Examination of Witnesses (Questions 261-274)
Mr Adrian van den Hoven, Mr Eoin O'Malley and Ms
Schild
24 JUNE 2008
Q261 Chairman: Thank
you for coming to see us today. I am going to start and ask formally
how you see the Doha Round working out? Do you think that its
prolonged nature has led many participants to give up on the whole
idea of multilateral trade arrangements? Is there a possibility
that failure to agree the Doha Round will compromise functions
of the WTO, notably the dispute settlement mechanism? Whoever
would like to put the formal answer to that on the record, I would
be glad to have.
Mr van den Hoven: We probably do not
see the Doha Round as failing or there is a likelihood of complete
failure of the Round, but we do see there may be some difficulty
in trying to conclude the Round by the end of this year, that
is while US President Bush is still in power, because we are already
at a point where now it will be technically very difficult for
the WTO members to file all of the commitments that they would
undertake. Nevertheless, we are supporting and calling for the
conclusion of the Round by the end of this year if it is possible.
One of the reasons why is because the Round has been going on
for too long from our perspective, and this is making some members
of the business community who are broadly supportive of the Doha
Round, at least among the European business community, very sceptical
about its prospects. As scepticism grows, it becomes more difficult
to mobilise people, even when they believe fundamentally in trade
liberalisation. Another problem or challenge with the Doha Round
and the business community is that the agenda of the Round has
got smaller over time, a certain number of issues, such as investment,
have been taken off the agenda and there are some concerns among
business about low ambitions for trade liberalisation in the Round,
whether for industry or services, as well as some problems in
areas such as intellectual property protection or anti-dumping
rules from our perspective becoming too flexible which would mean
an increase in the number of anti-dumping cases against European
exporters. That being said, in spite of the scepticism and the
concerns we regularly go to the European business community, our
National Business Association members at the highest levels, and
they still ask us to continue our work to advocate in favour of
concluding the Round. We had a meeting two weeks ago where all
of our presidents confirmed that, so there is still support in
the business community. On the issue of whether or not a failed
Round would affect the WTO dispute settlement system and WTO system
as a whole, a failed Round would obviously be very unfortunate
for the business community as the European Union is the biggest
exporter of both goods and services. In addition to that, we have
mixed views on how this will impact dispute settlement. On the
one hand, there would be no change to the agreement so the disputes
could be taken there and would normally function and be resolved
as normal and there should not be any change there, however it
is true there are some cases that are linked to the Doha Round
negotiations where certain governments, such as Brazil, are taking
the US or the EU to the WTO dispute settlement to try and push
them to go further in the Doha Round negotiations. If the Doha
Round fails they will be faced with panels which they have lost,
or will lose, and they would then have to adopt those changes
or reforms without anything in exchange, and that may be politically
very difficult. Another concern we have is the business community
sees growing protectionist tendencies around the world, but the
greater concern is in big trading partners, in China, in the US,
and in some Member States of the European Union although it has
not really affected the European Union to a great extent yet.
There is a lot of protectionist rhetoric today in those major
markets and, being the leading exporter in the world, that is
of great concern. Failure in the Round would probably exacerbate
that protectionist shift and that would be very risky for European
business.
Chairman: Thank you very much.
Q262 Lord Kerr of Kinlochard: May
I come in on that? That is an extremely interesting presentation,
thank you. Why is the voice of business, and I am sure you correctly
describe business views, so quiet in public? If you look at America,
the great trans-national corporations based in America, who have
more to gain than probably anybody else, are not resisting the
protectionist rhetoric of the election campaign, they are not
popping up. To a slightly lesser extent I fear the same is true
on our side of the Atlantic, where the NGOs shout at the Commission
for asking too much of developing countries and there is no very
loud countervailing force from business saying, "Free trade
is good for you. Opening your markets is in your interests as
well as ours". Why is that?
Mr van den Hoven: I cannot speak on behalf
of US business, but according to our US business counterparts
they see this protectionist rhetoric as rhetoric and it will subside
after the elections. We are a little bit more concerned than they
are, but maybe that is because we do not fully understand their
political system and what is happening on the ground there. When
it comes to European business expressing support for trade liberalisation
and rejecting protectionism and the like, we have really worked
hard on that point. One of our priorities is to reject protectionism
and to support trade liberalisation, of course, which is the more
positive outlook on that. We have been very, very active. One
of the difficulties we have faced is with the Doha Round the media
is no longer really interested in it. You are from the UK and
if you read the Financial Times you will note that the
number of articles and interest in the Doha Round has really diminished,
so it is very difficult to get anything into the media. We have
done a lot of activities and last year we mobilised at one of
the low points in the Round 40 CEOs to make a statement about
why they supported multilateral trade liberalisation in the WTO
and the like. Where we had 40 CEOs of mostly big companies, but
also a few medium-sized companies, no real small ones, that generated
almost no interest from the media. It has been a difficult time
to get out positive messages on trade liberalisation. Whenever
there is something going in the other direction, ie someone pushing
for protectionism or something, that gets an immediate strong
reaction, but positive views on trade liberalisation do not sell
in the media.
Q263 Lord Kerr of Kinlochard: Was
the Singapore issues decision a mistake, taking these issues off
the table? These were issues in which business in Europe had a
very real interest and issues the public could understand, such
as investment protection. Maybe it had to be done, maybe it was
inevitable they had to be taken off the table, I do not know.
Is that part of the problem? It is not so obvious what we stand
to gain. NAMA in Africa is no big deal for Europe, but services
yes. Are there too few things that European business really want
this time around?
Mr van den Hoven: Three of the four Singapore
issues had to be taken off the agenda otherwise the Round would
have been dead and the business community reluctantly accepted
that trade-off, in Europe at least, that we would have to abandon
those issues or abandon the Round altogether, and then we would
not have gotten those issues either. It was quite well understood
after the breakdown of the Ministerial meeting in Cancun that
those issues, in particular investment, would not work in this
very politicised Doha negotiation around that issue. For European
business there are sufficient export interests, market access
interests in the Round to keep the business community on board
because the European Union is such a big exporter of services
and industry and there is real interest. I would say you are correct,
the business community is not clamouring to open markets in sub-Saharan
Africa or really poor countries, but it is adamant about opening
the markets of emerging countries. The reason for that is the
development of China. In the space of 10 years China has gone
from being a nobody in international trade to being the third
biggest exporter and most of the business community thinks other
emerging countries are following that path and will become big
exporters. For the business community, India is probably the most
likely candidate for that, but also other countries like Brazil.
We suspect in the future these emerging countries, like China,
will be very serious competitors to European business and that
is why, as this Round will be implemented over a 10 or possibly
15 year period, we have to look at this Round as setting the trade
rules not for next year but for 10, 15 years from now. That is
where we think these emerging countries are going to be very strong
and we need that Round to open those markets in a balanced way
otherwise we will have certain industries who would not like to
see the Round concluded. Overall they are in favour but there
are a few who say, "If we get a bad deal with the emerging
countries, we would rather have no deal".
Lord Kerr of Kinlochard: Thank you.
Q264 Lord Maclennan of Rogart: Following
on Mr van den Hoven's point that there is fear in industry that
the ambitions are too low, we have heard it said in evidence to
us that tariff reductions in the industrial sector that are achievable
have just about gone as far as they can go. Do you think that
is true or do you think there is scope for further reductions
on the industrial side in the current Round?
Mr van den Hoven: We disagree with the
other evidence that you have received on that. The European Union
is the second biggest importer in the world and that is growing
because we are in a high currency zone, so it is likely that we
will soon be importing roughly one trillion euros per year. What
that means in trade negotiating terms is even a reduction of very
low tariffs, or the elimination of small tariffs, has a significant
impact on imports into the European Union and provides significant
savings for countries exporting to the European Union or for importers.
In addition to that, the European Union still has high industrial
tariffs on textiles, all of the automotive sectors, cars, trucks
and the like, as well as some electronic products. I would say
medium level tariffs on chemicals. With the exception of aerospace,
those cover most of the European Union's trade, the biggest share
of its industrial trade. From our perspective, the trade volumes
and these peak tariffs have to be reciprocated by our trading
partners. We simply cannot allow the European Union to lower those
tariffs without getting anything in return. This is one of our
major concerns with the Doha Round. It has nothing to do with
the very poor countries of the world that are members of the WTO,
but it has to do with the emerging markets as well as something
in the Doha mandate which is a commitment that peak tariffs will
be eliminated. What we see today is that mandate for the elimination
of peak tariffs will not be fulfilled. I can give a specific example.
Most emerging countries have an automotive tariff of about 35
per cent, some much higher but very few have an automotive tariff
below that, and the European automotive tariff is 10 to 20 per
cent for trucks. In the Round the automotive tariff will go to
below five per cent, probably to around 4.5 per cent. We know
that most of the emerging countries will keep their tariffs on
automotive at 35 per cent, which means that in this sector we
will have a huge imbalance, we will not be able to export very
many automotives, maybe very, very expensive cars, maybe some
Jaguars or Porsches or something like that, but very few mass-produced
cars and that creates a challenge.
Q265 Lord Maclennan of Rogart: I
guess I was asking not what was desirable but what you thought
might be achievable. You have just said that our evidence is wrong,
but perhaps it is not wrong in respect of the automotive industry
with 35 per cent. Are these immovable objects?
Mr van den Hoven: We think that the European
Union has not put enough emphasis on this in its negotiations
in the Doha Round. The EU has privileged its defensive interests
in agriculture over its offensive interests in industry.
Q266 Lord Maclennan of Rogart: So
you genuinely think that there is a quid pro quo that we
can offer?
Mr van den Hoven: Yes.
Q267 Lord Maclennan of Rogart: That
might unlock the 35 per cent, to take that example?
Mr van den Hoven: Yes.
Q268 Lord Maclennan of Rogart: We
are talking about China or Korea, are we?
Mr van den Hoven: India as well.
Q269 Lord Maclennan of Rogart: How
interested are they in our agricultural support systems?
Mr van den Hoven: You cannot do it all
as a trade-off for agriculture but you can make a trade-off within
industry as well. For instance, with China I think you could make
very strong arguments that China has to open its market further
just by looking at its position in terms of exports in the US
and the EU, and there has to be some balance there. With India
that is probably more difficult, although we have to admit that
India has been autonomously liberalising its industrial sector
over time, so they are not completely closed to the idea of liberalisation.
There has to be some discussion with India about how to advance
that. Perhaps some further concessions from the EU on services
towards India might be a way of convincing the Indians, but we
think there has to be further pressure from the European Union
on the industrial side. We do not think that it should let up
and should allow a free ride for the emerging markets on industry.
Q270 Chairman: Do you see there still
being a place for trade defence mechanisms, anti-dumping and the
like? How can these mechanisms best be designed to be effective
without damaging European firms with overseas suppliers which
seems to be the difficulty?
Mr van den Hoven: The second is more
difficult. In answer to the first question, we think that there
is a place for trade defence in EU trade policy. First of all,
the reality of the international trading system is that it is
not always fair and that there is a lot of dumping and a lot of
subsidisation around the world. What we see in many of the key
emerging markets which over time are becoming the key trading
partners of the European Union—the growth of trade with
emerging countries is much higher than the growth of trade with
industrialised countries—is emerging countries are increasing
state intervention into the economy, not decreasing it, and this
leads to a lot of distortions in trade.
Q271 Lord Kerr of Kinlochard: Does
it matter?
Mr van den Hoven: It does matter when
it has adverse effects on EU industry. A country which is increasing
its state intervention in the economy is Russia and some of the
things it is doing—
Q272 Lord Kerr of Kinlochard: If
it is t-shirts or trainers, the kids in the shops of Europe do
not care where it comes from. Do we really need to preserve a
t-shirt or trainer industry? Do we?
Mr van den Hoven: I do not think we need
to preserve a t-shirt or trainer industry but we need to maintain
fair conditions and if that industry can survive it is able to
survive. The European Union has a fairly efficient textiles, clothing
and shoe industry—
Q273 Lord Kerr of Kinlochard: At
the high end of the market.
Mr van den Hoven: Also in some ways at
the low end of the market. You have to keep in mind that the European
Union also includes some very low wage countries and, therefore,
the idea that the textiles industry is just going to disappear
because the European Union is all like Sweden is a misunderstanding
of what the European Union economy is. Romania has the same level
of GDP per capita as Brazil, so we have to keep that in perspective.
In many East European countries we still have a substantial amount
of low end manufacturing and that has to be kept in mind. What
also has to be kept in mind with trade defence is that the main
users are not the textiles and clothing industries, although there
have been some very high profile cases recently. The main users
are energy intensive industries: metals, chemicals and the like.
These industries are not only important in terms of exports—chemicals
is among our top export industries—they are also very important
in the value chain of the European Union's manufacturing industry.
The chemicals industry, which is the biggest user of trade defence,
is the base for most of the manufacturing industry, a lot of the
innovation of the manufacturing industry, for instance, in pharmaceuticals
but also in others, paints and various things for the automotive
industry and the like, lots to do with agriculture. These industries,
and you could make a similar case for metals, argue that if you
let the basic chemicals or metal industries disappear the high
end chemical industries or high end metals industries will also
disappear. If the European Union loses the high end of those industries
then we will be in trouble in terms of maintaining a strong manufacturing
industry in the European Union. There is a third aspect about
trade defence beyond the industrial competitiveness aspect, which
is that without trade defence it is very difficult to get some
industries to support trade liberalisation. Of course, that may
seem contradictory because you can say you are going to liberalise
trade and then use anti-dumping to protect it again, but it is
not quite that way because when you liberalise trade it is much
more substantial than trade defence. Trade defence affects around
one per cent of the European Union's trade whereas something like
the Doha Round affects probably 80 per cent of its trade. I believe
you do need some kind of safety valve there for certain industries
or you will have a lot of difficulty getting industries which
are big exporters, like the textiles and clothing industries,
to support certain trade liberalisation agreements. I can state,
for example, that on the Green Paper on trade defence, which was
a debate here in Brussels over whether or not there should be
a reform of trade defence, unfortunately this provoked a reaction
against trade liberalisation by some groups who said, "We
can't trust the Commission, they don't care about industry any
more" and the like. I think that was the wrong reaction but
that is the way it is. If I can move to the second question, which
was how it affects overseas suppliers, that is more complicated.
It is true that overseas suppliers can be caught in anti-dumping
or anti-subsidy cases and then face duties, just as, let us say,
any foreign company could and that is always going to be very
difficult and one of the risks associated with supplying outside
the European Union. That is why trade defence rules need to be
as transparent and predictable as possible. If they become unpredictable
and they are decided just on the basis of who is the strongest
lobbyist then that would be very risky for business. I also think
that often it is perceived that trade defence is purely a political
game, maybe a political game between Member States, the Italians
wanting some kind of protection or the Germans and British not
wanting it, or vice versa if you talk about something like salmon,
but it is more than a political game between the Member States,
it is also inscribed in a very strict set of international WTO
and EU rules and very often these cases end up before the Court
of Justice of the European Union. That is why I think there have
been discussions here in Brussels about giving a kind of dispensation
to European affiliates, for instance in China, from anti-dumping
or anti-subsidy, which sounds very politically appealing, but
when you try to put that into the framework of law it makes it
completely impossible because none of our affiliates in China
have European passports, so from a legal perspective they are
simply Chinese or Indian or American or whatever companies. This
discussion over overseas suppliers can be very difficult but trying
to create special rules for that will be next to impossible in
this context.
Chairman: That was rather our impression.
Q274 Lord Kerr of Kinlochard: Can
I ask about the link between bilateral agreements and the Doha
Round, particularly on services. Supposing we do not do very well
on services in the Round or there is no agreement in the Round,
do you see the right step for pursuing our interests in export
of services being to increase the number and the content of bilateral
agreements?
Mr van den Hoven: Eoin deals with bilateral
agreements, so I will let him answer.
Mr O'Malley: First of all, on the whole
we are supportive of the EU strategy on bilateral FTAs, we think
that the current approach on the Global Europe response
to the economic realities of high growth markets in Asia we need
to pursue and we do not see bilateral agreements as a risk to
the WTO, at least from the perspective of the European Union.
The European Union has maintained its commitment to the WTO ever
since we launched this latest round of agreements. If you look
at a country like India which may have slightly less trade negotiating
capacity, we note that in our bilateral agreement with India they
are prioritising the WTO over dealing with us on the FTA, so that
is slowing the process down. In general that specific question
on the delay between the two is reasonably able to be resolved.
On the issue of services, yes, we must pursue the FTAs as a vehicle
for liberalisation in services. In terms of the hierarchy of mechanisms
to deliver services liberalisation, far and away the best route
so far in terms of delivering that has been accessions to the
WTO. If you look at Ukraine, Vietnam, and the commitments that
they have made in joining the WTO over the last year, those are
far and away the best commitments of anybody in the WTO, including
the EU and the US. Those markets are almost completely open in
the key sectors that we outlined earlier. Beyond that, we see
the WTO as a way to tackle a broad number of members and, after
that, preferential agreements. The WTO did a study a couple of
years ago on the outcome of preferential agreements in services
and that showed there is a varied picture. In some agreements,
particularly those between developing countries, there is very
little new liberalisation under preferential Free Trade Agreements,
but if you look at the agreements between the United States and
in particular small partners that they have negotiated with since
2003 you can see major results, real new liberalisation in key
sectors dealing with substantial issues of equity caps but also
barriers to cross-border trade. We think that the EU has the prospect
of achieving similar results in its negotiations with Korea, India,
the ASEAN countries as we progress, not that those negotiations
are easy and we do not kid ourselves that is the case. As we have
seen over the last year, delivering results is not a straightforward
process and may, indeed, be a long one, but we do think it is
possible. On services in particular it is important to stress
that if the EU wants to receive something it must also be prepared
to concede something. As Adrian has already outlined, the area
of temporary movement of service providers, so visas related to
service provision for Indian high-tech specialists, for example,
is an area where the EU can do more in order to get more on services.
As a last point on the FTAs, we would stress that while maybe
under the current conditions in the WTO Round it is difficult
to envisage this, we certainly do not rule out FTAs with OECD
countries in the future. Our major trading partners are the US,
our largest trading partner, and we do not rule out in the medium-term
as a vehicle to secure our position in that market trade negotiations
with the US, nor do we rule them out with Canada or with Australia
or other countries. That is just an overview.
Chairman: Thank you very much, that was jolly
useful. We have not had much opportunity to ask the representatives
of business what they feel about this, but it has been extremely
useful. Thank you for coming.
|
