Memorandum by International Trade Centre
Please refer to your letter dated 30 November
2007 calling for the written evidence as part of the inquiry on
the European Trade Policy being conducted by the House of Lords,
European Union Committee.
The International Trade Centre (lTC) is the technical
cooperation agency of the United Nations Conference on Trade and
Development (UNCTAD) and the World Trade Organization (WTO) for
business aspects of trade development.
lTC's three objectives are (i) to strengthen
the international competitiveness of enterprises; (ii) to develop
the capacity of trade service providers to support businesses
and, (iii) to support policy-makers in integrating the business
sector into the global economy.
lTC's responses to the questions asked in the
public call for evidence have been provided from the vantage point
of view and interests of the small exporting enterprises of developing
countries.
INQUIRY INTO EUROPEAN TRADE POLICY
ITC INPUTS[1]
Q1. What are the future prospects for the
multilateral trade negotiations? What effect will the rising number
of bilateral agreements have on the existence and further development
of multilateral agreements?
1. The hallmark of multilateral trade negotiations
in GATT/WTO has been the exchange of reciprocal trade concessions
amongst members. The degree of reciprocity is roughly aligned
to the size of the market and the stage of development of Members.
As a result, the concessions made by developing and least developed
Members reflect less than full reciprocity to the concessions
made by developed Members.
2. The Doha Development Agenda (DDA) has
not progressed well because of the mismatch between the demands
of all developed countries for tariff cuts on industrial products,
which are driven up by the extent of unilateral reform in developing
countries and the political economy considerations in developing
countries. Moreover, the agriculture trade negotiating strategies
pursued by the United States[2]
(US) of balancing their interests between concessions on domestic
support with the gains on market access is not politically viable
in their major developing country trading partners and even perceived
as unfair.[3]
In reaction, developing countries have questioned the extent and
relevance of concessions promised by US and EU in agriculture
and perception has gained ground that the principle of less than
full reciprocity has been jettisoned. These positions on exchange
of reciprocity of trade concessions have trapped the DDA in the
vicious circle resulting in lack or slow progress of the round.
Least developed countries are out of the equation of reciprocity,
as they are not obliged to undertake major commitments. Many of
them will, however, experience erosion in preferential trading
margins. Aid for trade initiative is expected to respond to their
call for assistance on trade development to. help them integrate
in the global economy.
3. Favourable developments in the global
economy and the projections of minimal additional contribution
to the global economy by the expected outcome of DDA has made
Members reluctant to put extra negotiating capital behind these
negotiations. Robust agriculture commodity prices may further
dampen the motivation to conclude DDA rapidly.
4. However, the relevance of the WTO in
providing stability to the international relations in the field
of trade and keeping the protectionist sentiments in check have
driven Members to continue to strive for conclusion of the negotiations.
Therefore, as soon as some of the political economy considerations
change, and other parameters that detemine international trade
relations turn favourable; Members are expected to seriously engage
in these negotiations.
5. Leaving aside the yet inconclusive debate,
whether bilateral/regional agreements are trade creating or trade
diverting, the following description summarises the views expressed
by private sector representatives in our engagements with them
on the reasons for rise in number of bilateral agreements and
their effect on the existence and further development of multilateral
agreements:
(i) Bilateral/Regional agreements, such as, the
US African Growth and Opportunities Act (AGOA) and US FTAs with
some Central American countries have been concluded in reaction
to the implementation of WTO agreements (the end of textiles quotas).
One of their objectives is to maintain some preferential access
to beneficiary countries.
(ii) The preferential trade arrangement between
the European Union and Asia, Pacific and Caribbean (ACP) countries
is a well-known feature of international trade. The ongoing negotiations
on Economic Partnership Agreements (EPAs) are attempting to align
this historical relationship with the multilateral trading system,
though many ACP countries are concerned about the reciprocity
demanded of them.
(iii) Regional integration in East and South
East Asia is proceeding quite rapidly independent of the progress
in multilateral negotiations,—as they are mainly concerned
with facilitating integrated production through "components
trade" and finished products destined for exports. The access
of finished products to other parts of the World continues to
be dependent on the WTO system. Strategies for regional integration
are also being tried in many sub-regions of Africa. These are
aimed at achieving enhanced competitiveness through economies
of scale in production and luring foreign investments into integrated
markets.
(iv) Negotiations on bilateral agreements between
EU-India, EU-ASEAN etc. are attempts mainly to go deeper into
the regulatory aspects, which are not yet in the purview of the
multilateral trade talks.
(v) Some agreements truly reflect the slow progress
in multilateral trade liberalisation. US-Korea and US-Singapore
FTAs are some examples.
6. ITC's clients in general—the representatives
of the small and medium enterprises from developing countries—favour
multilateral trade negotiations as they believe that their countries
can collectively negotiate a better deal at the multilateral level.
They considered that the above categories of regional/bilateral
agreements may not a priori pose a threat to the multilateral
trading system. They can in fact be seen as building blocks of
a deeper and more robust multilateral trading system as they act
as a model which gives them time for adjustment before undertaking
commitments at the multilateral level. Furthermore, the exporters
and investors are definitely suffering from the problems caused
due to varying rules of origin used in bilateral/regional agreements.
They, therefore, firmly believe that the complexities caused by
what is called the "noodle bowl" phenomenon will eventually
lead all countries to pursue the multilateral route more vigorously.
7. In these circumstances, ITC is of the
view that the governments are taking a politically easy route
of bilateral/regional agreements in the short run to express their
faith in the process of globalisation but at the same time respond
to the adjustment needs of their private sector. They are perhaps
also treading cautiously in the wake of negative perceptions about
globalisation amongst some of their stakeholders.
Q2. What role can European trade policy play
to stimulate growth and create jobs in Europe?
8. No comments.
Q3. What should be the relationship between
European trade policy and policies on development, climate change
and depletion of natural resources?
9. European Union has been increasingly
focussing trade related technical assistance towards poverty reduction.
Developing countries on their part are responding by striving
to mainstream poverty and gender issues in their trade led development
strategies. In this endeavour many developing countries are struggling
to build their supply side capacities to benefit from the duty-free
and quota-free market access provided under the EU's Everything
but Arms (EBA) initiative and Economic Partnerships Agreements
(EPAs).
10. The small exporters from these countries,
however, are concerned with the rising incidence of non-tariff
measures in the EU, which, in their view, nullify the benefits
promised under EPA and EBA initiates. For example, many small
exporters from Swaziland reportedly opted out of the EU market
as the cost of implementing increasingly stringent non-tariff
measures made them un-competitive. They view any attempt to increase
the regulatory requirements on environmental considerations as
yet another protectionist measure aimed at preventing imports
from developing countries.
11. The current debate on the issue of "food
miles" in UK is a case in point. The total carbon costs associated
with production of foods etc in the colder, energy intensive farming
systems in Europe may, in fact, be more than the total carbon
costs associated with food produced in many developing countries
and transported to Europe. Therefore, any such decision, if ever
taken, should be based on complete and certain scientific knowledge
and not on the presumption made on the basis of incomplete knowledge.
The prospect of blocking imports of air freighted organic products
from Africa into U.K. prompted ITC Executive Director to react:
"Organic production in Africa has been an
export success story. ITC is disappointed that the Soil Association
will make it harder for African companies to enter lucrative markets.
African companies and cooperatives want to trade internationally.
To get value added organic foods into retail shelves, they have
an overwhelming amount of standards to meet. Meeting these standards
costs money -laboratories, audits and more. Too many standards
will hurt African farmers".
12. European trade polices as they impact
less developed countries should not be the instrument of achieving
environmental objectives. Such policies will more likely thwart
the efforts being made by developing countries to get out of the
vicious circle of poverty and environmental degradation. EU should
rather try to achieve the environmental objectives through provision
of technical and financial assistance to developing countries
which will help them move to the virtuous circle of increased
trade and poverty reduction leading to environmental sustainability.
EU Member states may be made aware that emergence of private standards
is nullifying many of their well-intentioned pro-development trade
policy initiatives.
Q4. Have developing countries benefited from
multilateral trade agreements? What steps should European trade
policy take to help less developed countries reap the benefits
of global trade?
13. Developing countries have benefited
from multilateral trade agreements. Otherwise, more and more developing
countries would not have clamoured to obtain the membership of
WTO. Above all, the multilateral trade agreements give them the
security and predictability of the international trading relations
and the freedom from facing unilateral trade sanctions especially
from the major markets of export interest to them. It is an open
secret that developing countries find it more convenient to negotiate
at the multilateral forum as it gives them strength through collective
bargaining with their more powerful counterparts.
14. Some of the specific issues in European
trade policy identified by the private sector in developing countries,
that need to be addressed, are:
i. The complexity of EU legislation on Sanitary
and Phyto-sanitary (SPS) measures: It is alleged that the EU legislation
covering SPS measures is complex and commodity based. Moreover,
existing rules allow each Member State of EU to have its own SPS
requirements. The complexity and variation in application in different
parts of the European market put onerous financial and capacity
burdens on small and medium size enterprises in developing countries
to export to the European market.
ii. Restricted rules of origin in preferential
trading arrangements:
Restrictions prescribed in rules of origin of
products on accumulation of "value added" across very
limited number of countries or with the EU alone or prescriptions
on "two or three stage conversion" in clothing sector
make it difficult for the undiversified economies of developing
countries to take advantage of EU's preferential trading arrangements.
iii. Temporary movement of natural persons to
provide services: Easing of the regulations on temporary movement
of service suppliers from developing countries is considered by
them an important issue which has a bearing on their economic
development.
15. More generally, the private sector in
developing countries is of the view that A4T should be aimed at
facilitating exports by small, medium and micro-enterprises and
communities, especially those which benefit women and generate
new jobs and incomes. In this respect, "Aid for Trade"
should:
i. Aim at helping governments to bring business
interests into policy determination eg by fostering more public-private
dialogue. National governments in many developing countries can
do more to facilitate exports through beneficial policy and regulatory
reforms.
ii. Encourage governments to allow the private
sector to participate financially and managerially, wherever appropriate,
to undertake trade facilitation and infrastructure projects—the
functions previously exercised exclusively by the public sector.
iii. Assist exporting enterprises to develop
business plans to (a) enhance their credibility for accessing
new resources and (b) constantly enhance their products and services
offers and diversify markets.
iv. Assist small enterprises in developing clusters
to enable them optimally allocate their limited financial resources
and human resources to seek and supply their target markets.
v. Assist exporting enterprises to readily access
information and develop skills to utilise trade intelligence for
seeking niche markets.
vi. Assist enterprises to meet sanitary and phyto-sanitary
requirements and international standards of product quality, design
and packaging.
vii. Assist the communities and informal sector
to integrate into global markets by developing supply chain linkages.
Q5. Is there still a need for Trade Defence
Instruments, and if so, how can these be designed to ensure that
their effects are targeted and proportionate?
16. ITC programmes have revealed that small
mall exporters from developing countries consider trade defence
instruments applied by EU as "relatively fair" compared
to the practices in some other jurisdictions. It is illustrated
by use of practices, such as, the lesser-duty rule, absence of
"zeroing" in calculating dumping margins, considering
the overall community interest and not limiting its analysis to
the impact on local producers only. However, they feel that making
these rules and practices more predictable, legally certain and
transparent, with simpler procedures for small and medium-sized
exporters could further improve the system. Some suggestions given
in this respect are: provide unambiguous definitions of important
concepts, such as, community interest, "analogue country"
(used as a reference to compare manufacturing cost) to improve
legal certainty, enhance transparency by making more information
publicly available, allow access to all relevant information including
analytical documents, provide longer deadlines for submission
of information and undertake review of the information asked for
currently with a view to reducing the burden of providing very
detailed information especially on small and medium enterprises.
Q6. What is the best approach for ensuring
that Intellectual Property Rights are protected? Do these rights
hinder development goals—and if so, how can an appropriate
balance be struck?
17. After much debate, which at times is
mired in acrimony, developing countries are striving to come to
terms with the Trade Related Intellectual Property Rights (TRIPS)
Agreement that was negotiated during the Uruguay Round. The concerns
raised on its implications on availability of affordable medicines
to the people in developing countries. was addressed through the
Doha Declaration on TRIPS and Public Health and a subsequent amendment
to the TRIPS Agreement. Developing countries are also seeking
a clear relationship between the TRIPS Agreement and the Convention
on Biological Diversity and the protection of their traditional
knowledge and folklore. The best approach is that the European
Trade Policy should set credible standards for addressing genuine
concerns and implementing decisions already taken in WTO, such
as, the TRIPS and Public Health in a manner that reflects the
spirit behind these agreements. Furthermore, it is important that
these decisions and such other flexibilities as are contained
in the TRIPS to address concerns of developing countries are not
overridden by bilateral or regional agreements between the EU
and their trading partners.
Q7. Services represent 77% of European GDP
and employment. What are the best mechanisms to remove barriers
to trade in services? Is the GATS still fit for purpose?
18. The peculiarities of trade in services
obliged WTO Members to devise a new GATS framework during the
Uruguay Round. The strengths and weaknesses of GATS architecture
for liberalising trade in services while maintaining the flexibility
to pursue domestic policies in accordance with their national
imperatives are quite well documented. Before deliberating on
the changes to the GATS, which may be necessary to enhance trade
in services, it is worth looking at the root cause why multilateral
negotiations have not delivered to the desired extent in services:
i. Developing countries have been reluctant to
make binding commitments in the mode of supply of services requiring
commercial presence (so called GATS Mode 3) in the absence of
effective capacity to implement new pro-competitive regulatory
systems. The private sector in these countries is, however, pushing
to introduce pro-competitive reforms in infrastructure services
like banking and insurance, telecommunications, transport etc—efficient
functioning of which is essential to foster competitiveness in
the economy.
ii. Developed countries have been reluctant to
make commitments in reforming the domestic regulatory system in
the area of temporary movement of service providers (so called
GATS Mode 4) in spite of experiencing shortages of manpower in
certain sectors.
19. These factors have made the principle
of reciprocity in trade negotiations unworkable. Therefore, these
issues should be addressed up front by providing technical assistance
to less developed countries to enable them to put new procompetitive
regulatory systems in place. Since the private sector is adversely
affected by inefficiencies of the existing monopolies, they should
be taken as the champions for reform and their capacities built
to enable them to engage in policy making with their governments.
20. The need to strike a balance between
liberalising trade and keeping adequate flexibility for countries
to achieve myriad policy objectives is considered especially important
in services. Therefore, only evolutionary (as opposed to revolutionary)
changes to the GATS architecture are likely to succeed.
Q8. Is there still a role for the WTO in the
21st Century?
21. International trade is increasing faster
than the rate of output. Trends towards globalisation will increase
as more and more countries are adopting strategies aimed at integrating
themselves into the world markets. Therefore, economic interaction
among nations will be closer than ever before. Furthermore, any
cooperative arrangement in a rapidly changing trading environment
will remain incomplete, which will necessitate resort to the disputes
settlement mechanism. In these circumstances, the relevance of
the WTO in providing stability to the international relations
in the field of trade will be even more.
22. Having said that, all institutions will
have to adapt to change. The WTO is already adapting to the realities
of integrating the developing and transition economies in a manner
that is responsive to their development perspectives. The WTO
is also faced with the challenge of dealing with increasing bilateralism/regionalism.
It will have to find innovative avenues to promote equity and
fairness of the international trade relations by specifically
focussing attention on the continued need of its smaller Members
to benefit from predictability, legal certainty and transparency
provided by the multilateral trading system. The negotiating agenda
has continued to adapt and evolve in the face of exigencies of
international trade in successive rounds. It is already possible
to reflect on some of the challenges that the organisation will
face in future. Efforts at reducing tariffs in the last 60 years
have raised the importance of other measures that determine trade
flows and conditions of competition. The so-called non-tariff
or behind the border measures including private standards will
assume greater prominence in future. Trade in services, which
has already increased manifold in importance, will further focus
attention on the need for international regulatory cooperation.
Environment and climate change has attracted much attention of
the international community. The discussion on amicable relationship
between the objectives of international trading arrangements and
environment will undoubtedly follow.
23. The issue, therefore, is not whether
there is a role for the WTO in the 21st Century but how the organisation
evolves itself to respond to the future challenges.
26 February 2008
1 The views reflected in this note are based on
the comments made by private sector representatives in the various
ITC sponsored public - private dialogues. Back
2
The US Government's agriculture negotiating strategy is that
it seeks much greater market access abroad for US farmers and
in return US farmers would have to accept lower levels of domestic
support. Back
3
Governments of many developing countries including India, China
and Indonesia fear for different reasons that substantial lowering
of agricultural tariffs will put overly large and unfair burden
of adjustment on their poor peasantry. Back
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