of agricultural support which
have an impact on production decisions and trade outcomes. The
EU argues that this would undermine its sovereign right to set
broader social and environmental policy priorities.
14. The EU claims that its new forms of
agricultural support are "non-trade distorting", despite
the fact that its own reports on the cereals regime reveal that
in the absence of direct aid payments most EU cereal farmers would
"reduce their arable farming by at least 50%". The EC's
approach to free trade is therefore biased while its defence of
this policy is unconvincing.
EPA NEGOTIATIONS:
TOOLS FOR
DEVELOPMENT?
15. I have been following the EPA negotiations
from the outset. Negotiations started with the best of intentions—to
agree WTO compatible trading arrangements that would contribute
to poverty alleviation, development and regional economic integration.
The stated aim was to replace the market access arrangements that
had been in place since the mid-1970s, but had not had the intended
impact on expanding trade and contributing positively to economic
growth in ACP countries. But by the December 2007 deadline, conflict
and contention surrounded the process. The Commission negotiators
had approached the talks on EPAs as if they were conventional
free trade area negotiations focused on market opening, rather
than as tools for development. One senior Commission official
described DG Trade's approach to me as "the worst PR disaster
in years". With the exception of the Caribbean, the depth
and breadth of agreements have had to be scaled back, with WTO-compatible
interim deals on mainly goods trade being signed in haste. The
parties will now continue negotiations towards more comprehensive
EPAs.
16. In December 2007, ACP Ministers, including
those that had already initialled interim deals, collectively
expressed "serious concern" over the status of EPA negotiations.
They "deplored the enormous pressure that has been brought
to bear on the ACP states by the European Commission". Particular
concerns were expressed at "the declaration by the European
Commission that the non-conclusion of interim trade agreements
could lead to serious disruption of the ACP-EU trade". In
this context ACP Ministers underlined the importance of regional
markets and emphasised "the need to prioritise regional integration
processes within the ACP, over free trade with the EU".
17. Perhaps the biggest casualty has been
regional integration. It has been reiterated time and time again
that regionalism is one of the key components of a progressive
development strategy, indeed the six ACP negotiating groups were
expected to evolve into free trade areas or customs unions. But
as the deadline drew closer, the Commission's policy of concluding
separate deals with individual states or groups of countries,
effectively splintered the regions, creating tension and suspicion
between them. By pressing countries to sign individual or sub-regional
EPAs, many ACP countries have now committed themselves to liberalising
to the EU before they have decided what to liberalise to each
other (in the case of Common Market for East and South Africa,
for example), leading to defensive between regional neighbours
and the danger of greater barriers to regional trade.
18. We still do not have a clear picture
of what has been concluded by each country and how. But it certainly
appears that EPAs will end up closely resembling the EC's ambitious
bilateral agreements, with very few development concessions thrown
in. It has been estimated by the International Food Policy Research
Institute (IFPRI) that a full implementation of EPAs in 2035,
EU exports to the ACP would actually increase by €29.4 billion
while ACP exports to the EU would fall by €6.5 billion.
19. The lessons from the lengthy time-frame
the EU required for its own internal adjustment to prepare for
market opening, and the vast financial outlays required in support
of this process, have not been influential in determining an appropriate
content and time-frame for trade liberalisation for African countries
under the proposed EPAs. In the EU, there is €55 bn a year
to support the process of change and yet ACP agricultural producers
are supposed to restructure their economies and to cope with a
liberalised trading environment in circumstances where they are
drought prone, flood prone and still using hoes and donkeys to
plough their fields. These are all realities we have to take into
account when pursuing market liberalisation and trade agreements
with developing countries. The European Commission must engage
with the ACP in an open discussion about those practical realities
so that we can find practical solutions.
20. Concerns about the initialled interim
agreements focus on the following: Pace and scope of ACP market
opening; Scope of EU market opening (Rules Of Origin); Inadequate
safeguard clauses for ACP countries; Services and investment;
Regional integration; Commitments on development; Dispute settlement,
Monitoring, Evaluation and Review Mechanism. The ACP were heartened
by what they perceived to be a commitment by President Barroso
at the EU-Africa Summit in December 2007, to provide opportunities
for adjustment and re-assessment of the interim agreements. Despite
this, the extent to which these interim trade can be revised remains
uncertain. Recent declarations by Commissioner Mandelson suggest
that he does not want to reopen and renegotiate interim deals.
This is felt to be inconsistent with the fact that, for instance,
the Central and West African deal contains explicit reference
to the possibility of adjustment at regional level and similarly
Namibia's contains annexed reform to amendment. In the interests
of parity and consistency, and where some have secured concessions
actually denied to others, it should be agreed that such provisions
can be integrated, if so desired, into ACP countries or groupings
final EPA.
21. Now is the time for building bridges
and for a fair process involving a considered assessment of the
content of the interim deals. It also means seeking ways to support
identifiable priorities on capacity, on regional integration,
and development concerns. There has to be a more participatory
approach, more transparency, respect and understanding for ACP
regional and national interests. It must be clear too that development
finance is not dependent or conditional on the signing of an EPA
so that finally there is provision for adjustment of interim agreements
including the right to bring into one EPA what has been agreed
in another.
22. In order to successfully fulfil its
mandate to conclude Economic Partnership Agreements with the ACP
that are first and foremost tools for development, building on
and strengthening the regional integration process, the EU needs
to work on a development friendly trade package.
23. We urgently need a further opening of
EU markets to ACP products. In order to significantly increase
exports from ACP to developed country markets, access should be
extended to all ACP products and all ACP countries, including
non-LDCs. Agricultural products are particularly important as
agriculture is the main occupation in ACP countries. It is essential
that these benefits apply to goods for which ACP has good export
potential, such as textiles and apparel, footwear, sugar, rice,
fruits and vegetables. In order to truly grow through trade, Africa
must be able to add value to its own goods, and not remain a source
of cheap primary products or basic commodities. It is also essential
that trade privileges are extended to the larger economies which
are not LDCs so that they become drivers for growth across the
continent.
24. The EU should address the need for reform
of rules of origin. The complexity and strictness of the rules
of origin requirements, especially in the EU, make these programmes
extremely difficult to access and add an average of 10% to export
costs. The amount of ACP content required by these programmes
also varies, making it complicated for ACP producers to export
to different markets. Both the Commission for Africa and the World
Bank recommend a low value-added rule of origin of 10% which would
allow African countries to import low-cost inputs, contribute
value to the final product and still qualify for duty free access.
These types of adjustments would cost developing economies very
little and make ACP products much more competitive.
25. The EU should maintain support for "less
than full reciprocity" for developing countries in all trade
negotiations. ACP should not liberalise abruptly. Like other regions
(eg the EU), it should plan a gradual transition during which
firms can adjust production and governments can adjust revenues.
26. Through the DDA, the EU should reduce/eliminate
the subsidies that harm ACP producers. Priority should be placed
on those subsidies which have the greatest impact on the ACP,
including rice, sugar, poultry, cotton, and fruit and vegetables.
In 2013, 55% of the total European budget will be spend on either
agriculture or subsidies for the richest countries in the European
Union. The UK needs to work with like minded partners in the EU
to ensure to reform the EU budget so that it spends our money
on what really matters to people.
27. The EU must undertake enhanced Aid for
Trade commitments that address ACP supply side constraints. Development
aid has been promised by the Commission as an integral part of
EPAs. Indeed Europe's proposals will be very costly. Tariff liberalisation
will cause substantial loss of customs revenue. Conservative predictions
suggest that the Gambia, for example, would lose about 22% of
government revenue as a result of loss of import tariffs under
an EPA. In addition, the EU's proposals would place a costly administrative
burden on ACP economies. A recent Commonwealth Secretariat study
estimates that the overall cost of adjustments for the entire
ACP would amount to €9.2 billion. The EU claims that money
for the 10th European Development Fund, covering the period 2008-13,
and pledged at €22.7 billion will be enough to cover both
ongoing development assistance plus additional EPA adjustment
costs. The Member States promised a further €1 billion a
year but I think we can fairly assume since it has not yet been
committed it is unlikely to ever materialise. ACP governments
have put pressure on the EU to make binding commitments in the
legal text of each EPA to provide the resources necessary. However,
the EC argues that EPA negotiations are about trade, not development
aid.
28. Special provisions must be effectively
sequenced and coordinated between trade policy and poverty alleviation
strategies so that there will be real and positive effects. Currently,
intra-African trade accounts for less than 10% of the region's
exports, which trade with Europe accounts for approximately 40%
of exports. ACP countries must have the ability to develop trade
and poverty alleviation strategies that not only enhance trading
relations with developed countries, but also encourage stronger
and more complex regional trading relationships.
23 February 2008
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