Examination of Witness (Questions 280-295)
Mr Fredrik Erixon
24 JUNE 2008
Q280 Lord Kerr of Kinlochard: And
the lot is lost.
Mr Erixon: Yes.
Q281 Lord Kerr of Kinlochard: So
the stakes are quite high.
Mr Erixon: The stakes are high. So far
the dispute settlement mechanism has been a great success, particularly
when you look at compliance with the rulings of the panels or
the appellate body. There have not been very many cases where
we have come to a position where retaliatory actions have been
taken because countries that have been ruled against have not
changed their policies. One important matter concerns the United
States and that is the case brought against the United States
by Antigua relating to online gaming. It is an issue of interest
because we are talking about a situation where one big country
has been ruled against in favour of a small country and the small
country does not have the clout that it needs in order to take
retaliatory action. If Antigua, for example, was going to take
retaliatory action amounting to the same losses it has suffered
from the United States regulations they would have to slap a tariff
on a substantial part of their imports from the United States
and they cannot do that. I see new problems of a similar kind
coming down the road if we are not going to see any developments
in this Round or what is going to happen afterwards.
Q282 Lord Kerr of Kinlochard: Does
that take you to thinking that any outcome is better than no outcome
from the Doha Round?
Mr Erixon: No. We have already reached
a position where whatever outcome that comes will be so weak and
so, not meaningless but will not be of any considerable importance
to anyone or anything in the WTO that the interpretation of the
outcome will be that we do have a big crisis in this organisation.
Q283 Lord Kerr of Kinlochard: The
argument for a fairly meaningless outcome would be (1) that it
was an outcome, and (2) if you are binding tariffs, say, even
if they were highly academic now, that binding might be valuable
if the world spins further into protectionism because you cannot
rule out people doing really dreadful things, so it might be worth
doing to create a sort of firewall against things getting worse.
Mr Erixon: Yes, I think that is true
to some extent. I am clearly in favour of that sort of development
where you at least get a good binding of the tariff levels. I
am not so afraid that rising protectionist sentiments are going
to lead to any big increases or considerable increases in tariffs,
at least not from the major countries or the 30-odd countries,
counting the EU as one, that represent nearly 90 per cent of all
trade. For industrial tariffs, I think most countries are aware
of the integration of their companies and their production with
the rest of the world and they understand that if we do introduce
a tariff on something there is not only going to be retaliation
from another country, your own firms are going to suffer from
increasing production costs. Since supply chains are so fragmented
and production networks so dense that I do not envisage any problems
there. When you look at agriculture tariffs, I do not think that
any binding in this Round is going to be very substantial. The
real development when it comes to binding of tariffs will be from
the European Union and I do not think the European Union is going
to increase its applied agriculture tariff levels in the future,
partly for the reason that it does not have to given current market
conditions and because its broad, long-term development of decreasing
the subsidy levels of individual farmers will lead to a subsequent
lowering of tariffs. For many of the other countries tariffs are
not going to be that big a problem when it comes to binding. Then
we have subsidies. I think it would be good to get any form of
binding from the United States, but I do not think the binding
level of subsidies that is going to come out of this agreement
is going to constrain them in any meaningful way.
Q284 Lord Kerr of Kinlochard: On
our side of the Atlantic I suppose the French policy would tend
not to tariffs but to some non-tariff barrier of more sophisticated,
complicated kind, perhaps phytosanitary checks.
Mr Erixon: Yes, indeed. I do not think
we are going to see any development at all there.
Lord Kerr of Kinlochard: Thank you, my Lord
Chairman. I have made myself very gloomy!
Q285 Lord Maclennan of Rogart: This
morning we heard from Commissioner Mandelson about the high stakes
in the Doha talks of, I suppose, lost opportunities for greater
trade and for Europe. How well do you think Europe has acquitted
itself in these negotiations? How do you appraise the performance
of the institutions and the line that the governments have taken
collectively?
Mr Erixon: To start with, trying to sequence
different phases of European decisions, I think we can call this
a European Trade Round because Europe was the main initiator of
this Round, it started with Sir Leon's attempts in 1997 to kick
off something called the Millennium Round and that led to the
Seattle Ministerial where the Millennium Round was going to start,
but it did not, and then we ended up with the Doha Round. The
European Union was very enthusiastic about this particular Round,
partly as an interpretation of the Uruguay Round that something
needed to start very soon to deal with the built-in mechanisms
of the Uruguay Round, in particular on agriculture, and partly
as a consequence of the fact that Europe was on the way to integrating
former Communist countries in Eastern and Central Europe and understood
we needed every sort of mechanism to make sure that integration
would not lead to a substantial increase in subsidies, in particular
agriculture subsidies. At the time of Doha Ministerial, Europe
was still very enthusiastic, although there were different positions
between the European Commission and some individual Member States.
From Sir Leon's first attempts up until 2001 there were developments
on some policy issues, in particular the Singapore issues were
much more emphasised on the side of Europe. Environmental and
labour standards were heavily pushed by Europe in advance of the
Doha Round and in Doha the Commission, as well as individual Member
States in Europe, made many attempts to get them into the agreement.
But they did not succeed. Until Doha, Europe was very enthusiastic
and actively engaged. It has continued to be actively engaged
but I do not think it has assumed its leadership role to the extent
I would have liked to have seen both in terms of concrete negotiation
and leadership on content. What do you need to deliver as a leader
for the entire negotiations in order to move forward? It is pretty
fair to say that when that deal between Gerhard Schroeder and
Jacques Chirac was made at the outskirts of the EU Summit on the
future of the CAP we all knew what was going to happen to the
Doha Round because it did not deliver enough reform for Europe
to go to other countries to say, "This is our red line but
it is something you could accept because it is a considerable
liberalisation that we can commit to". The CAP decision then
was for the 207-2013 period, and the decision, which killed a
lot of enthusiasm in other countries, meant that little would
come out of this round in agriculture. Then Europe started to
have problems and became very, very defensive after that point,
partly because it also had to discharge many of its more offensive
interests, in particular at the Cancun meeting with three of the
Singapore issues being discharged. It did also accept discharging
those issues as an idea to try to buy off any offensive interest
on the part of the agriculture liberalisers. If Europe was not
pushing so heavily for new Singapore rules they thought they were
not going to be so heavily attacked by other countries for not
liberalising agriculture so much. But that was a miscalculation.
Since then all negotiations have basically been about agriculture.
We have had developments when it comes to industrial, NAMA affairs,
but all other negotiations have been waiting for what is going
to happen on agriculture. For obvious reasons, Europe has had
difficulties committing to any further reform when it comes to
agriculture because we do not know what is going to happen after
2013. Member countries, in particular France, Ireland and Hungary,
to some extent Poland and a few other countries, have blocked
all sorts of efforts in order to commit to post-2013 developments
when it comes to subsidies, leading to obvious problems. This
has also led to problems when it comes to negotiating tactics.
In 2005 and 2006 Europe behaved not very constructively because
it was not prepared to take part in meaningful negotiations by
disclosing what it was suggesting and for a very long time it
insisted on hiding different tariff lines and different subsidy
lines behind the general proviso it opted for, and that was a
proviso representing eight per cent of all tariff lines. Eight
per cent of all tariff lines can mean 80 or 90 per cent of all
trade because trade is very much concentrated in a certain number
of goods. Europe became very defensive and was very defensive
until 2007 and then it started to get confused because it opted
for different strategies. It launched its Global Europe
strategy in 2006 which opened the door for bilateralism again
big time. Europe had had a moratorium on the FTA negotiations
since 1999 and now this door was open again and everyone understood
if you open it for substantial bilateral negotiations with big
countries that is going to be your main focus. It was confused
for a while but, at the same time, it tried to move negotiations
forward. Europe was very much behind the Potsdam meeting in 2007
between the big four where there were attempts to try to stitch
together a deal but that failed. Europe was not prepared to deliver
what I think is necessary for this Round to conclude but, at the
same time, it wanted to have the negotiations going and it tried
and tried to make things move forward, but they did not.
Q286 Lord Maclennan of Rogart: That
is a long and very full answer. I would like a footnote about
that. You have been pointing to the failures in all sorts of way,
but what is the way forward in your view for liberalisation?
Mr Erixon: You mean for Europe or the
system itself?
Q287 Lord Maclennan of Rogart: For
the system. You said that you do not expect the WTO to be able
to do these things again and you are clearly not very optimistic
about this Round being finished successfully. You are not just
a constitutional pessimist, I am sure, you must have some ideas
as to what would be the right approach, particularly for Europe.
Mr Erixon: Yes. My view on this is not
much different from what actually has happened in the last 20
years. Looking back, there is not much liberalisation that has
come through the WTO. If you look to developing countries, roughly
65-70 per cent of all trade liberalisation achieved since 1980
has come by unilateral means, by unilateral negotiations opening
up new markets. Another 15 per cent has come from regional and
bilateral negotiations and the rest from multilateral negotiations.
When you look at developed countries, particularly Europe, when
it comes to industrial manufacturing tariffs, and we are talking
about fairly low tariffs on most goods, there are a few tariff
peaks but the average tariffs are very low. It is not going to
happen so much on this front. When it comes to agriculture it
is entirely autonomous liberalisation that must come before you
can commit to any sort of binding or agreement in the WTO.
Q288 Lord Maclennan of Rogart: Thank
you.
Mr Erixon: When it comes to services
and non-tariff barriers that is something that is going to be
opened up on an autonomous basis because it is too difficult to
negotiate. You can easily negotiate about tariff lines and subsidies,
but negotiating about regulatory systems which sometimes are not
there for any protectionist reasons, but because of different
sorts of traditions, that is going to be very, very difficult.
When I look into the future, looking at services, investment and
agriculture, which are the three main areas for future liberalisation,
most of the liberalisation in future will come by autonomous liberalisation.
Q289 Chairman: Your hypothesis really
is that the EU lost it at the point when we failed to reform the
CAP, we left ourselves with not enough to give away. Other witnesses
have also told us that the goals and ambitions of countries like
China, India and Brazil are not accommodated effectively, there
just is not enough to go for for them in the current trade negotiations.
Would you say that was fair, that the tariff reductions obtainable
probably do not make enough difference to them?
Mr Erixon: It is absolutely true for
Brazil when it comes to agriculture, but it is not true when it
comes to industrial tariffs. There I think they are very happy
with the current status of the negotiations. India is even happier
about the current status of negotiations because they have defensive
interests in agriculture as well as industrial affairs. Their
interests have been accommodated by the negotiations in the sense
that it has not moved forward to any significant degree. China
has been on the sidelines watching the negotiations and not taking
an active part. They are a new member since 2001, they want to
watch and learn, but also they undertook commitments in their
accession which go far beyond the current levels of commitments
in most developing or emerging countries. They have not had any
particular reasons to try to push for anything because they have
understood that then they must start to liberalise their economy
further. I do not think it is correct or meaningful to point the
finger to Europe or to the United States only when explaining
why this Round has not moved forward as it should. It is not an
issue about Europe or the United States, there are many participants
whose actions have led to the current situation, including Brazil,
India and to some extent China, but also many other countries.
Chairman: Thank you. We had not really thought
much about that.
Q290 Lord Kerr of Kinlochard: What
about the least developed countries? Have they gained much from
the whole multilateral process? Do they stand to gain much from
whatever might happen next?
Mr Erixon: I do not think they have gained
much because they cannot gain much. If you look at LDCs, the really
poor, the 49/50 countries that are poorest in the world, their
trade and trade potential is so small that neither the WTO nor
any other form of agreement can give them big benefits in that
regard. If you look at their trade, a very high proportion of
their trade is traded under preferential tariffs in various sorts
of agreements, the Everything But Arms agreement or African Growth
and Opportunities Act in the United States. China and India operate
preferential agreements for LDCs as well. I think the WTO has
influenced these countries positively when it comes to institution
building, building up a trade political institutional structure
that is coherent, based on good rules and transparency. On the
trade facilitation side I think the WTO has been a positive influence
as well. If you are trying to assess in terms of volumes of trade
and in that sense cash benefits, revenues from trade, it has been
very small for these reasons.
Q291 Lord Kerr of Kinlochard: What
should we be trying to do? Is the regional concept right: do they
stand to gain most from taking down their barriers against each
other?
Mr Erixon: I do not think so for the
reason that their neighbouring markets are very small. For most
of these countries the best way to grow with the help of trade
is to head for the big markets where the purchasing power is.
There are benefits to be made by regional integration but they
have been wildly exaggerated. It is also going to be tremendously
difficult to try to achieve any form of regional integration,
and I am talking largely about African countries since a great
proportion of the LDCs are African countries. We are not talking
about industrial production at all, we are largely talking about
raw materials and some EC refinement of raw materials and that
sort of trade. It is very difficult to fragment supply chains
in a way that you will have regional trade between countries before
it is shipped off.
Q292 Lord Kerr of Kinlochard: I agree
on raw materials, particularly things like commodities, metals
and so on, but there the obvious thing is for investment protection
agreements which will greatly encourage the inward investor, although
that appears to be a non-subject.
Mr Erixon: Indeed. Everyone has been
afraid of trying to move that issue forward again since the fall
of the MAI. There have been attempts in the European Partnership
Agreements but the attempts and efforts have not been very strong
because of hesitance on the side of the African countries.
Q293 Lord Maclennan of Rogart: Can
you tell us how you see the negotiation of bilateral agreements
meshing, if at all, with what is being attempted in the multilateral
sphere, particularly the European efforts with Korea, India, ASEAN
and so on? What is the interface, if any?
Mr Erixon: These negotiations started
at a late point in the Doha Round, so I do not think the launch
of these negotiations has been a reason why the Doha Round has
not been moving forward, but they have complicated matters. They
have certainly complicated matters when it comes to resources,
personnel, having time to actively be engaged on all different
fronts. Global Europe itself concerns 21 or 23 countries
that are pointed out in the strategy and some of these countries
are parts of groups where negotiations have been going on for
a long time and some of these countries are new countries. In
addition to that we have the Economic Partnership Agreements and
they took a long time for the Commission to negotiate and engaged
in all sorts of discussions. I do not think the European Commission
had the capacity to negotiate all these bilateral regional agreements
at the same time as devoting enough resources, time and energy,
particularly intellectual capacity, to work on the Doha Round.
Q294 Lord Maclennan of Rogart: Looking
at this from the outside, how would you prioritise these matters,
or would you attempt it in some way to augment the resources available?
Mr Erixon: It is difficult to say given
the circumstances at hand. I am not really sure. Let us say that
the Doha Round had not moved at all and the prospects for any
sort of development at all in the Doha Round were very bleak,
at that point what should we have done? Assuming problems in Europe
when it comes to trying to achieve unilateral reforms, service
market directives, ports liberalisation, many of the Lisbon agenda
areas, financial services for example, and all these attempts
failed, what should we do then? We can look at some bilaterals,
that is true, but I do not think I would have chosen the new bilaterals
that Europe chose. I would not have chosen ASEAN at all, in particular
not to try to negotiate a common deal with all ASEAN countries.
I would have gone for an FTA with Singapore and FTAs with other
countries subsequently that would have liked to have a good FTA,
Thailand, for example, and Vietnam. I think these countries would
have been able to negotiate an FTA with Europe. Then I would have
headed for the two big markets in Asia which matter, China and
Japan. Negotiating FTAs with them would have been too complicated,
but in a non-FTA setting the EU could negotiate and address regulatory
concerns between Europe and Asia, regulatory concerns on both
sides. I would have tried to move that agenda much further. With
India we could have made a similar effort but not negotiating
an FTA. With South Korea an FTA negotiation was necessary due
to the American FTA negotiation with South Korea. If the United
States had ratified that agreement it would have put a lot of
European companies in a disadvantaged position, so Europe also
needed to try to get the same preferential access to South Korea
as American companies. Apart from that, I think I would have been
very slow on FTA negotiations.
Q295 Chairman: That is extremely
interesting. I am sorry we do not have time to go on. Thank you
for your very carefully considered and thoughtful answers which
have told us a few things we had not been thinking about. Before
we go, is there anything you feel we have missed that you would
like to tell us about?
Mr Erixon: The only thing I would stress
is when you look to the future at important trade policy decisions
as well as trying to find an intellectual structure for European
trade policy I would focus much more on domestic reforms, single
market reforms, making sure that on services and investments Europe
is able to negotiate strong agreements, whether it is multilaterally
or in bilateral negotiations with important partners for the future,
but none of this is going to happen before we see reforms at home
in Europe. To end with a quote, it is proper to say that internationalism,
like charity, begins at home.
Chairman: That is a very clear and interesting
thought. Thank you very much indeed.
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