Examination of Witnesses (Questions 130-139)
Mr Paolo Garzotti, Mr Edouard Bourcieu and Mr Jean
Charles Van Eeckhaute
23 JUNE 2008
Q130 Chairman: Thank you for coming to
meet with us today. May I start, Mr Garzotti. We are trying to
dig into what role you think the WTO will have perhaps in the
21st Century. Based on our experience of recent years, is there
a need for reform of the WTO? Would you make any changes to its
decision-making processes? It is really how could the WTO be better,
how could it be different?
Mr Garzotti: The way I see the WTO role
is that it should not be very different in the 21st Century as
opposed to the 20th. It has three main roles. One is to negotiate
multilaterally trade rules and liberalisation of markets. The
second function is to solve disputes. The third is to provide
transparency, exchange of information and some kind of monitoring
of what is going on in world trade thinking about Free Trade Agreements,
so the monitoring and transparency aspects of WTO. If there is
one field where the WTO probably would have to do something more
in the future than it has done in the past it is to have some
more activity in this third pillar, the transparency and monitoring.
On multilateral negotiations, of course, we are now facing some
difficulties in concluding the Doha Round. There were difficulties
in concluding the negotiating rounds in the GATT before and in
the Uruguay Round, so this may be normal. It is important to conclude
the negotiation to maintain the credibility of the WTO system.
If there is need for change in the decision-making and dispute
settlement? I would be very cautious in any changes to the decision-making
system personally that would involve an exception to the unanimity
consensus rule that is there now. One of the reasons why I personally
consider the WTO a special institution is the fact that one country
has one vote. It is not like other institutions where you have
one dollar one vote, this is one country one vote. Of course,
this creates limits and it has become clear with 152 members,
but I would be careful in changing the decision-making. As far
as the dispute settlement is concerned, we have ideas on how to
improve it and there are negotiations ongoing and the European
Community has made proposals to improve it. One is to give more
transparency to open panels and appellate body hearings to the
public. We could not have this done at WTO level because it was
not agreed, but some panels and hearings of the WTO where the
EU and US were parties have been open to the public. There are
other ideas on how to make the role of the panellists more professional
so that they are not just ad hoc diplomats or professors who take
up a case once in a while but a more professional body. There
is room for reform in the dispute settlement, improvements I would
call them, not radical reforms. Up until now it has worked reasonably
well so some adjustments are warranted, but not a major overhaul
of the system. One change to decision-making in the WTO that is
always supported, but for which we know the difficulties of having
it approved by other members, is the creation of a more parliamentary
dimension in WTO, to have a link between parliaments and the WTO.
For obvious reasons this is not something that all members of
the WTO support and this is one the situations where the unanimity
of consensus makes it difficult. We are supportive of that. That
is in relation to the reform of the WTO. There has been a lot
of work going on in the European Parliament and you might have
the opportunity to read the recent report on the reform of the
WTO that has been prepared by the European Parliament and the
rapporteur, Cristina Muscardini. It is an interesting report.
There is one thing in that report that we in the Commission think
is a timing issue that needs to be revised. It calls for reform
of the WTO during or even before the conclusion of the Doha Round.
This was the same response we gave to the Sutherland Report that
you are probably aware of. The reform of the WTO in certain areas
can be started and there are ideas that we can explore, but the
first priority now is to close this round of negotiations. We
do not have time to go through all of them, but one of the ideas
that could be interesting is more work on the transparency and
monitoring part. When one is monitoring Free Trade Agreements
there are a lot of bilateral and regional agreement negotiations
going on which probably need better rules and transparency. The
role of the WTO Secretariat and Director General, we could study
a way to make it more important with the possibility to propose
compromise solutions, for example, and so on, than at this stage.
Mr Bourcieu: Just one comment on this
question of the WTO in the 21st Century. One of the main challenges
for the WTO in years to come is how we can engage emerging countries
to play a constructive role in the WTO. For 10 years now they
have become very important players in the WTO, they are central
players and have been empowered, but in terms of responsibilities
they are still behind their weight in the role they play in the
system. This is probably one of the main reasons why there are
difficulties moving forward with current negotiations. It should
not be a surprise as their increased role is still a rather recent
phenomenon that the system has to integrate. After the DDA there
will be long-term work to be undertaken to build trust with emerging
countries on key issues for the future, first in the WTO but also
outside the WTO. We have now developed strategic partnerships
at EU level with most of them. We have to use these tools to have
wider ranging discussions with them, not only on trade but on
other global economic governance issues where their role in the
world system is also important.
Q131 Lord Maclennan of Rogart: Mr
Garzotti, you talked about maintaining the credibility of the
WTO system. Does it have any credibility with the developing countries?
Theoretically, free liberalisation must be good for everyone but
can you point to good examples of how it has actually benefited
developing countries?
Mr Garzotti: One simple answer would
be China or India or Brazil. Major developing countries, what
we call emerging economies, have broadly benefited from liberalisation.
The growth that we are witnessing in China, India, Brazil, Mexico
and Chile is due in part to the opening of world trade. The misunderstanding
that could be implicit in your question is what we are calling
developing countries.
Q132 Lord Maclennan of Rogart: That
is the point.
Mr Garzotti: I would say that is the
misunderstanding that is at the basis of many difficulties we
have in world trade now starting from the Doha negotiations. They
are grounded on this misunderstanding because they are called
the Doha Development Round. There are some developing countries
who think that the Doha Development Round means unilateral liberalisation
by the developed world. This is something that, being trade negotiatiors,
we cannot sell politically to our constituencies. It is something
that would not be fair if you are talking about developing countries
like the one I mentioned. Of course, putting in the same basket
economies and societies like China or India and Gabon or Guyana
is simply not feasible. If you want things addressed in the WTO
legally, you have just three categories of country: the developed
economies, developing countries and the least developed countries,
which is those that are recognised as LDCs by the United Nations.
If you are not an LDC and you are not a developed country you
are in the middle, and it is true that liberalisation could involve
risks for certain weaker developing countries, small and vulnerable.
Something we are defending and pushing and accepting in the DDA
negotiations and the WTO is that these countries will have to
follow their own speed in liberalising and in both agricultural
and industrial goods negotiations we are now undergoing there
is this. As far as the institutional structure of the WTO is concerned,
the WTO is the one multilateral organisation I would trust if
I was a small and vulnerable developing country because it is
the only one where I can say "no" and a deal would collapse.
As a matter of fact, in Cancun the Ministerial Conference collapsed
because four African countries were discontented with a solution
on cotton and on Singapore issues. It was a Ministerial Conference
that was derailed and failed basically for that reason.
Q133 Lord Maclennan of Rogart: There
are these three tiers that you are speaking of, but the decision-making
structure of the process, the institutional arrangements, do not
seem to reflect those differences of interest, particularly the
LDCs. You say they have got a protective device, which is their
veto, but that is not a heck of a lot of use if one is trying
to use it as a proactive mechanism for assisting their development.
Mr Garzotti: LDCs in the WTO have the
same legal right as any other member of the WTO. This is a peculiar
situation in a multilateral organisation because that is not always
the case. Of course, when addressing LDC issues you need others
who do not have LDC interests to look into it and do something,
which is what we did unilaterally with the Everything But Arms
Initiative in 2001 when we liberalised access to the EU for all
imports from less developed countries. It is true that other developed
members were not along that line but in Hong Kong we pushed for
100 per cent liberalisation for LDC products all over the world
and we managed to get to 97 per cent. We had an idea and language
to have this 97 per cent go to 100 per cent at a certain moment
in time. We are ready to look and negotiate with LDCs on Rules
on Origin applicable. I am not saying it is a perfect world.
Mr Van Eeckhaute: Can I add something.
A distinction should be made in the WTO between the formal decision-making
system, which is what is indeed regulated in the WTO Agreement
and where every member has one vote, and informal decision-making
systems. There we have seen an evolution as compared from ten
years ago where developing countries, and certainly the poorest
ones, had less voice, to a situation. Now de facto also
in the informal decision-making mechanisms, which are the small
groups which meet to negotiate issues, and which we call the Green
Rooms, they are present and can make their voice heard. This has
changed as a result of what happened in Seattle in 1999, and it
was clear in Cancun in 2003 that developing countries were able
to show their strength. Since then in these Green Rooms, where
about 25-30 members of the WTO are called together to try to make
breakthroughs, because you cannot do it with 152 members, all
categories of members, including LDCs and small and vulnerable
economies, are represented. A lot of critics of the WTO tend to
look at the WTO as it was ten years ago, rather than how it is
now and the evolution that it has undergone as a result of the
events I referred to earlier but also as a result of the personality
of the Director General, et cetera. A lot of the criticism
that one hears about sometimes about , for instance on Common
Agricultural Policy, also tends to be based on how this policy
was ten years ago, rather than on how it is now after the various
reforms it went through. What you sometimes hear in those circles
where they are very critical of WTO and of world trade, does not
correspond to the WTO as it is now and to how it has changed since
Seattle in 1999 and since Cancun as well.
Q134 Lord Kerr of Kinlochard: For
the purposes of the next five minutes, let us assume that the
Doha Round continues to go slowly or fails, does not reach an
immediate conclusion this year, what would the effect of that
be on the other parts of the WTO machinery? You elegantly described
the three roles at the outset, but how would the other roles be
affected? We, in London, used to believe in the bicycle theory,
that you needed to move forward in order to stay upright. We thought
the credibility of the dispute settlement mechanism and the role
as regulator would be weakened if there was not a continual liberalisation
of the system. Were we right or were we wrong? What do you think?
Mr Garzotti: I am not in a position to
say if you were right or wrong, they are both theories. I do think
if the DDA negotiation fails there will be an important effect
on the WTO as a whole and it will be very problematic for the
WTO to sustain this impact. First of all, on the dispute settlement
system the immediate reaction could be that as the political branch,
if you want, the negotiating branch of the WTO failed then some
of the objectives of the Member States of the WTO that could not
be achieved by means of negotiation they would try to achieve
by means of dispute. There could be an increase in activity in
the dispute settlement branch of the WTO. In my view, this has
risks. It has risks because constitutionally there is a limit
for the WTO as to how much they can bear in terms of disputes.
We have seen already a situation where the lack of political legitimacy
of the WTO made it difficult for Member States of the WTO to assert
judgments of the courts, let us say. At the beginning a shift
towards dispute settlement activity could be there and some success,
for example, in agriculture. I think there would be good cases
and successful cases that Brazil could bring against the United
States in particular and the new Farm Bill subsidies. It will
become more and more difficult for Member States to address world
trade just by means of dispute. Another aspect that will be affected
is the third pillar, the transparency and the monitoring. No progress
in the negotiation, in my view, will legitimise that branch. My
personal view is that a failure of the DDA could involve a serious
blow to the WTO as an institution in a situation where we need
a multilateral institution to address not just trade issues but,
for example, now we are facing climate change a lot of global
problems where multilateral solutions are the best solutions in
Europe's view. To have such a dramatic failure after eight years
of negotiation of one of the most successful multilateral institutions,
probably even a victim of its own success, would be a bad thing.
Personally, I do believe in the bicycle theory and we need to
make progress in the DDA if we want the multilateral system to
continue to be at the centre not just of Europe's policy, which
is and will be the case, I hope, but of other partners in the
WTO.
Mr Bourcieu: Maybe I could make one point
in addition to what Paolo has just said. Historically, the alternative
to negotiations in terms of moving trade liberalisation further
was dispute settlement within the WTO. The problem now is there
are more and more alternatives outside the WTO and in particular
in connection to very important wave of bilateral Free Trade Agreements
which is developing and which are to a certain degree motivated
by the frustration of some members of the WTO with the lack of
progress within the WTO. The risk in the future will be that alternatives
to WTO negotiations will be outside the WTO and progressively
marginalise the WTO as an institution.
Q135 Lord Kerr of Kinlochard: Yes,
I agree with all these points but I wonder if the situation is
not worse. Supposing the Doha Round broke on agriculture because
the US Farm Bill represents something which this President or
the next Congress would not go back on. You say the Brazilians
could bring very good cases against the United States, and I am
sure you are right, but I am not sure that the United States would
act on the decisions of the court, and then we would have a very
serious situation, we would be back to the situation in the middle
of the 1990s when we had the United States Administration not
sure that it was going to accept the jurisdiction of the court
and the Bob Dole monitoring mechanism and annual reports and all
that. We would be back to that and it might even be worse than
you say.
Mr Garzotti: I do agree that the dispute
settlement system can provide solutions, but if you do not have
a strong negotiating, call it political branch, then with too
much weight on the dispute settlement centre there is a risk it
will break. On subsidies there is another issue that is very sensitive
in the United States, which is the trade defence measure, where
there has already been a very severe attack by Congressmen and
Senators of the United States against WTO judgments on trade defence
measures. We have to look at Europe as well, and we know how problematic
disputes on GMOs or hormones have been. There is a limit to solving
problems by means of dispute. A failure of the DDA would risk
bringing the multilateral system beyond that limit.
Q136 Lord Woolmer of Leeds: Can I
ask you three things about industrial sectors. Do you think that
tariff reductions in the industrial sector are now so low in the
developed countries, and even in some of the developing countries,
like China, that there is not a lot more that can actually be
achieved there? If that is the case, what are the reciprocal reductions
that can be achieved under Doha that will help Europe and America
accept changes on the agricultural side of the package?
Mr Garzotti: The mandate of the DDA negotiations
as far as industrial products are concerned was to complete liberalisation
in industrial products and eliminate high tariff peaks which still
exist. A distinction has to be made between developed countries
and emerging economies and other developing countries, for example.
In Europe we have an average tariff on industrial products of
around four per cent. A successful Doha Round around the coefficients
that we are negotiating for reducing subsidies would bring the
average down to more or less two per cent. We still have some
peaks. We have more than 20 per cent duties on tuna which, believe
it or not, is negotiated as a non-agricultural product. We have
import tariffs of between 10 and 14 per cent on cars and trucks.
We have some bargaining chips and we have to remember that when
we are talking of tariffs of this kind in the European Union we
are talking of tariffs of that level for accessing a market of
half a billion people. In the EU we have a relatively high tax
on textiles and in the United States, not the same as we do, they
have sectors where they have high tariffs and textiles is one
of the cases. There is already a good deal of tariff reduction
on industrial products that can be done at the level of OECD developments.
Where there is a lot to be done is in developing countries and
emerging economies. While you are right that China has a very
low average of applied tariffs on industrial products, which is
due to the fact of their late accession to the WTO in 2001 and
they now have around a nine per cent average tariff, that is not
the case for India, a founding member of the GATT, which has an
applied tariff of ten per cent but has an average bound tariff
well above the 30s and has peaks that can go up to 100 or 150
per cent, for example, for cars. The same goes for Brazil and
other developing countries which maintain tariff peaks and protection.
I would say there is possible further liberalisation of industrial
tariffs seen where industrial production is moving more and more.
This further liberalisation would be in the interests of the developing
world because we now see who the big industrial producers are.
The next and most important chapter of negotiation on industrial
products will soon move from tariffs to what we call non-tariff
areas. This is already becoming a major problem between, let us
say, "grown-up" economies and that will be a major challenge
for the future and one of the functions, hopefully, of the WTO
and it is an agenda that we are pushing in the WTO to address
non-tariff barriers for industrial products.
Q137 Lord Woolmer of Leeds: That
is trade defence instruments, public procurement and all those
kinds of things?
Mr Garzotti: That is surely a part of
our agenda in the WTO, but unfortunately we could not even push
transparency in government procurement, let alone market access
in government procurement. They are not necessarily related to
industrial products.
Mr Van Eeckhaute: They are considered
as non-tariff barriers.
Mr Garzotti: In a WTO sense they are
non-tariff barriers. They are considered beyond the border, like
a regulatory matter, all those issues like—
Q138 Lord Woolmer of Leeds: Licensing
and so on.
Mr Garzotti: Yes.
Q139 Lord Woolmer of Leeds: You mentioned
climate change. As the European Union moves towards an increasingly
significant price of carbon, how is the WTO going to cope with
Europe wanting to protect carbon intensive industries and ensure
that simply does not result in an export where carbon intensive
industries set up elsewhere against running some kind of regulatory
protection? How do you fit climate change, the high price of carbon
and relocation of industries and so on into the agenda?
Mr Van Eeckhaute: Can we save this question
for the next session because they will have an expert on this
issue.
Chairman: That seems sensible.
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