Examination of Witnesses (Questions 107-119)
Dr Péter Balas and Mr Jean Charles Van Eeckhaute
23 JUNE 2008
Q107 Chairman: Good afternoon. We
are most grateful to you for seeing us today.
Dr Balas: Good afternoon. Let me welcome
you to the European Commission. I have to start with an apology
on behalf of my Director-General, David O'Sullivan. He said this
might happen and he had to leave for Geneva on Doha business this
morning. My name is Péter Balas, I am Deputy Director-General,
one of his deputies, looking after multilateral trade policies
especially but also a number of other aspects. We will try to
give you views from DG Trade on the issues that are of interest
to you.
Q108 Chairman: Thank you very much,
Dr Balas. I believe you have seen the sort of questions we want
to ask. I am going to start off by asking you what you now think
about the prospects for a successful completion of the Doha Round.
"Successful" is probably a matter of definition. What
do you believe would be the consequences of a failure to produce
an agreement? What would happen and where would we be?
Dr Balas: This a good place to start
because compared to the summary we gave you earlier this year
in January about the situation, there have been some important
developments that have taken place with respect to the Doha Round.
Let me sum up where we are now and what are the prospects. In
the last five or six months since the start of the year good progress
has been made especially in the agriculture dossier. As you might
be aware, agriculture is traditionally the lynchpin of multilateral
negotiations and Doha is no different. As a result of hard work
among the participants and, more specifically, among a smaller
group of countries which are the most interested, in the last
few months we have succeeded in clarifying the outline of a possible
agricultural agreement. I would not say we are already there,
a number of issues are still open. What would be a deal in each
of the three pillars of the agriculture dossier is more or less
visible, meaning market access, agricultural subsidisation and
export subsidies. These are the three major issues in agriculture.
If you listen to the recent views of developing countries who
are especially agriculture demandeurs who would like to see an
ambitious outcome in agriculture, there is a list of complaints
and this is normal, one could say it is part of the game, even
tactical, not to be happy until the very last moment of negotiations.
In the more restricted meetings which are based on recent revision
of the chairman of agriculture's negotiations it is clear where
we can go. Very briefly, in summary, cutting agricultural tariffs
overall by over half, 54 per cent is the average target reduction.
There are differences within this and there will be products which
are considered more sensitive and the tariff reduction will be
less and compensated by so-called tariff quotas, what you could
consider as guaranteed import possibilities in practice. It is
also clear what the developed countries could do who are the major
subsidisers in cutting agriculture subsidies, domestic subsidies.
Here, however, I would note that there is a recent not very welcome
development in the form of the Farm Bill that has been recently
adopted in the United States which is not a reforming Farm Bill
at all and would need major revisions based on the expected Doha
outcome. Last, but not least, the details of how export subsidies
and all forms of export support could be phased out by the target
date of 2013 are clear. The major question mark is now over industrial
products market access and services market access. These are the
two aspects, but especially industrial products, that are the
present focus of the negotiations. I would say this is still a
major question mark over the possibilities and chances of a Doha
deal. It is hoped that in the next few days we will get clarity
about the chances of having a clearer picture on industrial market
access. Negotiations will also continue on services. Based on
these outcomes there is a good chance that a ministerial meeting
could be called sometime in the middle or second half of July.
This would adopt those basic parameters of the Doha Round which
would be the basis for the final stage of the negotiations on
the basis of which members of the WTO could give their national
offers in agriculture, industrial products and services, plus
in a number of rule-making areas certain guidelines will be needed.
We are not there yet but the chances are better than 50 per cent.
It is difficult to put figures on it, but it is certainly much
better than it looked at the start of the year to have a successful
Round. In July the basic parameters will be decided and that starts
the last phase of the negotiations, the detailed national offers,
the legal text for the rules which will take a number of months.
It is still the hope of the EU that all the details can be elaborated
by the end of this year. That means under the Bush Presidency
and President Bush, who remains committed to see a successful
completion of this Round, could at least sign the deal even if
the legal authorisation from the US Congress comes only after
the new President and new Congress.
Q109 Chairman: Thank you very much.
We all feel, and I am sure you must too, that the Doha Round has
been going on forever. We wondered if you thought people just
think multilateral arrangements are too difficult, or do you see
no sign of that?
Dr Balas: Multilateral arrangements are
certainly difficult, not least due to the fact that the WTO has
152 members now and, as you know, the WTO works on the basis of
consensus meaning any single country, a member of the WTO, can
block a decision. If one looks at it in the perspective and history
of the recent multilateral round, the Uruguay Round, which took
eight years, if we could get over Doha in six years more or less,
or something more than six years, that would not be a bad achievement.
The number of members of the organisation has substantially increased
in-between, major countries like China have joined the WTO, so
by definition this is difficult, but there is no question among
trade policy experts and economists that, when it comes to trade
liberalisation, multilateral liberalisation is by far the optimum.
Q110 Chairman: I think I asked you
at the beginning what happens if we fail because it is obviously
quite delicately balanced and not an easy time. Have you thought
as far ahead as what happens if we fail? What are the consequences
for the WTO if agreement cannot be concluded sometime this side
of Christmas?
Dr Balas: Certainly it would have a negative
impact looking at the economic content, but especially in the
present turmoil in the financial markets. In the current world
economy it would be unwelcome news psychologically. It would not
help to have much optimism. It would certainly be a major blow
for a number of developing countries who rely very much on the
expected trade liberalisation in Doha. It would certainly be a
setback for the EU's agriculture policies. The EU has undertaken
major autonomous liberalisation of the Common Agricultural Policy
since 2003 and it was thought and expected that other major subsidisers,
starting with the US, should do likewise. This chance would be
lost if Doha failed. On the other hand, should it happen, as negative
as it is, it also would be an exaggeration if, as some people
say, it was said to be the end of the multilateral system and
of the WTO. The WTO would continue to function based on the present
rules which are less than perfect. There would be one of the important
elements of the WTO system, the dispute settlement system, that
would continue to function and, I am sorry to say, would probably
be used much more than was the case before because countries would
be tempted to go for dispute settlement to make up for the loss
of what they could not get through negotiation. This would not
be a welcome development but it would not mean the demise of the
multilateral system as such. Last, but not least, they would turn
in a big way to bilateral regional agreements. They would be sought
especially by a number of countries and business where this difficult
and complicated multilateral approach cannot deliver. They will
go for bilateral liberalisation, for preferential agreements which
are certainly sub-optimal compared to multilateral arrangements.
Q111 Lord Kerr of Kinlochard: Can
I stick with the question you have been pursuing, my Lord Chairman,
for a second. I am very struck and encouraged by the statement
made to us about progress in the last five or six months, technical
progress, eg the defining of the outlines of a deal on agriculture.
But at the political level surely it is all going the other way,
with the Farm Bill you mentioned, the rhetoric of the election
campaign, the likely composition of the next Congress, the rhetoric
in Europe, the criticism of the Commission—of you guys—by
what looks like an increasing number of Member States at a political
level, and the identity of the Presidency from 1 July. It does
not look to me like ideal circumstances for a deal in the autumn.
Can you add a political dimension to what you said? Am I wrong?
Dr Balas: No, I think you are absolutely
right. Let me give some analysis. It is quite clear that the US
presidential campaign is a major risk factor. It is not easy to
conclude an important deal like this in the last stage of the
US election campaign. There is an outgoing President who has attached
major importance to this and sees it as a legacy issue to have
a successful Trade Round behind him. The President certainly has
the authority to sign a deal with the knowledge that it would
be his successor who would have to ensure its passage through
Congress. Even assuming it is a Democrat controlled Congress under
a Democrat President it would be a major responsibility for the
future US Administration and Congress to scuttle a deal which
had already been agreed among 152 members. One cannot say it would
not happen but the stakes would be extremely high. I think everybody
would think twice, or even three times, before doing that.
Q112 Lord Kerr of Kinlochard: If
I were a negotiator for some other party in the Geneva negotiations
I might reach a different view about that and think that it was
quite likely that since fast-track has expired any deal that I
signed up to this autumn would become unravelled next year by
Congress or by the President and Congress, one way or the other.
So I would feel disinclined to make major concessions now because
if the deal fell apart because the Americans reneged I would have
risked annoying my lobbies back home to no purpose.
Dr Balas: That is true, but if a deal
is scuttled then whatever concessions are on the table we are
back to square one, so nothing is lost for those countries. As
I mentioned, it has been known for quite some time, since last
year at Congressional approval, that a new TPA would not be available
this year. If this is such a blocking issue for those countries
who think in the way you describe, they would have tried to stop
negotiations some time ago. This is part of the calculation and
it is certainly a risk, but if Congress does not give its approval
it would be the US that would take the blame for it. It would
be the US alone taking the political blame for not approving the
deal. One of the interesting things is that while there are quite
a number of countries who might have doubts about these negotiations,
for better or worse, nobody would like to be seen as being the
one who takes the responsibility for killing these negotiations.
Everybody is very cautious in that respect and the US is not an
exception.
Q113 Lord Kerr of Kinlochard: How
would you answer my Lord Chairman's question on what happens if
there is not a deal?
Dr Balas: Well, as I mentioned, there
would be a negative impact, both economic and political, for international
trade.
Q114 Lord Kerr of Kinlochard: Forgive
me, I remember you saying that and I understand this argument.
These are arguments you use now to encourage people to do a deal.
I am saying supposing a force, nothing to do with the Commission,
has ensured that there is no deal, what would the Commission do
then?
Dr Balas: We would go back and consult
Member States. I am sure that the majority of Member States would
like to see the Commission turn towards further bilateral deals.
Business needs liberalisation and that is why the EU was restrained
in going into new preferential agreements. Especially in Asia
a string of new agreements was signed and business thinks there
is a reason why they are losing opportunities by being discriminated
against, if you like, by not having preferential agreements. One
of the consequences would be that the majority of Member States
would like to see us continuing to do whatever can be done to
keep alive the possibility of reviving the Doha Round later but
still to go ahead with these preferential agreements.
Q115 Lord Kerr of Kinlochard: If
there were such agreements how would they affect the use of Trade
Defence Instruments which have become a matter of some controversy
inside the EU and with those to whose exports to us we apply those
instruments? Question one: do you think people in the European
Union who are very anxious for anti-dumping measures against Asian
countries would be happy to agree to the kind of pretty liberal
bilateral agreements that the British Parliament, for example,
would like to see? Question two: what is the future of the anti-dumping
regime anyway?
Dr Balas: With all due respect, I do
not see a direct relationship between these two facts. On the
one hand, going ahead with bilateral preferential agreements and
trade defence measures allow for a finer balancing of economic
give and take. In a multilateral strategy it is an overall balance
of rights and obligations. In a bilateral context, referring to
Korea, with which we have a bilateral agreement, there is product-by-product
bargaining, including not just tariffs but non-tariff barriers,
and the car sector when it comes to non-tariff barriers is one
of the major concerns of the EU producers and a major issue in
negotiations. Once we get to an agreement for industrial products
it would mean full liberalisation and Member States would accept
it and be ready to live with it. On the other hand, trade defence
measures are possible vis-a"-vis most favoured nation partners
and preferential partners. Certainly there might be increasing
pressure to use trade defence measures if it is felt that there
is more unfair trading or unfairly exported products coming to
the EU market. There are possibilities there with or without the
success of the Doha Round.
Q116 Lord Woolmer of Leeds: You have
touched partly on industrial products there and you have told
us that the key areas in agriculture where you can see progress
being made. On the NAMA side of things, what are the key things
that divide the various parties to the negotiations at the moment?
Dr Balas: The single biggest question
is in agriculture because, unlike agriculture, NAMA consists of
single pillar market access, there are no substitution issues.
Certainly the ambition is for market access and what is a comparable
level of the liberalisation of markets to liberalisation in agriculture.
It is a question of what is a proportional reduction in tariffs
against a background which is very different from agriculture.
Overall, one could say that apart from a few exceptions agricultural
sectors across the world are rather heavily protected both in
developed and developing countries. There is a more comparable
point of departure than is the case in industrial products. In
industrial products, which was the major focus of liberalisation
in the history of the GATT, the tariff protection, especially
in developed countries, was rather low already. There are certainly
some peak tariffs but in developed economies, including the EU
and US, the average industrial tariff protection is around four
or five per cent. This is an average, there are certainly higher
tariffs. In the case of the EU there is one product which has
a higher tariff of 24 per cent and all the other tariffs are lower
and almost 40 per cent of the EU imports come duty-free, no tariffs.
The EU average is four per cent. Turning to developing countries,
the industrial protection, especially the contract-based or bound
level of tariffs is several times higher. In countries like Brazil,
India, ASEAN countries, the average industrial protection looking
at the bound tariffs is 30 per cent or higher against the EU's
average of four per cent. On the other hand, the applied tariffs,
the actual tariffs which after imports one has to pay at the border,
are lower, especially in countries like India where major autonomous
liberalisation measures have been undertaken. Other countries,
such as Brazil and Argentina, during the Uruguay Round undertook
to apply lower tariffs but maintain a high contractual level of
tariffs. Under the present negotiations the big question mark
is what is the value of cutting the difference between bound and
applied tariffs, in our jargon cutting water. Developing countries
claim that this should be taken as a full value commitment and
not just any other tariff reduction. Our companies say that they
are interested in what happens on the ground, i.e. can they see
their export opportunities increase or not. They are less interested
in the legal niceties of cutting this water. The truth is probably
somewhere between the two. On the one hand, consolidation, that
is cutting the water between applied and bound tariffs, certainly
has a value because it protects exporters against the possibility
of developing countries suddenly deciding to raise their tariffs
to the contractual level which they could do any time. On the
other hand, it is certainly not sellable to Member States and
EU industry that what would happen in industrial negotiations
would be just consolidation, basically cutting water and consolidating
your existing market access. This is the major point of contention,
to what extent developing countries should undertake such tariff
cuts which would result in giving new export and trade opportunities
for their partners.
Q117 Lord Woolmer of Leeds: If the
European levels are very low, what does Europe have to offer in
the negotiations?
Dr Balas: To agricultural exporters serious
tariff and subsidy cuts and a phasing out of export subsidies.
Q118 Lord Woolmer of Leeds: In industry.
Dr Balas: It is a single undertaking
where one sector can be bargained against others.
Q119 Lord Woolmer of Leeds: That
leaves services. What are the issues in the services area?
Dr Balas: Due to the characteristics
of services trade, there is no single figure like tariffs to express
the level of protection. These are various government measures.
It is much more difficult to establish a benchmark for ambition.
What happens is countries, including the EU, would follow two
targets. First of all, as in industrial trade, to consolidate
already existing market access, which is not bound under the WTO,
and in services especially there are a lot of unbound market access
possibilities. On top of that, to get some additional opportunities.
By definition services negotiations are bilateral, a contract
basically between two partners about dealing with specific measures
although the outcomes, the results, will be multilateralised at
the end of the Round. Overall, the EU would like to see in major
sectors of interest for the EU—financial services, telecommunication
services, business services—consolidation of existing market
access and in selected areas the obstacle removed.
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