House of Lords - European Union

Select Committee on European Union Written Evidence

Memorandum by International Chamber of Commerce (ICC) United Kingdom

1. The International Chamber of Commerce ("ICC") is the largest, most representative business organisation in the world. Its thousands of member companies in over 130 countries have interests covering every sector of private enterprise. The United Nations, the World Trade Organisation ("WTO"), and many other international intergovernmental bodies are kept informed of the views of international business through ICC. ICC United Kingdom ("ICC UK") is the British affiliate of ICC. Members in the UK include 17 of the top 20 FTSE companies, many smaller firms, law fmns and business associations.

2. ICC UK takes an active role in policy discussions on international trade and investment, and we very much welcome the opportunity to respond to this call for evidence. This submission has been produced in consultation with the membership of ICC UK and is based on existing positions formulated by ICC. In the interests of brevity, this response is focused on a number of key issues falling within the terms of the inquiry. Should you wish any expansion or clarification of our views we would be happy to respond to any written queries and also to provide oral evidence to the Committee.

What are the future prospects for multilateral trade negotiations? What effect will the rising number of bilateral agreements have on the existence and further development of multilateral agreements?

3. The Doha Development Agenda ("Doha Round") has progressed slowly, with periodic crises and a string of missed deadlines and opportunities. Most recently, several months of intensive consultation and negotiation on agiicultural and industrial tariffs, on the basis of draft modalities texts circulated in July 2007, failed to produce the breakthrough which could have heralded the conclusion of the Doha Round in early 2008. While this is clearly disappointing, ICC believes that a good deal can still be struck even at this desperately late hour—particularly as there are many hard-won, trade-enhancing measures already on offer. What is needed now, above all, is decisive leadership at the highest political level to facilitate rapid progress on the contours of a balanced package of measures which substantially improve market access in agriculture, industrial products and services, advance the important task of trade facilitation, and strengthen WTO rules. The appearance of revised modalities on agricultural and industrial tariffs in February 2008 should be regarded as the starting gun for the last great effort to bring the Round to a conclusion in 2008.[12]

4. Beyond the very substantial gains which would accrue from a balanced Doha Round agreement,[13] it is also essential that WTO members give due consideration to the long-term importance of safeguarding and strengthening the multilateral trading system. This system has shown itself to be what is arguably the greatest success story of international cooperation and represents a major driving force for growth, job creation, and wider consumer choice. It also plays a vital role in helping to keep in check the ever-present threat of protectionism and fragmentation—a particularly salient issue at the current time when major imbalances in the international economy and concerns over a possible global economic downturn are fuelling protectionist sentiment. The European Union ("EU") should therefore continue to commit to the multilateral system as the central plank of its trade policy.

5. While the number of preferential trade agreements ("PTAs") notified to the WTO has increased in recent years,[14] these figures should be viewed in an appropriate context so as to avoid overstating the importance of PTAs to the international trading system. In this connection, it is particularly instructive to note that:

(i) more than 20% of the current PTAs notified to the WTO consist of intra-European trade agreements which are a "mechanical" product of the EU's single market programme. As a consequence, changes in intra-European policy have a disproportionate and distortionary impact on the number of PTAs notified to the WTO. This is perhaps best exemplified by the 2004 enlargement of the EU to encompass 10 Central and Eastern European states which lead to 12 bilateral agreements disappearing from the WTO scoreboard at a stroke.

6. Nevertheless, the intent shown in the last two years by the European Commission to negotiate more bilateral agreements raises an important question as to whether this change of (political) emphasis can be reconciled with the EU's primary commitment to multilateralism in trade.[16] While empirical evidence is too limited to draw strong conclusions as to exactly how PTAs affect the multilateral system, it would seem fair to suggest that regional or bilateral agreements can be substantial complements to the WTO system—enabling parties to conclude levels of liberalisation beyond the current multilateral consensus, and providing opportunities for trading partners to address specific issues that do not register on the existing WTO menu. Moreover, by eroding existing preferences and acting as laboratories of international cooperation, PTAs can serve as the "building blocks" of future rounds of multilateral liberalisation.

7. In this context, the key question is not so much regionalism or multilateralism, but how best to ensure that the two are compatible.[17] To this end, the new WTO transparency mechanism adopted in December 2006 should be viewed as a welcome institutional initiative to encourage countries entering PTAs to adopt rules that lead to greater complementarity with existing multilateral arrangements. Specifically, by mandating the WTO Secretariat to prepare a report on notified PTAs, the mechanism should function to inform the rest of the WTO membership to some of the rules and practices in PTAs that adversely affect the integrity of the multilateral system as a whole. A strengthening of the WTO rules disciplines under the Doha Round in particular the conditions imposed by GATT Article XXIV on countries entering into free trade agreements—would further enhance the integrity of the multilateral system and the principle of non-discriminatory trade.

8. To complement developments at the international level, and having regard to the 2001 Gothenburg Council Conclusions,[18] ICC UK suggests that the European Commission should systematically undertake an impact assessment of any proposed E PTA, having particular regard to possible effects on the multilateral system. Specifically, this should encompass an evaluation of: (i) consistency with the principles of transparency and predictability under the WTO rules oforigin; (ii) compatibility of regulatory structures and standards; and (iii) the EU's administrative capacity to manage concurrent bilateral and multilateral trade negotiations.

What should be the relationship between European trade policy and policies on development, climate change and depletion of natural resources?

9. In view of growing global concerns related to international climate change, there is a strong case for creating an open global market in environmental goods and services so as to accelerate the diffusion and deployment of clean energy and "climate friendly" technologies. This process of liberalisation can be best achieved through the Doha Round trade and environment mandate which includes a commitment to reduce or eliminate tariff and non-tariff barriers to trade in environmental goods and services. Although these negotiations have regrettably faltered to date, achieving a far-reaching and flexible deal on this dossier should be viewed as an underlying imperative of the EU's climate change strategy. Should a multilateral agreement ultimately prove elusive, the E may wish to give consideration to the possibility of negotiating a plurilateral WTO agreement on low emission goods similar to those which have already been agreed in sectors such as information technology and government procurement.

10. As Commissioner Mandelson has noted, while the global response to climate change can be strengthened by the right trade policies, it can also be weakened by the wrong ones.[19] In this connection, the level of attention paid in recent months to the idea of imposing taxes on carbon intensive imports is a cause for particular concern. Even if such a tariff could be justified under current WTO rules, it is clear that leaving the door open to pursuing a punitive approach to international cooperation on climate change is politically clumsy—particularly at a time when the Parties to the UNFCCC are committed to negotiate a new international agreement on climate change by 2009. More fundamentally, restricting imports easily leads to covert protectionism, which would adversely impact global economic growth while doing little to advance the EU's climate change objectives. We would urge European legislators to give much further consideration to these issues in the context of the European Commission's recent legislative proposals on climate change and energy.

11. To the extent that there are concerns regarding the international competitiveness of European industry in view of the carbon disciplines imposed by the EU's ambitious commitments to mitigate climate change, we suggest that these should be addressed through a recalibration of the proposed methodologies for allocating carbon allowances and/or an easing of restrictions on the use of offset credits in the EU Emissions Trading System post-2012. The EU may also wish to consider how positive sanctions—such as the offer of access to finance for technology transfer—could be employed to encourage developing and emerging economies to enter into future international/sectoral agreements on climate change.

12. With a view to ensuring that trade and climate change objectives are advanced in a mutually supportive manner, we would also urge European policy makers to give further attention to the benefits of promoting more intensive high-level engagement and interaction on the issue of trade and climate change at the international level. Having regard to the recommendations forwarded by trade ministers at the recent UN Convention on Climate Change, specific steps should include: (i) encouraging future hosts of UNFCCC meetings to hold further dialogues of trade and economic ministers; (ii) strengthening and enhancing engagement between the WTO and UNFCCC; and (iii) further empirical study of the interface between trade and the environment.

Have developing countries benefited from multilateral trade agreements? What steps should European trade policy take to help less developed countries reap the benefits of global trade?

13. Open avenues for trade and investment are essential to enable developing countries to seize opportunities for accelerated and sustained development. Whilst income disparity between developing and developed countries is still large, broader access to information and technology-laden capital and imports offers developing countries the ability—and moreover the incentive—to narrow this gap. One recent World Bank study fmds, for example, that openness to trade and investment has facilitated rapid technological progress leading to income growth and poverty reduction in many developing countries over the past two decades.[20]

14. In addition to the substantial economic and societal benefits which accrue to developing economies from integration into the world economy, the rules-based multilateral system plays a vital role in insulating developing countries from the vicissitudes and "power politics" of international trade by providing greater certainty about the terms of engagement between nations. Two major achievements of the Uruguay Round of the GATT are particularly worthy of mention in this regard. First, the high percentage of bound tariffs agreed for agricultural and industrial goods has served to render the world trading system more stable and predictable. Second, the establishment of the WTO Dispute Settlement Understanding ("DSU") moved disputing parties from a power-to a rules-based orientation in settling their differences. As a consequence, a new development over the last 10 years has been the more frequent use of the DSU by developing countries which have instigated more than 40% of disputes under the WTO as compared to 30% during the years of the GATT. Notably, the DSU is increasingly employed by developing countries to solve disputes amongst themselves: 42% of developing country complaints under WTO have been directed against other developing countries as opposed to merely 5% under the GATT.

15. WTO rules and procedures also allow developing countries to enjoy increased bargaining power in international trade negotiations. Without the WTO system, developing countries would have to deal with each of the major economic powers individually, and would be much less able to resist unwanted pressure. While the role of the largest countries remains central, by forming alliances, pooling resources and accessing technical expertise, developing countries are able to exert much greater influence over the outcome of multilateral negotiations.[21] Once entered into, multilateral agreements are easier to maintain—both for governments and local industries—than a multiplicity ofbilateral agreements with overlapping and complicated rules of origin requirements.

16. Nevertheless, for a majority of least-developed countries, the integration into a fast-paced and competitive global economy is not an easy task. The challenge for WTO members is therefore to make the prosperity that flows from multilateral liberalisation available to the fifth of the world's population still living in deep poverty. To assist this process, capacity building for those countries unable to finance improved border management should form an integral part of any WTO agreement on trade facilitation under the Doha Round.

17. In this connection, ICC believes that WTO members should make binding commitments through the Doha Round to: (i) encourage WTO members to integrate the private sector perspective in their efforts to improve facilitation; (ii) build capacity to manage change in member customs authorities based on common standards and compatible practices; (iii) assist the private sector in developing countries to fully understand and utilise improved trade facilitation rules and practices; (iv) measure the benefits achieved through the process of capacity building; and (v) promote a coherent approach towards capacity building amongst governments and international organisations.[22] With regard to the latter, we would urge European policy makers to give further consideration to how the new EU strategy on "aid for trade" can be best co-ordinated with the activities of other donors, not least as part of the WTO's ongoing work in this field.

Is there a need for Trade Defence Instruments, and if so, how can these be designed to ensure that their effects are targeted and proportionate?

18. While free and open markets will always be in the best interests of all economic actors, there remains a general worldwide business interest in a transparent and balanced trade defence policy, providing a remedy to ensure "fair" competition in the global economy. Over the past decade however, anti-dumping actions have proliferated.[23] The WTO reports that a worldwide total of 2,938 anti-dumping actions were initiated in the period from 1 January 1995 to 30 June 2006. These levels of activity suggest a substantial burden on international trade and it is thus timely for all WTO members to reflect on their conduct of actual cases, and the positions they take in Doha Round negotiations on anti-dumping disciplines. The European Commission's recent decision to shelve proposals to reform the EU's trade defence mechanisms—owing primarily to Member State divisions regarding how non-producer interests should be factored into investigations—is therefore particularly disappointing.

19. As a general point of principle, the application of antidumping measures should be transparent, consistent and predictable in order to minimise the harm and costs these measures can create for business and the multilateral system as a whole. In the context of the ongoing Doha Round negotiations, this can be best achieved by agreeing on clarifications and improvements to the GATT Anti-Dumping Agreement ("ADA") based on existing standards of international best practice. Suggested steps include: (i) establishing a mechanism to monitor implementation of the ADA and periodically publishing recommendations on best practice, at least every two years; (ii) enabling access to meaningful non-confidential information and the disclosure of legal and factual determinations in a timely fashion; (iii) establishing stricter requirements to be followed in the determination of dumping, injury and causation; and (iv) establishing standards of initiation, model/standard questionnaires, and standard investigation timelines to reduce the burden ofanti-dumping proceedings.

20. It is clear that the anti-dumping negotiations present a difficult challenge to WTO members who will have to find a delicate balance between competing objectives, such as the promotion of transparency and protecting confidentiality. In this regard, the leadership of the EU will be key if the Doha Round is to help achieve an appropriate balance and encourage a more harmonised, disciplined and transparent approach in the implementation of the ADA.

What is the best approach for protecting intellectual property rights? Do these rights inhibit development goals—and if so, how can an appropriate balance be struck?

21. ICC has consistently advocated cost-effective and non-discriminatory systems for the protection of intellectual property rights, and therefore strongly supports the objective of the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS") to narrow the gaps in the way these rights are protected around the world, and to bring them under common international rules. ICC attaches primary importance to the effective implementation by WTO Members of their commitments under TRIPS and continues to support the basic principles of the Agreement—namely, national treatment and most-favoured-nation treatment; non-discrimination among sectors and fields of technology; and the maintenance of an adequate balance between rights and obligations.

22. The question of how the intellectual property system can respond to the specific needs of developing countries is a complex issue which has been debated in numerous fora, most notably the World Intellectual Property Organization in the context of its "Development Agenda". In practice, however, many countries at all stages of development are using the protection of intellectual property to grow and expand local innovation based industries. This is reflected by the changing geographical landscape of patent protection, as the boom in patent applications in northeast Asia have made the Republic of Korea and China respectively the fifth and fourth largest patent offices in the world, with 50% of all patent applications in China in 2004 being domestic in origin. In similar vein, the enactment of a new patent law in India in 2005 has led to increased investment into pharmaceutical research and development in India by local and multinational companies—indeed, the management consultants McKinsey estimate that by 2015, US and European pharmaceutical companies will spend US$1.5 billion annually in India on clinical trials alone.[24]

23. Despite this progress, a good number of countries that are currently obligated to implement the TRIPS Agreement have, in fact, not done so. ICC believes that, rather than reopening the TRIPS Agreement, technical assistance should be provided to these countries in order to build up their capacity to implement the accord fully.

24. A major concern for business at the current time is the pronounced growth of counterfeiting and piracy worldwide. Once a problem associated with CDs and luxury goods, counterfeiting and piracy now seriously damage an enormous range of industries. Aside from the economic drain associated with this phenomenon, counterfeit goods pose a major risk to consumer welfare, particularly in the case of pharmaceuticals. However, government resources allocated to combating counterfeiting and piracy are often woefully inadequate compared to the scale of the problem. ICC's Business Action to Stop Counterfeiting and Piracy ("BASCAP"), in collaboration with other business organisations, has succeeded in making this issue a higher priority on the agendas of some governments, but much work remains to be done.

28 February 2008

http://ec.europa.eu/commission_barroso/mandelson/speeches_articles/sppm136_com_en.htm].

http://go.worldbank.org/TC26UFESJO].

12 This objective implies, as a best-case scenario, that following agreement on the modalities around Easter, agreement would be reached on all other subjects, and on the conversion of all agreements into legally binding commitments, by the end of 2008. This would leave time for US acceptance of the deal, on the basis of a Doha-specific trade promotion authority, in the "lame-duck" session before the advent of the new President. Back

13 The UK Government's 2004 Trade and Investment White Paper cited World Bank research estimating that an ambitious Doha Round agreement could see global gains of $250 billion-$600 billion per year by 2015. More recent models of more moderate Doha scenarios suggest estimates of real global income gains of$95-$126 billion per year by 2015. Back

14 Throughout its existence (1948-1994), the General Agreement on Tariffs and Trade ("GATT") received only 124 notifications of PTAs. But since the creation of the WTO in 1995, over 160 additional arrangements covering trade in goods or services have been notified. As of 1 March 2007, there were 194 notified PTAs in force. Back

15 See: Patrick Messerlin (2007) "Assessing the EC Trade Policy in Goods", Jan Tumlir Policy Essays No 01. Back

16 See eg: European Commission (2006) "Global Europe: competing in the world", Brussels, 4 October [available at: http://trade.ec.europa.eu/doclib/docs/2006/october/tradoc 130370.pdf]. Back

17 Particular concerns in this respect include the effect of differing rules of origin which have been shown to stifle technological developments, networks and joint manufacturing, and to unduly restrict third-country sourcing, leading to substantial trade diversion. By the same token, the growing maze, or "spaghetti bowl", of competing PTAs with incompatible regulatory structures and standards represents a threat to the predictability of the WTO system. Back

18 [Available at: http://ec.europa.eu/governance/impact/docs/key_docs/goteborg_concl_en.pdf]. Back

19 Commissioner Peter Mandelson (2006) "How trade can be part of the climate change solution" [available at: Back

20 World Bank (2008) "Global Economic Prospects 2008: Technology Diffusion in the Developing World" [available at: Back