Examination of Witnesses (Questions 1-19)
Mr Guy de Jonquières, Dr Christopher Stevens
and Ms Sheila Page
6 MAY 2008
Chairman: Good morning, thank you very
much for coming. Can I first remind you that our sessions are
all recorded and we do also have a full transcript which you will
get to see. Can I remind members on this side that neither of
the organisations before us has submitted written evidence; so
we are going to have to elicit from the witnesses anything that
we wish to get into evidence. The same applies to the witnesses,
we cannot use recent articles, we use what we get here or written
evidence specifically submitted. Since we feel we know your views
or we have evidence of your views we might dispense with the normal
opening statements and launch into questions; if that is all right
with you I will do that. Lord Kerr.
Q1 Lord Kerr of Kinlochard:
Could I ask Mr de Jonquières first how he sees the prospect
for the current Doha round multilateral trade negotiations and
whether he thinks it is on life support, is going to pull through,
or is not going to pull through.
Mr de Jonquières: The most
optimistic thing I would say about it is that if it does pull
through it is going to produce a relatively modest package at
the end of the day, which will be chiefly in the area of agriculture;
on services there is virtually nothing, on industrial tariffs
there is not a great deal and on rules it is a pretty slim agenda
as well. I have learnt over time—ten years as the FT's
world trade editor—about the hazards of predicting the way
these things will go. I suppose I would say it is about 50-50
at the moment, but the political timetable does not look very
promising, chiefly due to the US elections. There was a flurry
of excitement about three weeks ago that maybe it was all about
to happen, but the reason given as far as I could see was chiefly
that George Bush wanted a legacy, which did not seem to me to
be very convincing, and in any case does not answer the question
of how would Congress deal with it and how would an ex-President
deal with it because it certainly would not go through before
January 20 of next year. All the signs coming out of the Congress,
which will undoubtedly be Democrat-dominated next time round,
are that the Democrats are continuing to cool on trade, even if
one bears off for the usual protectionist rhetoric that arises
during the primaries. It is almost two questions really as to
whether a deal is done and, secondly, whether it gets ratified
and, if so, how rapidly.
Q2 Lord Kerr of Kinlochard: It is
50-50 you say, but the odds on something conclusive happening
in this calendar year are perhaps longer than that?
Mr de Jonquières: When
you say conclusive, there are those in the WTO who argue that
the best solution, if there is to be one, would be to get something
teed up but not completely concluded this year, so that rather
as happened when Clinton came into office, the next president
would have a fresh mandate, would be in a much stronger position
than the current incumbent and would have the kudos of completing
it and would then be locked into support it, obviously, just as
Clinton was with the Uruguay round. It is a question of what you
mean by conclusive; movement in the right direction I suspect
is more likely than a final package this year, but I am very well
aware that I might be proven wrong in the next few weeks.
Q3 Lord Kerr of Kinlochard: I suppose
that raises a question (though perhaps it is not for just yet)
whether an extremely good scheme would be to get a deal quasi-pre-negotiated,
but not completed, and whether the desirability of that is compatible
with the strong plea from Dr Stevens for a bit more openness and
transparency in negotiation—I am an ex-negotiator and I
always had difficulty with this one! Mr de Jonquières,
you have I know gone public with the intriguing thesis that there
would be something to be said for a sharp dose of recession which
might bring people's minds to bear on the Doha round. I have some
difficulty with that because it seems to me that recessions tend
to breed protectionism and so on, and I think in all the years
during which I have admired your product in the Financial Times
that tended to be your view too, that actually it was easier to
do things in periods of expansion than in periods of contraction.
Have you retracted that view?
Mr de Jonquières: No, I
have not; in fact I feel more firmly about that. It need not necessarily
be recession, I think what is needed is fear. If I can go back
a step, in a climate of benign economic growth when things are
going well, when countries are liberalising unilaterally and when
repeated predictions that this is going to cause a relapse into
protectionism have not been borne out, it removes a lot of the
political incentive to go into the business of what are, for political
leaders, very painful and uncomfortable decisions. All trade policy
ultimately is about domestic politics and it takes a lot of political
capital to assemble coalitions and it takes a lot of political
courage to face down producer lobbies who are opposed to removing
protection and lowering bans. Therefore, that to me explains quite
a lot of the rather weak political commitment that we see around
the world to the WTO and the Doha round in particular. If you
go back in time and look at how the Uruguay round got started,
it was actually because of fear, it was not because of appetite
for gain. You had almost every week a protectionist Christmas
tree bill emerging from the US Congress, you had the Latin American
debt crisis which had really raised questions about the solidity
of the financial system, you had the aftermath of the two oil
crises in the Seventies which were still being felt and America
was going through a very introspective, difficult phase with massive
fear of Japan, humiliation and all of that. The term globalisation
had not been invented then but a number of countries felt that
the global economic order was in serious danger, mostly in Asia,
because it looked as though America, the architect of this system,
the proponent and leader until that point, was starting to lose
faith and therefore some collective effort was required to put
things back on track. What actually went into the vehicle that
was put on the track at the beginning was probably slightly less
important than the sheer process of starting negotiations; that
is my thesis and I have not seen very much happen to make me doubt
that, and, indeed, the circumstances in which Doha started absolutely
confirm it. I believe—and I think the other witnesses both
agree—that had it not been for 9/11 the Doha round would
never have begun. It was not something that was done in search
of commercial advantage or commercial gain; it was done as a statement
of political solidarity at a time when it looked as though everything
might start to get very, very nasty.
Q4 Lord Moser: You used a rather
dramatic sentence "all trade policy is ultimately about domestic
policy".
Mr de Jonquières: Politics.
Q5 Lord Moser: Is that how you think
about it?
Mr de Jonquières: The longer
I looked at what was going on in Geneva—or any trade negotiations
that were worthwhile—the more it seemed to me that the real
negotiations were between the negotiators and their constituencies
back home than they were between the negotiators themselves. The
really difficult problems are always the ones that have to be
squared at home and I think that is one of the lessons that I
learnt from my time following this area.
Q6 Chairman: I was wondering if we
could ask Dr Stevens and Ms Page how they saw the Doha round developing.
Ms Page: I entirely agree with Guy that
you should not try to predict things, particularly as you could
be proved wrong in a couple of weeks, but the problem I have in
seeing any outcome in the next few weeks or few months is that
all of the factors which would be conducive to a positive outcome
were equally in play in June and July 2006 and in June and July
2007 in that we were nearly there on agriculture, nearly there
on NAMA, nothing happening on services but resigned to it and
so on. If people were prepared to accept an agreement which did
little more than bind existing changes in domestic policy since
the Uruguay round, we could have had that two years ago. Maybe
people are more willing to take that -and that is not negligible,
to bind existing policy is useful—but the problem is that
some countries do want more than that, in particular they want
reform of agriculture in both the EU and the US. While I agree
with Guy that it is about domestic policy, the negotiation that
has to happen is between those economic sectors within a country
that want access, that want something from the rest of the world,
and those who do not want to give it up to the rest of the world.
Because the Doha round started in a sense by accident, from a
trade point of view, that negotiation had not happened, there
was not enough build-up of pressure by basically the services
industries in the EU who really wanted a settlement—and
indeed the services industries in India who should have wanted
a settlement—to counter the lobbying by agriculture and
producers in the case of India. The two forces were never equal,
no one sufficiently wanted something in the EU and the US to be
willing to fight those who did not want something, and that remains
true; there just is not the interest in the services sector. There
should be the interest in the services sector in the EU, there
is a lot to be gained in it, but there has not been and there
is not really in some of the other countries. What you basically
have, therefore, is that Brazil and a few other efficient agricultural
producers do want a settlement, but there is not a bargain to
be had because the other side does not.
Dr Stevens: I would agree with everything
that has been said already, but can I just pick up on two points?
As the circumstances behind the successful launch of the Doha
round indicate, the pressure leading to a fear which can be assuaged
in some way through the WTO does not necessarily need to come
from the economic sphere and certainly not necessarily from the
trade sphere. It is something which happens in the world that
persuades leaders that it would be a useful response to have a
deal with the WTO. The second point is I agree absolutely with
Sheila's explanation of the lack of an equal set of protagonists
in the Doha Round; the question is whether, if we string it out,
this will change, and there is a question mark over that. Clearly
in the area of border measures on goods the WTO and the GATT before
it was an extremely useful forum for getting the changes which
were wanted put into place. When we have asked our colleagues,
our board members in the City, why they are not pushing for the
Doha round in the services area it is bilateral negotiations—if
you want to be able to open more banks in China you do not go
about it by lambasting China in Geneva about its restrictive policies
on banks, so there is a question mark as to whether we will ever
again have the circumstances in which there will be some clear
pressure for a WTO deal which will be sufficiently substantial
to overcome the obvious pressure against. Finally, in response
to Lord Kerr's point, my plea for openness is in respect of the
EU. The WTO is the epitome of transparency—perhaps that
is the problem—and if you compare that to the EU situation
where, for the past six years, neither the EU Member States nor
the EU national legislatures, nor the European legislatures have
been able to make any direct impact on the economic negotiations,
you just see how far apart these two negotiating fora are in terms
of the transparency.
Lord Kerr of Kinlochard: May I
have a final comment on that last point, My Lord Chairman? I believe
it rather doubtful if Pascal Lamy would have been able on agriculture
to take up the position that he did take up, or that Leon Brittain
in the Uruguay round would have been able to take up the positions
he took up, had they been front page news in Le Soir and
Le Monde. The fact is that the Council in the EU has to
agree a mandate for a negotiation and you do not tell the other
side what your mandate is: you prepare it in private. This was
in fact very useful in both cases to liberals who wanted a reasonably
big deal. Lamy's, and before him Leon Brittan's mandate would
have been much smaller if it had been publicly debated.
Q7 Chairman: Is anybody going to
answer that or shall we leave it lie?
Ms Page: In a sense that is true if you
assume that the readers of Le Soir would have been more
powerful and their government more interested in negotiations
than the readers of the Financial Times.
Q8Lord Kerr of Kinlochard: Maybe they knew anyway!
Ms Page: In other words, if you believe
that the pressure groups—not necessarily the actual solely
economic welfare interests but the pressure groups—in the
EU are much stronger than the professional. I think that is true,
but that is the problem. It is not the transparency or the lack
of transparency, it is that there is not the pressure; that if
you actually told the readers of the FT they would not
get out and riot in the streets of Brussels whereas the readers
of Le Soir might.
Q9 Chairman: Speaking of riots in
the streets of Brussels, what occurs to me is what effect do we
see from the huge increase in food prices and the general shortage
of food? Is that going to affect Doha one way or the other?
Ms Page: It risks encouraging protection.
We have already seen the proposals that the answer to all our
problems is not just the CAP but a CAP for everyone, which is
not a view I share. The alternative answer is that one of the
problems with food prices in developed countries is the protection.
Brazil could probably double its arable area in terms of actually
taking it away from meat production, not in terms of taking it
away from the Amazon jungle, and that would have quite a large
effect on the supply of food in the world. There is a series of
both natural and commercial reasons for the food price which will
not disappear in the next couple of years—including things
like the drought in Australia—but if we actually were able
to move the food which exists and could exist if it were planted
more efficiently, then that would certainly reduce the pressure;
it would not remove it but it would reduce it. I am afraid that
the reaction might well be to make things worse—in a sense
it is the same problem that we have seen in garages over the last
couple of weeks: if you are told not to panic, there is not a
problem, the natural reaction is to panic. I am afraid that has
been a bit the problem with food in that because there was a small
shortage it immediately becomes worse because everybody tries
to secure immediate supplies.
Q10 Chairman: I just wondered if
it was one of those events like 9/11 but in a way more directly
related to trade that would drive an agreement forward, but there
seems to be no indication that that is so.
Mr de Jonquières: I do
not know what my colleagues think as an alternative external stimulus
if the current financial crisis moves into the productive sector
and there is a fear of companies going bust and workers laid off.
That is the sort of fear that could galvanise action at a multilateral
level.
Ms Page: But that is not the sort of
fear that is on the level of 9/11.
Q11 Chairman: No, it is not.
Ms Page: One has still to come back to
this simple, practical problem that once it reaches a headline
agreement on agriculture there are still both the other major
areas, non-agricultural goods and services, which are terribly
detailed negotiations, they are not the sort of thing we can settle
in an afternoon with a formula, and then beyond that there are
all the details which are important to a few countries, ranging
from the convention on biodiversity to geographical indications
to the rules preventing dumping, and until all of these are settled
we will not have a settlement. That is normally expected to take
around six months after the headline agreement; six months from
now puts one into the middle of the interregnum of the US, it
puts a huge amount of pressure on trying to get something done
through Congress in the first half of the first year of a new
president when probably the trade officials are not even in post
yet, and there will be Indian elections coming up after that.
On a practical basis, therefore, it is less likely than it was
a year ago that we could actually get a settlement through even
if there were goodwill.
Dr Stevens: Can I just add a detail on
that? Even in agriculture we, last autumn, analysed the potential
implications for developing countries of the best estimate of
the EU's real fallback position and until you know details of
exactly which products will be excluded you do not know whether
the implications for developing countries are massive or negligible
and that sort of detail would not become known until some time
after the headline agreement on the modalities and the percentage
of lines which can be excluded, et cetera et cetera.
Chairman: Lord Kerr, would you
like to finish your question since I have interrupted it?
Q12 Lord Kerr of Kinlochard: I very
much agree with Ms Page that the objective conditions are no different
from what they were in 2006 and 2007, but subjectively it has
become much more difficult because fast track is a problem and
we are in an election period in the States. I quite see what Guy
de Jonquières says, that if you could see your way through
do not write it down and publicise it just yet, because if it
became a football to be kicked around in this presidential election
it would become even more difficult for Congress not to take it
apart, either this Congress or the next Congress—I agree
with all that. Who objectively is to blame for the logjam and
why did we get stuck? Why was it difficult to do in 2006? I would
just like to probe a little bit about the new difficult players.
We know in the past it has been the EU versus the US, particularly
in agriculture, but the EU with the US versus India on services.
That is a little bit out of date; why in 2006 did it not gel or
did the BRICs overplay their hand? How could you unlock it now?
If you three, our witnesses, were a collective Lamy, what move
would you make now, and who would you be trying particularly hard
to shift?
Mr de Jonquières: I will
try and answer the first part of your question. It seems to me
first of all the short answer to who is to blame, I think everybody
at a certain point during the life of this round, but beyond that
it is a question of who has actually been deliberately obstructive
and difficult and who actually has not just played a role at all
very much? Of the BRICS the only one that really has taken the
thing extremely seriously and sought an outcome—admittedly
an outcome purely on its own terms, but this is a mercantilist
organisation so it is not surprising—is of course Brazil.
South Africa, as far as I am aware, has hardly been visible at
all, China people say is helping or is not obstructing, but it
is not actually involved. The reason commonly given—and
it is the official Chinese reason as well—is that we did
all these tremendous things to meet our accession and we have
done our bit, but there is actually a deeper reason there which
is why WTO entry mattered to China. For most developing countries
an important reason is that WTO membership helps secure market
access abroad; I actually do not think that was the primary reason
in China, I think the primary reason in China was to cement its
own reforms at home. That job has, to a large extent, been done
and there were clear signs that the momentum that occurred under
Zhu Rongji has slowed and that may or may not be a sinister sign,
it is a little early to tell. I think that is the way the Chinese
view it and one must remember that the problems that China has
at home and the challenges are absolutely immense and they are
very, very much concerned with that. When it comes to dealing
with problems with trade partners they tend to deal with them
bilaterally: they have talked to the Americans, they have talked
to the Europeans, we have seen two cases against China in the
dispute settlement—five years ago people would not have
believed that that was possible. We have seen no use, as far as
I am aware, of the selective safeguards against China—the
general selective surge safeguards they have got—and they
have done it by talking to people about it and of course in their
own region China exerts a great deal of sway with just about everybody,
including Japan, which leaves India. Trade has historically not
been at all important to India and I have to say actually that
trade is not that important to China either; it is a common misconception
that it is an export-led economy but it is not and it has not
been really since 1979 when it all began, except for a couple
of years very recently, but that was for special reasons to do
with the steel industry. I think the Government of India does
not look outward that much. It, like China, has enormous domestic
problems, its attention is elsewhere. It has not been an easy
trade partner and I think quite a lot of people would blame India
for being obstructive. It has got an incredibly narrow positive
agenda which is mainly to do with Mode 4; it is not obvious—or
not obvious to me anyway—that, with all the outsourcing
going to India Mode 4, which is this business about the movement
of people, is as important as it was. The flurry of protectionism
about outsourcing that we saw in America four or five years ago
certainly has not increased and it seems to have died down, so
the final point there is that according to one estimate—and
I cannot remember who it was, but you probably know better than
I—if there is an agreement reached in the Doha round and
on a reasonably plausible scenario of what it might produce, it
would add three days' growth to China and 21 days to India.
Q13 Lord Kerr of Kinlochard: Not
a bad answer!
Ms Page: Could I add two things on that,
first on the narrow positive agenda; that does not just apply
to India. That is an incentive problem we were discussing with
you before and most countries have a fairly narrow positive agenda,
so it is not that they have been obstructive, it is that they
have not bothered, it has not been important to them. Also, I
do not think one should let the US and the EU off the hook as
responsible parties completely; one does have to remember that
the most protected sector in the world does remain agriculture
and these two countries, plus Japan of course, have extremely
protectionist agriculture and simply sitting and saying we are
not going to move is as obstructionist as anything that India
has done. There is also the very particular problem in the run-up
to Hong Kong in the autumn of 2005 when the EU tried deliberately
to split the developing countries between the LDCs and the G20
by defining a development round in terms of what they could offer
to LDCs, which did not include agriculture, and given that that
was what quite a few developing countries wanted it was not terribly
successful either in getting an agreement or in creating the right
atmosphere for Hong Kong because it in a sense encouraged the
developing countries to come together to show that they could
not be divided from outside. They obviously did have different
interests but they did not particularly want to be used as pawns
by the EU.
Q14 Chairman: The next thing I would
like to ask about is bilateral trade agreements. They seem to
be springing up everywhere and I wondered what you all thought
the implication and impact of these bilateral agreements were
going to be on future multilateral agreements. Are they one of
the ways of bypassing the process?
Mr de Jonquières: First
of all the interesting thing is that there has been an enormous
explosion of bilateral talks, emanating initially from Asia, pretty
much since the collapse of the Seattle ministerial. These were
particularly noticeable because most Asian countries—Japan
above all and Singapore also—were stalwart supporters of
multilateralism at a time when the Community was going around
the world—and it was Europe that invented this game—really
stayed out of it. The question is are they a symptom or are they
a potential cause of problem? And if they are a cause of problems,
why? I think they are a bit of both, but they clearly show that
the multilateral system is not delivering things that many of
its members feel that they want. In many cases I do not think
they can be characterised as commercial initiatives; these are
political initiatives. When Robert Zoellick was USTR he made it
absolutely clear that doing a bilateral deal with the US was a
reward for having supported US foreign policy. It is equally true
in Asia where you have a lot of countries that profoundly mistrust
each other and have deep mutual antagonisms rooted at a popular
level as well as a government level, and this is a region which
because of the general trend of globalisation is having to find
new ways to co-exist. It is popular at home to make these gestures,
but it is also a way of saying to other countries who you do not
quite trust let us try and talk a bit more. Process in Asia is
terribly important, Asians put a huge amount of emphasis on it,
far more so than we do in the West. If they are a cause of problems,
why? A great deal is made of regulatory dissonance, rules of origin,
although I think that is probably over-emphasised. If you look
at many of these deals the rules of origin are so complicated
that an awful lot of exporters just ignore them and continue to
bring the stuff in at the most favoured nation rate, in other
words there is no special preferential tariff. The greater concern
for me is that this is a symptom of a loss of faith in the multilateral
process and people have started taking things into their own hands.
Will they do a lot of damage? I am not at all sure about that;
an awful lot of these deals are very lacking in serious commercial
content—indeed, the Japanese have now started calling them
economic partnership agreements and even they realise that these
things are commercially a joke. The ones that the Americans have
done have had a lot of serious content, the Americans have gone
into this in their usual hard-headed way and said we have got
to have these deals. Since the Lamy embargo was lifted by Mandelson
the EU—and I stand to be corrected—has not completed
any deal, has it?
Dr Stevens: No.
Mr de Jonquières: And the
ones that it is negotiating do not look very promising. One has
to ask, where is the beef here, how much of this stuff is real?
Negotiators like to talk and one of the factors, is that with
no action happening in Geneva these ambitious trade ministers
are looking for other things to do. They have all got significant
numbers of trade negotiators whom they have to justify in budgetary
terms so they have to have something for them to do. Therefore,
in terms of the impact on markets it is relatively minor. By contrast,
where there has been real progress outside the WTO has been in
unilateral liberalisation. Even in India there has been really
major liberalisation, but only on industrial products. China's
WTO accession I see actually as being the world's biggest exercise
in unilateral liberalisation. Zhu had decided to do that, he knew
he had to do it, the WTO was simply the way of locking it in,
and you would know better than I but I think that something like
two-thirds of all liberalisation undertaken by developing countries
has been unilateral.
Ms Page: Maybe more.
Mr de Jonquières: That
is one of the very encouraging signs in the whole process and
all the academic studies show that unilateral liberalisation is
first best, multilateral second, bilateral/regional a distant
third.
Ms Page: Where unilateral liberalisation
happens in developed countries as well as developing countries,
the WTO is for regulation, for providing certainty, for providing
dispute settlement and that is something which it can do much
more effectively than any region because it is 150 countries not
just the two or three countries directly involved in the dispute
who are in it. The only other point that I would raise on the
regions is that there is a lot of trying to show that the WTO
is not the only game in town, in other words it is to be demonstrated
that you have alternatives, so a lot of the regions to some extent
are there precisely to show that you do not have to make concessions
in the WTO. I notice that one of the pieces of evidence that was
given to you actually deflated the growth in the number of regions
by the growth in the numbers in the WTO and the ratio did not
go up that much; if you discount the ones that can be called trade
free agreements rather than free trade agreements it is probably
not nearly as bad as the pretty pictures show.
Dr Stevens: If you were hoping to get
some savage controversy between the panellists today you are going
to go away very upset. I agree with everything, but I would just
add three things. First of all, historically—and this actually
reinforces Sheila's point—the EU has always liberalised
first through progressively expanding bilateral and regional agreements,
starting with the least competitive suppliers first and then incrementally
adding some others, and then when it has liberalised towards almost
everybody except Brazil and India it grits its teeth and does
so multilaterally, so I do not think that what we are seeing now
is new. Secondly, the old debate as to whether regional agreements
were building blocks or stumbling blocks has lost some of its
power because in many cases, even in the case of trade in goods,
it is private sector standards that are the primary determinant
on whether the Kenyan farmer can export to the UK or not. These
are by definition all unilateral, all bilateral and the existence
of some fairly high level regional agreements rather than multilateral
ones does not alter this underlying fact, which is actually quite
worrying for development prospects. Guy's point about whether
this is a symptom or a cause is very important. We were chatting
in the corridor before we came in and agreeing—once again—that
regardless of whether there is a Doha round the WTO would continue
to be a very important force through implementing and defining
the current rules until such time as a major party decides that
the political costs of actually accepting the WTO's verdict are
too great and decide not to implement it. To the extent that alternative
arrangements are seen to be increasingly acceptable as alternatives
to the WTO, that is worrying.
Q15 Lord Kerr of Kinlochard: That
is a version of the old bicycle theory that I remember the old
Board of Trade in Victoria Street being very fond of, that you
needed to keep advancing the multilateral trade negotiations because
if the credibility of the GATT/WTO process became weakened, then
the existing regime, and the existing disciplines, might fall
apart. Do you think that is a real risk?
Dr Stevens: I think so, yes. I do not
know if my colleagues would.
Ms Page: I think the bicycle now has
a third wheel and that is in dispute settlement; as long as that
retains credibility and is seen to be helpful by all sides, that
can keep it going even when the rounds are not working terribly
well. That is one of the things that have made developing countries
much more accepting of the WTO in the last few years because they
have made much more progress on things like sugar, bananas and
cotton reform through that than they have in the negotiations.
For them at least that increases the legitimacy of the WTO; the
risk probably is from the US and the EU but it is not clear to
me that either of them at the moment has an interest in pulling
the house down.
Dr Stevens: I agree.
Ms Page: So far people have been fairly
cautious about not taking very sensitive things, for example the
US boycott on Cuba could have been taken and never has been, sanctions
against South Africa could have been but never were so there has
been a certain amount of self-restraint in not bringing the dispute
settlement into disrepute if you like.
Mr de Jonquières: If I
might just add there, the fact that probably every single WTO
member is in breach of some rule of the WTO is quite a powerful
restraining factor. Also, the sort of circumstances in which it
might start to come under really severe strain would be if there
were a very severe world economic downturn, rising unemployment
and the predictable effect of producing more protectionism. However,
it also depends a bit on the form that that phenomenon took because
even in times of protectionism countries can remain quite aggressive
as mercantilists and if you were to pull the thing down it would
deprive you of really quite a useful weapon for opening other
people's markets. Secondly, post-war history shows at least that
America will continue to be enormously important in this system
for quite a long time to come, and most American presidents, when
they are put on the spot, actually see quite quickly the costs
of serious and severe protectionism. There was a very interesting
case with the lifting of US steel tariffs in 2003 when the EU
said it was us putting pressure on them, it was the WTO, but the
really important reason was the steel buyers in the US. They just
stormed into the White House and said "You are making us
uncompetitive, you are adding to our costs" and that is what
finally got those things lifted. It is very convenient for presidents
if they see—and they are usually able to see—the cost
of doing things, to be able to put it into the WTO and there have
even been occasions where presidents have almost sought to get
things taken into the WTO in order not to have to deal with the
problem at home.
Chairman: Thank you very much.
We have now successfully dealt with regional trade areas and indeed
the future of the WTO so I would like to concentrate my brain
on the question of economic partnership agreements and developing
countries and what the Europeans could do, because that is another
serious bit of our inquiry. Lord Kerr.
Q16 Lord Kerr of Kinlochard: Why
have the EPAs been delayed?
Dr Stevens: There are three closely inter-related
answers. First of all, all trade agreements overrun; the difference
between the EPAs and all the others is that the others recognise
this fact and protagonists say that there is a final deadline
but they always have some sort of fallback position which maintains
the pressure but allows the deadline to pass. I have been looking
into some of the recent WTO disputes on this just as an illustration
of what normally happens in agreements and my ears pricked up
with the biotech marketing dispute because the EU was supposed
to have done something in January just after it said that the
WTO position and deadline was so binding that it could not possibly
be passed, and that is why the EPAs had to be delivered by the
end of December. The EU first of all said it would implement the
dispute settlement ruling on 21 November last year, then it reached
agreement with the plaintiffs that that would be extended to 11
January, on 11 January it reached agreement with the plaintiffs
that this would be extended to 11 February and on 11 February
it reached agreement with the plaintiffs that it would be extended
to 11 June; we wait to see what happens on 10 June. I would suggest
that this is the way that things normally happen in my experience,
although possibly not in the much wider experience of the Committee.
I was involved quite closely in the EU/South Africa free trade
agreement negotiations on both sides, we were selling arms to
both protagonists, and it was a much more open discussion. We
knew some time in advance what South Africa was being asked to
do and what the EU was offering to do, which was simply not the
case with the EPAs. The second related reason is that it was a
very funny sort of trade negotiation. Normally you have mercantilist
interests on either side and it is what we have just discussed
about those in favour of liberalisation of their markets out-manoeuvring
those against liberalisation of the domestic market. The ACP had
nothing really to gain from the negotiations, other than to hang
on to what they already had, and that is always a difficult thing
to sell and, of course, with the Least Developed Countries they
did not even need to do that because they had Everything-But-Arms.
Not surprisingly, a lot of effort was put into trying to fashion
alternative ways of hanging on to what they had which would not
involve signing the Economic Partnership Agreement.
Q17 Lord Kerr of Kinlochard: Could
you remind us of why the whole process stopped, why they had to
fight to hang onto what they already had?
Dr Stevens: During the mid-1990s as collateral
damage from Latin American and later US disputes against the EU
on its post-Single European Market banana regime, a GATT panel
ruled that the Lomé Convention, which was the treaty under
which the EU had been giving substantial trade preferences to
African, Caribbean and Pacific countries since 1975, was contrary
to GATT rules and a waiver was obtained for it to continue to
the year 2000. During the last half of the 1990s there was a lot
of discussion about how to remove this trade relationship from
further censure in the now WTO and the agreement finally reached
in the Cotonou Partnership Agreement was that alternative trade
arrangements would be negotiated in the period up to 2007 and
the preferred option was reciprocal Economic Partnership Agreements
which could be justified under Article 24 of the WTO with some
very vaguely specified alternative arrangements put in place for
those countries which felt unable to agree EPAs. The third point
was that this was always going to be a very hard deal to sell,
not least because when it agreed the Cotonou Partnership Agreement
the EU did not actually have in its back pocket any alternative
trading arrangements which would satisfy countries unable to negotiate
EPAs and for the next seven years it failed to even attempt to
create them. There are many ways in which the EPA negotiations
are unique, not least is that there are no other agreements that
I am aware of which have been brought to a conclusion involving
multiple countries negotiating at the same time with the EU and
multiple countries with no formal trade negotiating machinery,
so it was a very difficult process. It was a process that the
ACP parties in the main tried to pretend was not going on and
it was clear that it would require substantial political leadership
from the EU if it was going to be completed anywhere near on time,
and for long periods this was entirely absent. Let me give you
one example which illustrates this. When the EU/South Africa free
trade agreement was negotiated the Southern African Customs Union
which linked South Africa to its four poor neighbours—Botswana,
Lesotho, Namibia and Swaziland—was a very odd apartheid
era arrangement under which although they belonged to a customs
union South Africa could do pretty well anything it liked, so
it signed a bilateral agreement with the EU and unilaterally in
relation to its partners agreed to lower its tariffs. When the
EPA negotiations began the same thing applied to Botswana, Lesotho,
Namibia and Swaziland, so the EU began negotiating with them,
but in 2004 the customs union finally became a post-apartheid
institution and the new customs union made it illegal for any
one member to change trade policy without the consent of all,
so from this point on, which had been presaged from 2002, it became
quite obvious that it would be impossible to negotiate anything
with Botswana, Lesotho, Namibia and Swaziland unless South Africa
was involved in it all. It took BLNS until March 2006 to seek
formally to involve South Africa in the negotiations and the EU
then spent ten months considering its position, so not until January
of last year, 11 months before the end of the negotiations, did
formal talks even begin with one of the parties and for a large
part of the year the EU seemed to believe that South Africa would
be happy to sit on its hands and ask for nothing in return for
the changes that the BLNS would make. This was because officials
were not in a position to alter Commission policy and those who
were in a position did not take a sufficiently hands-on approach
until the last ten months of negotiations.
Q18 Lord Trimble: I am wondering
if this question is not redundant because I was going to ask you
whether developing countries have benefited.
Dr Stevens: It is a very interesting
question and I look forward to being able to answer it in due
course but because no details of what was actually going to be
done have still not formally been made available, we have just
done a review of all the African EPAs using the good offices of
one of the Member States who have acquired copies of the texts,
but we learnt yesterday that the one from Ghana was completely
rewritten in February and, as far as I know, none of the Member
States has been sent copies of this. We have done a superficial
tour d'horizon which sets the foundations for further analysis
and in due course we will give a verdict, but I have to say these
agreements are really a mess. We have identified a huge number
of products which are simply not listed in the version of the
East African Community EPA which the Member States have been given;
there are a group of products which account for about 48 per cent
of Kenya's imports from the EU but the EPA does not say what is
going to happen to them. We have had extensive discussions with
the Commission on Mozambique; the Commission says that Mozambique
will liberalise 80 per cent of its imports, but using all publicly
available figures we cannot find more than 71 per cent. First
of all, therefore, the final agreements have to be made public
to Member States as well as to us, secondly, we have to analyse
them and, thirdly, for your next inquiry on EPAs I hope to be
able to answer the questions.
Q19 Lord Trimble: What steps should
European trade policy take to help?
Ms Page: On EPAs or more generally?
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