Priorities of the European Union: evidence from the Ambassador of the Czech Republic and the Minister for Europe - European Union Committee Contents

Examination of Witnesses (Questions 1-19)

Rt Hon Caroline Flint and Mr Ananda Guha


  Chairman: Minister, thank you very much indeed for coming to see us again. I think you have with you today Ananda Guha who is the Deputy Head of the Europe Strategy Group. The session is of course on the record and will be web cast. You will receive a transcript and will have the opportunity to propose corrections. I understand that you do not want to make an opening statement today so I am going to turn to Baroness Cohen to ask the first question.

  Q1  Baroness Cohen of Pimlico: Minister, I wonder if you could tell us which Member States have so far announced a budgetary stimulus along the lines of that outlines in the European Recovery Plan? When does the Government expect that the target of 1.5% of EU GDP will be reached?

  Caroline Flint: What I understand, according to the Commission, is that most Member States have adopted or announced fiscal stimulus. I think 19 Member States have already taken action or have packages in the pipeline with the largest fiscal stimuluses coming from Germany which is 3.4% of German GDP over the next two years. Eleven other countries, including the UK and Spain, have implemented measures of over 1% of their national GDPs

  Q2Lord Dykes: Can you indicate to us what proportion of the European Investment Bank's 30 billion Euro loan package for small and medium sized enterprises the Government expect UK businesses to receive?

  Caroline Flint: My understanding on that is that there is something like £4 billion should be available and I think it is £1 billion EIB funds available in the UK by the end of 2008. Clearly this is very helpful, I hope, in addition to other measures the Government is taking and there has been work since the announcement with four UK banks involved in helping to draw this money down and provide these loan guarantees.

  Q3  Lord Plumb: Minister, what progress has been made, if any, towards the conclusion of the Doha Development Round subsequent to the commitment made towards the end of the December Council? I declare an interest as one who has been involved in all of the rounds up to Doha leading a group of agri-business people and of course that, in relation to developing countries, has been extremely important.

  Caroline Flint: We still believe that it is important to try to secure a successful conclusion to the WTO Round. It remains a priority for us. I think it is clear that we were disappointed that the G20 was unable to fill the commitment made by leaders in Washington last November. However, recent ministerial discussions seem to suggest that there is some appetite within the G20 and the WTO more broadly to see how we might pursue this with more vigour in 2009. Ministers recently discussed the WTO Round at the World Economic Forum I understand in Davos and with their Chinese counterparts at the UK-China summit. EU trade ministers have also expressed their continued commitment to the WTO Round at their informal meeting in January. We are going to continue to support the director general, Pascal Lamy, in his efforts to secure this deal. We will look to continue working with our EU partners and the European Commission to move negotiation forwards and clearly the G20 summit here in London will be important to that end because of course there are individual European countries represented round that table but of course the EU is represented in the form of the Czech Presidency at the table as well. We will continue to make the case that the issues we face at the moment in terms of the international financial crisis are obviously focussing everybody's mind and attention but actually recognising what is in it for the countries in the developing world but also what is in it for us in terms of open trade agreements is still an important priority both in the short term and the long term.

  Q4  Lord Kerr of Kinlochard: The press reports suggest that the meeting in Davos was not a 100% successful. Are you worried, Minister, that recessions normally breed protectionism? This seems to be quite a sharp recession, and we seem to have a President of the United States who has not said a great deal on the record about the virtues of free trade, has voted against the Central American Free Trade agreement, has been critical of NAFTA, has not said anything about bringing Doha to a successful conclusion, except that it would be necessary to attach labour and environmental conditions if it were to be concluded at all. How worried are you about that?

  Caroline Flint: I think it is fair to say that on one level it is understandable that with difficulties individual countries are facing they are very concerned about what is happening at home. I think the danger is to lose sight of the fact that open opportunities to trade are very important in terms of recovery. I think I heard a sound bite last week about not wanting to turn a recession into a depression and I think that is where the international context of this really counts. I think that is sometimes quite difficult to explain to the media and also to businesses and families who, understandably, in our home communities, feel that drawing in is a necessity. We have to get clearer and better at explaining why narrowing down our role in terms of these international agreements but also protectionism does not help. I think we can do that but I think we have to be clearer and do it in language that people understand. When I am out and about I often talk about the ten% of British jobs that are directly connected to our opportunities to trade and gain investment from the European Union. I often say to employers that it would be great if they could explain to the workers that they have managed to take on as a result of this why the European Union is important. Only the other week when I was in Cornwall meeting some apprentices in the marine industry they were delighted to have this opportunity; it was partly EU funded but when I asked these young men about whether they were aware of that they were not and these should be our advocates and businesses should make it their business to let their workforce know. On the question of America I think it is a little bit early to tell. Our aim ahead of the London summit will be to impress upon President Obama the importance of reaching a deal and why it is in our interest, looking into this area, it has been on-going for a number of years. Obviously the difficulties in trying to get unanimity across the piece is important on this but it makes the job very difficult, but we will still carry on with that work. I think the other aspect of this where there is an EU dimension also plays into our relationships with America. We should also be demonstrating to our American friends what the EU can offer. If the EU can actually work out its approach to this agreement—as in other areas on climate change—and show that we are willing to take a lead, maybe that will help influence not just America but other counties as well—China and India—in terms of hopefully nudging them towards a successful conclusion.

  Q5  Lord Trimble: One welcomes the Government's commitment to a successful outcome of the Doha Round and notes the positive statements that were mentioned. However, there was a ministerial meeting in Doha in the early summer which failed and I wondered whether the obstacles that prevented agreement then have become less or have they become greater since last July?

  Caroline Flint: I think it is quite difficult to pin that down in that way. As I said, I think the financial situation that countries are facing themselves in has focussed people's minds and attention and I think it would be naive not to acknowledge that. On the other hand, I think in terms of the EU we have managed to move forward in a positive spirit both in terms of the economy but I have to say before the December Council on Climate Change people thought we would not reach an agreement of that. In that spirit, working together, we feel we can make some movement forward in terms of Doha. How that impacts, as I have said, on other countries that are important to this I do not think I am necessarily in a position to say but, as I said before, if the EU can show it can lead in this area I hope that will bring some pressure to bear on getting people around the table to agree. I do not know whether Ananda, who was in the Department at the time of that meeting, might be able to offer something more.

  Mr Guha: The Minister is right in suggesting that the economic climate has changed substantially since the ministerial meeting last summer, but there have been subsequent ministerial meetings where ministers have reaffirmed their commitment to reaching a conclusion to the Doha Round and the UK's position remains constant, which is that we want to seek fair and open markets at this difficult time, as in the point the prime minister made with Premier Wen a day or so ago.

  Q6  Lord Trimble: I was just thinking that there were some specific problems that prevented agreement last year and I appreciate comments made by the overall economic climate but I am not aware of anything of a positive nature that has happened with regard to the specific problems that prevented agreement last year.

  Caroline Flint: As far as I am aware at that time there were some issues blocking agreement on agriculture and non-agricultural market areas. I think there are still problems.

  Q7  Lord Hannay of Chiswick: Was the lesson of the G20 in November that the leaders were much too specific on the process and said that there was going to be a ministerial meeting before Christmas which then did not take place, and were much too vague on the commitment not to introduce protectionist measures which several people present in Washington then went off and did. As you say it is very important that they commit themselves to the success of Doha and avoiding protectionism but also—since we are in the chair perhaps we can have some say over this—that the meeting should be less starry eyed about the future meeting of ministers which may or may not be right and much, much more precise about the not taking of protectionist measures by all those represented there.

  Caroline Flint: That is exactly what the G20 in London offers and obviously being in the chair I am sure that the prime minister will want to make sure that this has an opportunity to be aired and to inform both in terms of open markets and against protectionism but also to secure some public signals and commitment particularly, I think, from President Obama. I think whilst it is too early to say at this stage just how much detail will happen at that summit, certainly as we look towards June and July it should give the direction of travel and I think that is what we want to see, a meaningful end point that people think they are working towards.

  Q8  Lord Powell of Bayswater: Minister, continuing down that same broad path but trying to apply it more specifically to a UK interest, protectionism takes many forms, not just tariffs; it is an attempt to reserve jobs for specific nationalities; it as an attempt to limit purchases to a particular country as there seems to be some risk the Americans will do with iron and steel under their stimulus programme. Of course it does apply to state aid where Britain has traditionally been a very strong proponent of strict regulation of state aid. Can we expect EU state aids rules to be applied to the proposed expansion of Northern Rock's mortgage portfolio?

  Caroline Flint: The Government is still considering the most appropriate way forward in relation to Northern Rock and obviously there has been some discussion in the public domain about the speed at which the support through the taxpayers provides to Northern Rock coming back which might be slowed down to enable their business to expand. I think what I would say on this and in relation to all other matters pertaining to the state aid issue in Europe is that we are in constant discussion, particularly at the Treasury, about the rules and how they apply. I think I remember when I was present for a committee earlier last year some of the discussion about what flexibilities there are within the rules. The Commission has made clear that as long as activities are temporary targeted towards supporting economies then there is some flexibility within the system but we are very clear that we do not want to rewrite the state aid rules and we want to keep within the framework of them but use the flexibility that is there appropriately.

  Q9  Lord Powell of Bayswater: Does that mean that we will or will not be seeking a waiver?

  Caroline Flint: I do not think that that is a matter that has come up. I think we are working at the moment, as I say, in the public domain which was about looking at how much we are asking back from them in terms of what money was lent to them because there was a concern that that was restricting their activity. At this stage we are just looking at options for Northern Rock and the strategy for that as we move ahead. The broader point is that we have just kept in constant contact with the Commission about how the state aid rules should apply and how we can use them.

  Q10  Baroness Cohen of Pimlico: The Northern Rock deal was agreed as a deal with the Commission inasmuch as it constitutes a state aid. If the Government makes changes that extend further credits to Northern Rock or do not ask for the money back at the same speed then that will presumably require another waiver.

  Caroline Flint: I do not think we are at all looking for a generalised waiver of the state aid rules. What we have always looked for is working with the Commission within the framework and also that the Commission can continue to be flexible and expedient on state aid rules where it is appropriate. I think that is something all members of the EU are looking at. I think it has been agreed that we are facing exceptional circumstances and therefore the flexibilities in there should be used. That is what we are working within; we are not asking for any change to the state aid rules. Anything the Government might want to do where we felt we needed to seek the permission of the Commission that is part of the deal, we would go back to them and make sure it was appropriate in this temporary situation we find ourselves in.

  Q11  Lord Kerr of Kinlochard: If they chose to interpret the state aid rules in a particular way they could require us to repay what they could declare was illegal aid. We were quite enthusiastic when they applied competition policy quite strictly to the Irish banks at the start of the Irish banking crisis when there was apparent intended discrimination by nationality of depositor. Presumably we have to have a view about what is a conflict between everybody's wish to see banks recapitalised and the rules of the game of the single market as laid down in competition and state aids policy; there is a balance to be struck surely?

  Caroline Flint: I think that is why, not just in the United Kingdom but every other member of the EU, there is constant discussion between departments here and their officials with the Commission because obviously within the state aid rules, as I understand it, there are these flexibilities. The Commission has said that as long as it is timely, targeted and temporary there is some scope. The banks was one example because of the impact of banks going under and the knock-on effect throughout the economy but also where there are other situations of difficulty too. I think there is a case by case situation being made by Member States on this issue as matters evolve. What is clear is that we do not believe that the situation requires a new framework or a different framework; we want to work within the existing framework but obviously we want to be clear about the rules about the flexibility in all this. There was a lot of talk about various ideas coming up from different Member States about how they might like the rules to apply and some of them were more quietly said than others and then disappeared because people realised it would not be appropriate. I think that is the situation; it is, as I say, an on-going discussion that we are continuing to have with the Commission and their officials on this matter.

  Q12  Lord Richard: Can I ask you about the Commission, are they being difficult or are they being helpful?

  Caroline Flint: I think the Commission is being really helpful actually. In terms of the economic recovery package they have been very helpful. I do think they are looking for positive outcomes in these times and not only politicians in the form of ministers but also the Commission were able to respond to the situation and be seen to be acting in the here and now and what they could do to use what instruments they have at their disposal and how they could get help with a more coordinated response across Europe. That is when the European Union is at its best when it is looking outwards, it is focussed and actually can be seen to be tangibly delivering something. Of course the dominance at the Council in December was on the fiscal package but down the road with the G20 summit coming up there will be other issues around what transparency there needs to be in the international banking sector, what reforms might be needed down the road as well as looking at the jobs and opportunities packages that the EU might focus on as an aid to recovery as and when that happens.

  Q13  Lord Richard: To put it in a sentence, you are not expecting trouble from the Commission on this.

  Caroline Flint: We have had no trouble so far so I hope that will continue.

  Q14  Baroness Cohen of Pimlico: Northern Rock was a fairly early collapse, the canary, if you like, for the rest of the sector and therefore the whole state aid package might have been more strictly interpreted than now when the whole thing has blown up and therefore there might be a little more flexibility on Northern Rock than there would have been, say, a year ago.

  Caroline Flint: Possibly. We also should remind ourselves that apart from the recapitalisation packages that the Government has offered to various banks we have also initiated in more recent times a number of other activities by Government to support increased lending, underwriting risk as well. We are constantly looking at where there are matters where we need the support of the European Union and we work within their rules but also there are other areas where we are acting to ensure that we can stop the banks going under but also support the banks lending again. The package that was announced in the last few weeks, hopefully as we see that actually working through the system, we might see some movement which is what we all want because that in itself is going to be the biggest driver, particularly reaching out into the real economy and getting things happening again.

  Q15  Lord Powell of Bayswater: Is flexibility simply a polite word for a waiver?

  Caroline Flint: I think it was part of the framework and I think a very wise part of the framework to allow for exceptional circumstances to be dealt with and we are all pleased about that in terms of the present situation we find ourselves in. However, I think it is not just a blank cheque to do what we want. It is very clear that the flexibility is within tight controls: is it targeted? Is it timely, ie it is needed at the present moment but also will it be temporary as well? The idea is certainly not, given this flexibility, for that to be the rule of thumb for any future opportunities. I think in this case we have a framework that has actually been able to respond to this exceptional situation which is good because I do not think we would all like to go back to a committee and have to negotiate from scratch the sorts of things we might need at this present time.

  Q16  Lord Richard: So we will be asking the Commission to show flexibility by giving us a waiver.

  Caroline Flint: No, we will continue to work with the Commission on a case by case basis in terms of things we are doing to make sure they are in line with the framework and meet their flexibilities in the framework they have outlined about how those flexibilities should be applied.

  Q17  Lord Freeman: Minister, my question is about climate change. I declare an interest as Chairman of the Advisory Board of PricewaterhouseCoopers, consultants on the Severn Barrage. I have no involvement in that work except admiration for the complexity of work that has to be undertaken. Given the agreement in December within the European Union on climate change, a successful agreement on emissions, renewables and the prospect of the UK Government reaching some kind of statement or agreement on reduction in use through efficiency measures of energy, what should the EU be doing and how confident are you that the EU will influence the Copenhagen summit in December on climate change for an equally satisfactory outcome?

  Caroline Flint: I am glad you welcome the decision. I have to say, in the months running up to the Council there was quite a lot of doom and gloom out there about whether a package would be agreed and it got incredibly tense, I think, in the final stages. However, we have got an agreement; I think it is a positive one. It does demonstrate how we can lead on these issues and use that in other international forums. I think the next milestone for the European Union is going to be the Spring European Council when heads will agree the EU's position ahead of Copenhagen so we really need to see a very concrete and substantive outcome of that Council because it is going to be crucial if the EU is to be taken seriously this year and to move negotiations forward. Without an EU proposal on finance in relation to supporting developing countries we will leave ourselves rather bare really in terms of moving forward. That is something we are working to. An EU offer, conditional on the right number of ambitions from developing countries I think would also help encourage other developed nations to step up to the plate and do their bit too. So we will be working through this. There is a ministers' meeting tomorrow to discuss our response to the Commission's recent communication and particularly to agree a position on climate financing. I am happy to keep this Committee and the House of Commons' counterpart informed about where that is going, and how our position is firming up proceeding towards the Spring Council.

  Q18  Lord Freeman: Will the Spring Council also consider what I think many members of this Committee who are interested in climate change believe should be included and that is technological assistance? It is not just finance coming from this country and from the European Union, but technical assistance.

  Caroline Flint: I agree, yes. Part of the debate within the EU has been around the technology that we need for example in carbon capture and storage and to invest there. Again I think that would certainly be part of our discussions; financial support as well as the means to make a difference as well as the technology that is associated with that.

  Q19  Lord Teverson: Minister, I see in the Presidency conclusions that the 30%—which is, I think, the preferred target if certain circumstances are met—are described as long as the—and it is a rather new term—"advanced developing countries make a contribution commensurate with their respective responsibilities". I presume that means basically that the BRIC countries come in and actually make some commitment to reductions as well. Is that not rather moving back to the Bush regime philosophy and surely is it not going to fail?

  Caroline Flint: We set the 20% target reduction for the European Union by 2020 which, I have to say, was a major step forward but I think we wanted to leave the door open to stretching beyond that and again I think it was one of those situations where, having got everyone on the table and in the right mood, we wanted to open up the opportunity to agree something in advance so that we could act and have that door open. Obviously in discussions that will take place later this year there will be negotiations happening and I think to give EU negotiators the ability to go beyond what was set was important to that. I do not really see it as going back; I think this is all about moving forward and, again maybe this is the language of councils but I think it is very positive. As I say, what we wanted to do with this formulation was leave the door open to further stretch and not hamper the hands of EU negotiators thinking they would have to come back to the table with all 27 Member States and get permission to negotiate upwards. I think that is pretty good actually.

  Mr Guha: Just to say, the 20% figure is commensurate with all the things that have been coming out of the Stern Review on the economics of climate change, the Government's commitment to the 80% reduction by 2050. If we can front load that to 30% that is great, but the EU has definitely demonstrated leadership even with the 20% figure.

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