---

EU Trade Policy: EUC Report

My Lords, this is a peculiarly apposite day on which to introduce a debate on trade in this House. Today, the Lisbon treaty, which gives the European Parliament powers of co-decision with the Council on matters of trade, comes into force and, today and tomorrow, a World Trade Organisation ministerial meeting is taking place in Geneva to discuss the method of resuming the stalled Doha round in the hope that it can be concluded by the end of next year. We began this report in spring 2008 and it was published in early December 2008. Simon Blackburn was the clerk for the inquiry, Petros Fassoulas was the committee specialist and Professor Jim Rollo of the University of Sussex was specialist adviser to the committee. Our thanks are due to them and to our many distinguished witnesses, who included my noble friend Lord Mandelson not once but twice—once in Brussels in his capacity as Commissioner for Trade and once here as Minister with responsibility for trade—and Pascal Lamy, who has worked tirelessly in the cause of expanding world trade, as well as several senior ambassadors involved in the negotiations, whom we saw in Geneva just before the WTO ministerial meeting at the end of June 2008. The report was published after the July 2008 ministerial meeting was unable to conclude the negotiations but it was emphasised to us that the inability to conclude should not be seen as a failure: progress had been made, work would continue and the talks would resume. International trade has been reviewed as part of the response to the financial crisis. G20 meetings have emphasised the need for a conclusion to the Doha round and, at the G20 meeting in late 2008, leaders agreed not to introduce any measures or tariffs that were not compatible with WTO rules. Our report focused on four main areas: the Commission’s external trade policy, the Doha round, the future of the World Trade Organisation and the assistance—aid for trade—necessary to help developing countries to take advantage of trade liberalisation. At the time, the Commission was solely charged with the responsibility for developing trade policy and negotiating for all members of the European Union. Unsurprisingly, it started from the premise that liberalisation benefited the global economy, with which my committee agreed and had agreed in several previous reports. The EU benefits particularly from removing tariffs on industrial goods and from increasing access for service businesses but, historically, has also wished to improve access for poorer countries to the European Union markets. The Doha round of trade negotiations started in 2001 with the aim of unanimous agreement by all members to a document setting out reductions in tariff and non-tariff barriers. We were really hopeful that the Doha round would conclude soon after publication of the report in December last year, because it offered the possibility of great steps forward in trade liberalisation. However, we acknowledged that even agreement not to raise tariffs above the rates currently applied, as opposed to the rates formerly agreed, would be a useful step. Under current agreements, many countries would have been able significantly to increase generally applied tariffs without breaching their WTO commitments. Even this step was not achieved, but in practice no significant tariff increases have taken place due no doubt to worldwide recession rather than to countries not feeling able to do so. We called in the report for the Government to ensure that the positive rhetoric surrounding the G20 meeting in the summer of 2008 is translated into the conclusion of the round. We also expressed concern over the pace of service negotiations, as the UK has a lot to gain in this area. Services make up 77 per cent of the EU gross domestic product but only 28 per cent of EU external trade. We encouraged the business community to be more vigorous in advocating completion of the round. Alongside the WTO multilateral negotiations, liberalisation can occur through unilateral, bilateral or regional agreements. The number of bilateral agreements has increased in recent years and we were told that the disadvantages of bilateral agreements included the possible political motivations behind a deal and the complex "spaghetti bowl" of agreements if you did not have a multilateral agreement. Despite these disadvantages, we noted that bilateral deals are now a fixture of the trade landscape and could usefully contribute to economic growth. The EU moratorium on bilateral deals, concluded in the interest of encouraging multilateral deals, ended in 2006 and many more member states are expected to support a move to bilateral deals in the absence of the conclusion of a multilateral deal. We did manage to conclude that the Commission’s work on bilateral agreements had not undermined its commitment to multilateral agreement. However, we recommended that the Government and the Commission look at ways of helping developing countries to deal with the complexity of bilateral agreements. We also considered the impact that the inability to conclude the round and the increasing prevalence of bilateral deals would have on the WTO itself. There was a danger, we felt, that the organisation might be rendered increasingly irrelevant in the face of a proliferation of bilateral deals. We thought that, if this occurred, there would be a real risk that the WTO would lose its authority in other areas, including the settlement of trade disputes, where the organisation commands universal respect. The risks to the WTO add further weight to the need for a swift conclusion of the Doha round and we recommended that the WTO should for the future play an enhanced role in monitoring bilateral deals and encouraging good practice. We also considered the WTO itself—its history, its efficacy and whether the structure of "one country, one vote" had contributed to the difficulty of completing the Doha round. We supported the Minister’s praise for Pascal Lamy and welcomed the Government’s support for his decision to seek a second term as director-general of the WTO. We also looked at ways of speeding up the organisation’s decision-making process. We concluded in the end that the consensual approach was its key strength and must not be undermined, but we encouraged increased use of plurilateral deals, which would allow progress between willing parties without the consent of every last WTO member, subject to agreement by a critical mass of the membership. This could end the practice of moving towards agreement at the pace of the slowest. The committee also invited the Government to provide detail on the emerging conclusions of their work on the role and structure of the WTO in their response to the report. The Government replied in their response that they would share their conclusions with the committee "as they emerge". I hope that my noble friend Lord Mandelson will be able to tell us what progress the Government have been able to make in bringing forward any conclusions reached since last year. We also considered the position of the less developed countries in trade negotiations and their problems in accessing the benefit of trade agreements. There is not much point in a poorer society being legally able to export produce free of tariff to richer countries if the port facilities, including any necessary health certification facilities, simply do not exist in the poorer country. In the words of one of our witnesses, it is like putting a beginner on to the centre court of Wimbledon and expecting him to be able to play. We therefore took some time to consider aid for trade, an initiative whose importance was also emphasised by Pascal Lamy in his recent article, which involves supporting poor countries in developing their trade capacity. We welcomed the Government’s leadership role but expressed concerns that aid for trade might in many cases be nothing more than a rebranding of existing or pre-planned development aid. We urged more support to be given to infrastructure projects in developing countries in order to increase trade capacity. In their response, the Government pointed to DfID’s 2008 aid for trade strategy, which focuses particularly on sub-Saharan Africa, where better infrastructure and border crossing procedures are crucial in unlocking Africa’s trading potential. We also took evidence on economic partnership agreements, which are replacing previous trade agreements made between the European Union and the ACP countries. The European Union will have greater access to the ACP countries, the ACP countries will work more closely together and the European Union will provide better access to its markets. It all sounds very good, but there have been difficulties in concluding these agreements and some of our witnesses were very critical of the Commission’s approach, suggesting that countries had essentially been hustled into concluding them before they had time to consider all the implications. The committee has kept an eye on this and many of these agreements have come before Sub-Committee A for scrutiny since the publication of the report. While we support the regional approach to the negotiations, we are concerned about some practical effects. The report therefore cautiously accepts the principle of economic partnership agreements, but we were critical of the Commission’s handling of the negotiations. The report also considers two issues that are important for international trade. The first is the rules of origin, which are the tests applied to an import to determine where it was produced for tariff purposes. With global production, something can be partly manufactured in several countries. It is a difficult issue but one of major interest to less developed countries, which very often do not undertake the final production of any artefact. We supported a more flexible approach to the rules of origin, in order specifically to help less developed countries. We also considered dumping, which is the practice of exporting below cost to gain a market share. The European Union can apply anti-dumping measures equal to the difference between the export price of the goods and their production cost. Proposals for the reform of anti-dumping have not progressed since the Commission Green Paper of 2006. We expressed our disappointment in the report and there the matter rests, obviously squarely in the Commission’s "too difficult" box. An underlying theme of the report is the difference between rhetoric and action. Independent witnesses warned us of increased protectionism, while Ministers and officials were always optimistic about the imminent conclusion of the round. Promises of aid support have not always materialised. The disconnection between word and deed appears to be in the nature of the subject. The fact that the Doha round has still not concluded speaks volumes on this point. Several of our witnesses, including my noble friend Lord Mandelson, were keen to emphasise last autumn that the Doha round did not fail. Yes, but it did not succeed either and various explanations were offered for its lack of success. The proximate cause for failure of these particular negotiations rests, oddly enough, with the least developed countries and their anxieties about agricultural preference and with the developing countries’ disappointment that further concessions on access for their agricultural products could not be achieved. In this context, while it was hoped that the European Union would have been able to make more concessions on agriculture, it was on the whole felt that it had done enough and that the problems probably lay with the United States. Other less concrete reasons were adduced in evidence: that larger nations, such as China, had got most of what they urgently needed from the Uruguay round and, indeed, that most of the low-hanging fruit, in trade terms, had been garnered in that round, so that the further tariff reductions being sought in the Doha round were just not important enough. It was also rightly suggested that 2008 was a difficult time politically. Two major participants, India and the United States of America, were already in an election period and the European Union was in the last year of the Parliament and the Commission. The Lisbon treaty was being disputed by some member states and, of course, there is a recession, which was particularly worrying in the summer of 2008. Negotiations were hampered by WTO members’ anxieties about their economies, which made them reluctant to concede any further opening of their markets. All these factors must have played a part but, as Pascal Lamy so eloquently urges, we can do better, and this time we must, so as to meet the objective of concluding Doha by 2010. The US presidency is resolved, as is the Indian presidency. The Lisbon treaty comes into force today, a new Parliament was elected this summer and a new Commission is being put rapidly into place. Major players such as the US and most of the EU are emerging from recession and it is to be hoped that any industrialist who was not convinced of the need for further trade expansion knows better now and will want to engage with the process. We in the European Union understand and accept the necessity of continuing to reduce direct subsidies for our agricultural products in order to facilitate negotiations further. That concludes my description of our report and I beg to move.