Examination of Witnesses (Questions 600-615)
Rt Hon Lord Mandelson, Mr Edward Barker and Ms Fiona
Shera
6 NOVEMBER 2008
Q600 Lord Renton of Mount Harry:
Lord Mandelson, I very much appreciate your passion (that is the
word you used) for the Doha Round and I share it myself, having
worked for an international trading company for 20 years before
I became a Member of Parliament, but, that said, how confident
are you now that the Doha Round will be able to be concluded?
Do you think that recent developments in financial markets, which
we all know about, and the prospect of low global growth rates
is inevitably going to change your optimistic assessment?
Lord Mandelson: In my view, but then
I do not speak for the entirety of the 153 membership of the WTO,
the Doha deal is more urgent than ever given the financial crisis.
We need to demonstrate to the world our commitment to open markets
and our rejection of protectionism, otherwise we would make the
present turmoil and dramas even more serious and long-term in
their impact. We have to understand that a Doha deal is not implemented
overnight and there is a differential implementation period between
developed and developing countries, shorter for the developed
countries and longer for the developing countries, which means
that we would be looking to the positive consequences and effects
of a Doha deal over the next ten years or so. A Doha deal is not
going to have, as I say, an immediate overnight impact on markets
or on trade but it has a much longer-term effect which is very,
very important indeed. A failure of the deal would mean that we
were less able to open markets and free up trade than we would
otherwise be able to do. There would be more scope for countries
to increase their tariffs in the future in the absence of a Doha
deal and to come under fierce protectionist pressure to put more
walls around their economies, decreasing international trade in
the future, and there would be fewer opportunities and less market
access for developing countries, both to the developed country
markets but also to the faster growing markets of developing countries.
The effect would be a cumulative, long term and thoroughly negative
one for the international economy and the prospects for world
trade, which is why it is so important, if we want to avoid those
negative effects, that we put in place a deal now that enables
us positively to reap the benefits over a longer period of time.
That is how every world trade agreement before this one has worked.
The reason why we have had international trade growing, markets
becoming increasingly open, and developed and developing countries
alike enjoying the benefits of growing world trade is because
previous rounds have been successful in reducing tariffs and opening
markets cumulatively over a period of time. But what additionally
this Round had to offer was, at long last, a chance to deal with
trade-distorting agricultural subsidies, which have such a deleterious
impact on developing countries, in a way that previous rounds
have not touched and have not attempted. That is why, in addition
to the wider benefits and implications for world trade of this
Round succeeding or failing, it is also crucial in particular
to freeing up trade in agricultural goods and lifting the burden
of developed country trade-distorting agricultural tariffs on
poorer developing countries.
Q601 Lord Renton of Mount Harry:
I appreciate your enthusiasm totally. Others of my colleagues
I know will be asking you questions about possible protectionism
in the present climate. Could I ask you one supplementary on a
very immediate date. Do you think the G20 Summit on 15 November
will be helpful? Will it be able to put wind in the sails of what
you have been talking about of the Doha Round? Will it be a very
important point to be raised there?
Lord Mandelson: It needs to be incorporated
into that meeting on November 15. The G20 needs to give a very
strong signal to negotiators that they want to see modalities
in place by the end of this year before President Bush's term
expires on 20 January. It really is a major opportunity for world
leaders to commit to intensifying efforts to achieving the Doha
Round's modalities this year, which is why the British Prime Minister
is unceasing in his efforts and phone calls and pressure on other
world leaders to make that commitment to intensify our negotiating
efforts. Britain, the British Government, the British Prime Minister
have been second to none in the commitment they have shown and
the pressure they have exerted and I am sure that that will be
maintained.
Q602 Lord Trimble: Lord Mandelson,
in your last answer the word "protectionism" came in
and we have heard a fair bit of protectionist rhetoric over recent
months, partly in the US election but also actually in some European
quarters as well where there seems to be a trend toward protectionism.
Do you see more protectionist actions coming? Does your desire
to see modalities agreed before end of the Bush Administration
indicate a concern about the new Administration being more protectionist?
Has the Government observed the introduction of any protectionist
measures in UK trading partners in response to the present economic
situation?
Lord Mandelson: There has been no real
evidence yet of increased protectionism from the UK's key trading
partners. Most of these are of course OECD countries for whom
WTO rules prevent them raising tariffs because they apply their
tariffs at the same level as they have bound them in the WTO,
so there is no headroom, as it were, for them to put up their
applied tariffs before they reach their bound levels. That of
course is not the same for the emerging economies, the faster
expanding, faster growing and developing countries where the real
risks of an increase in protectionism come. However, with one
or two exceptions, we have so far not seen a drive or any headlong
rush towards greater protectionism amongst the emerging economies.
It is very important obviously for us economically but also very
important for the strength of the global trading system and its
trade rules that we do not see that rush to protectionism growing.
In this context, the United States is a very important market
leader. President Bush has maintained a strong personal commitment
to free trade and to open markets, a commitment which for a variety
of reasons, some of which are more understandable than others,
has not been entirely matched in the Congress of the United States.
Inevitably, people will be looking to see how the new US President
acts in these issues, which is something I am addressing at a
speech I am making this evening. If I can just encapsulate what
I am going to say this evening, it is that there are different
policy emphases within the Democratic Party around attitudes to
trade and globalisation. Mr Obama has a pro-market approach, including
government action to shape markets and to distribute their fruits
more fairly. That is something he has strongly in common with
the British Government. Inevitably, however, he and others in
the Democratic Party are concerned about the impact of globalisation
on American workers and American industry. This could lead to
Democrats becoming more sceptical about the virtues of free trade
and market opening. I have no doubt that this will create a lively
debate in the Democratic Party in the months to come, but I know
where global European and UK interests lie; they are in an open,
free-trade, non-protectionist stance being maintained by the US
Administration and Congress, and we will be engaging with our
counterparts, colleagues and, in many cases, our friends to encourage
an open market, non-protectionist policy being adopted.
Q603 Lord Trimble: Nonetheless, do
you think it is realistic to think that modalities could be agreed
before the Obama Presidency begins?
Lord Mandelson: It is possible but it
would require real political will and real determination on the
part of the US Administration and a willingness to use the remaining
political capital of that Administration and invest it in that
specific objective of agreeing modalities in the Doha Round by
20 January. It is possible but not certain.
Q604 Lord Haskins: It is clearly
possible that failure is around the corner. One of the issues
that may concentrate people's minds is if you were able to spell
out the consequences of failure in terms of what it will do to
the WTO as an institution. Will it keep in being or will people
go down the bilateral route? All of those sides of the debate
seem to me to be very relevant in concentrating people's minds.
The history of great recessions is that people go towards a protectionist
answer. What are the consequences for the world if failure does
arise in this Round?
Lord Mandelson: The biggest consequence
would be the opportunity cost of failure, and that opportunity
cost would be the loss of a reasonably ambitious deal which I
would estimate to be worth something in the region of €120
billion annually to the global economy, which would amount to
something in the region of €30 billion in the EU alone. That
is a very substantial opportunity cost to lose per annum. If you
look at the longer-term consequences throughout the implementation
of the Doha Round but actually in the decades following it of
an agreement on new trade facilitation rules, the benefits of
the Doha Round, and therefore the opportunity cost of failure,
I think could amount to nearer £300 billion. By trade facilitation
I mean the reduced bureaucratic procedures, lengths of time and
costs it takes to trade goods in and out of a country. It is as
basic as that. It is not simply a matter of rules; capacity and
capability are also very important for developing countries and
emerging economies, and that is why I have always believed very
strongly that a very substantial aid-for-trade package to enable
developing countries to draw on a substantial fund to increase
their capacity to trade is as important as reducing the costs
and bureaucratic impediments of the trade itself. You are seeing
as a direct but also as a longer-term cumulative effect of a successful
Doha Round a bounty for the global economy which is very great
and therefore there is a very substantial opportunity cost of
failure too. I would remind you also that if the Round were to
fail the chances of our coming back easily or quickly to the chance
of reforming agricultural trade and dealing as we could do with
the sizeable impact of trade-distorting agricultural subsidies
operating both in the European Union and the United States and
certain other countries as well, it would have over time, in my
view, a devastating impact, and certainly it would be a major
missed opportunity for developing countries for whom agricultural
trade is an important part of their economies. Agricultural trade
does not represent the bulk of trade for developed or developing
countries but it represents a disproportionately large, in relative
terms, amount of trade for many developing countries. That is
why it is so important. It is the last remaining, most distortive,
least reformed part of the international trading system and if
the Doha Round failed to put that essential restructuring and
radical reform in place, as I say, I do not see the possibility
of our being able to return to a possible agreement at any early
date.
Q605 Lord Haskins: Would the WTO
survive failure?
Lord Mandelson: The WTO would survive
failure and I would like to think this its all-important dispute-settlement
mechanism would remain intact and functioning. That is absolutely
essential if we are going to see international trade continue
to be governed by rules, by arbitration and by penalties for those
who break the rules. This is the most meaningful, sophisticated
piece of architecture that we have globally. There is no form
of global governance in any other sphere, including frankly many
aspects of the United Nations organisation itself, that has the
same bite and effectiveness as the WTO has in the operation of
its dispute-settlement mechanism. If the Round were to fail I
think it would weaken the attachment of many developing countries
and emerging economies to the WTO because they would see this
as a major opportunity for them but one that has been blown, and
therefore their confidence in the WTO and its system of negotiations
inevitably will be weakened. Many countries' attachment to the
WTO, and its machinery too, could be weakened and that would have
a tremendously weakening impact on the international trading system
from which we in Europe and Britain would be long-term losers,
which is why not only for others' sake but for our own we need
to continue to work very hard for success in the Round's negotiation.
Q606 Chairman: Thank you, Lord Mandelson.
I am anxiously, watching the annunciator because I fear we may
be about to have a division in the Lords. Should that happen I
am afraid we all have to go and vote.
Lord Mandelson: Me too, I think. I keep
reminding myself.
Q607 Chairman: Exactly so. It did
seem to me that would be the case. If I could just say to the
audience, if that is what happens the meeting will be suspended,
but we will come back, please. I have remaining a list of quite
important questions on development which I would like to get through.
Lord Mandelson: I will try and be shorter.
Q608 Lord Renton of Mount Harry:
Lord Mandelson, could we just have a quick word about the Rules
of Origin?
Lord Mandelson: Yes.
Q609 Lord Renton of Mount Harry:
You know better than anyone that some of the developing countries
were anxious to ease the Rules of Origin and some developed countries
protested saying that often it only meant developing countries
tying a label on a cotton shirt that had been made elsewhere.
What is your view about that? Do you think that the Rules of Origin
should be simplified? What sort of position has UK industry taken
on this subject too?
Lord Mandelson: The UK position is that
revision of Rules of Origin needs to deliver increased simplicity,
more development-friendly rules and improved transparency in trade
facilitation. Just to clarify, Rules of Origin govern what inputs
to goods created in one country qualify it to a greater or less
extent for the preferential access to developed country markets.
So, the looser the rules, the easier the rules, the more simple
the Rules of Origin governing the origin of goods, the easier
it is for developing countries to get their goods into others'
markets, if I can encapsulate it in that way. I was strongly in
favour as a Commissioner, as the British Government was and remains,
of their simplification, with one caveat, and that is we must
be aware there are some big exporting countries, and China, for
example, comes to mind, prepared to take advantage of looser rules
by, as it were, getting their goods into third country developing
markets which then take advantage of the preference we give to
those developing countries rather than to China. In a sense, such
goods hop from their own origin into other countries and economies
that enjoy very superior preferential access to developed country
markets and in that way they are the ones taking advantage of
the access rather than the transformed goods and manufactured
goods in those intermediate countries themselves.
Q610 Chairman: I am afraid we have
to suspend the meeting. Lord Mandelson, I do not know about your
availability but we are kind of on the bridge of time.
Lord Mandelson: I have quite a problem
in that I have to meet the French Employment Minister at two o'clock
about a matter of vital national interest to our country.
Q611 Chairman: Lord Mandelson, when
this bell stops I think we might continue for a another five minutes.
We need to go for the division, but if you can come back for five
minutes that would be great.
Lord Mandelson: Okay. Very simply on
Rules of Origin, I am in favour of their revision, the British
Government is in favour of their revision, other Member States
are not quite so enthusiastic about their revision and some within
the European Commission arguably have yet to be fully persuaded
of the virtues of their revision.
Chairman: Thank you, Lord Mandelson. It is difficult
to hear the nuance against the division bell!
The Committee suspended from 1.16pm to 1.22pm
for a division in the House.
Chairman: Now that we are all back, thank you
very much for hurrying, we have two important questions on aid
for trade. Lord Trimble.
Q612 Lord Trimble: I was going to
ask with regard to aid for trade how much the UK has pledged since
the Hong Kong Ministerial and whether those sums are new undertakings
or just diverting funds from other development aid pledges. On
the question of development I have a little supplementary as well
thinking about European structures. Is it really a good idea to
have development spread across two to three different Directorates,
which appears to be the position?
Lord Mandelson: We have publicly committed
to spend at least £409 million per year as aid for trade
by 2010. We are well on track to achieve this. We have also made
a pledge to spend £100 million per year within this commitment
for specific trade related activities like trade policy reform,
support for trade agreement negotiations and implementation. The
reason I stress that is because it is not just a question of physical
capability to put in place what you need to facilitate your trade,
but when you are negotiating a trade agreement, if you are a developing
country or an emerging economy, you also need help to increase
your capacity within those negotiations. Now, our target forms
part of a larger joint EU target of €2 billion per year by
2010 and a G8 target of $4 billion per year—I am sorry about
these different denominations. We are cautiously optimistic that
we will be able to deliver on both the EU and the G8 commitments,
but, whatever happens, we in the UK will not fall short in sustaining
the availability of this new money. What was the last point?
Q613 Lord Trimble: The last question
was looking at development within the terms of the European Commission.
The Doha Round is supposed to be a development round, so development
should be a significant part of that, but we were getting the
impression there were problems within the European Commission
because of the way that development seems to be spread amongst
two or three different DGs.
Lord Mandelson: No. It is fairly well
concentrated in the hands of the Development Commissioner, Louis
Michel, with whom I had an especial alliance because, although
I was the lead, he supported me in negotiating the Economic Partnership
Agreements with the African, Caribbean and Pacific countries.
He has a strong commitment to aid for trade, but he would be the
first to say that there is quite a diversity of different calls
on development funds within the EU and he was the one who was
juggling those competing demands; I was always the one who was
pressing on just one, notably that for aid for trade. He made
his commitment and it was a strong one. The other thing I would
like to emphasise in this context is that there are big new EU
programmes to support regional integration and that was a very
strong feature of the Economic Partnership Agreements that I was
negotiating in my previous role. This is important because for
private sector business, entrepreneurship and employment to grow
in developing countries one of the principal sources of that is
bigger markets, locally and regionally, which businesses can sell
into and which are also more attractive for inward investment.
If you are a relatively smaller market with a smaller customer
base, a smaller economy, when you are considering different locations
in which you might want to invest you are going to go for bigger
markets and economies which are joined and have fewer barriers
between them. That is why, in my view, regional integration is
an absolutely key part of development strategy and why I emphasised
it so much during these negotiations.
Chairman: I think we have just got time to give
Lord Woolmer a go at the sweep-up question.
Q614 Lord Woolmer of Leeds: Secretary
of State, you mentioned the problem of the United States as part
of getting the deal done and you said that the issue of the Special
Safeguard Mechanism is integrally linked with the problems of
agriculture, but on the other side of the argument, was India
and others. India, of course, has its own general election next
year and that must pose problems for the Indian Government in
the coming months. You gave the impression to me at least that
you put a lot of hope on whether the Americans could come to an
agreement before President Bush stands down, but has India not
got its own problems? Is it realistic to expect that of an Indian
Government running up to an election, facing its own slowdown
in industrial growth and concerns about rural poverty in India
that are even bigger than the United States?
Lord Mandelson: I am reluctant to single
out any particular country in a way that might suggest that country
has greater political problems or is potentially a greater obstacle
to agreement than others. It is true that India is facing a general
election in the spring of next year, and it is true that the chief
negotiator, the Minister for Commerce in India, in the meantime
has been facing state elections in Madhya Pradesh, which inevitably
he has had to give some attention to. I think it would be wrong
to suggest that either the state elections or the general elections
are preventing, or would prevent, India from subscribing to an
agreement. Prime Minister Singh during many discussions with our
own Prime Minister, as well as with President Bush and Pascal
Lamy, has reaffirmed his government's commitment to successfully
negotiating the Doha Round, but they want to be assured that their
agricultural sector, large, relatively non-commercial, vulnerable
as they would see it to freer access by very competitive agricultural
exporters, is properly protected and that they can go back to
their vast agricultural population and say the outcome of these
negotiations is a good win for those engaged in agricultural production
in developing countries rather than a huge threat. That is why
the Special Safeguard Mechanism became so important and why other
related issues will continue to be hard-fought for, not just by
India but by others. As long as the outcome is an acceptable one
in agricultural terms, especially when India has so much to gain
from an increase in trade in services, I do not think that the
Indian Government would have any particular reason to block a
successful outcome at this stage.
Q615 Chairman: Lord Mandelson, thank
you very much. I know that we are in danger of keeping you back
from your meeting. Thank you very much for taking the time and
trouble to come and see us at an early stage in a difficult job.
Lord Mandelson: It has been a pleasure.
Chairman: I am sure we all echo your hope that
the Doha Round will get underway again. Thank you.
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