Today we will discuss the issue of EU trade policy in the years ahead, on which we will have an exchange of views with Mr. David O'Sullivan, director general of the European Commission's Directorate General for Trade. I invite him to begin his presentation.
EU Trade Policy: Presentation.
Mr. David O’Sullivan
I am pleased to have the opportunity to attend the joint committee. The starting point for my presentation is the Global Europe document adopted by the European Commission two months ago at the initative of the Commissioner for Trade, Mr. Mandelson. The document attempts to situate trade policy in the broader agenda of the Lisbon strategy for improving job growth domestically and meeting the challenge of globalisation.
We have to address the significant challenges which have arisen owing to the pace of change in the global economy, developments in technology, the rise of new economic powers such as Brazil, China and India and the impact of delocalisation on employment. In short, we have to decide how we can increase our competitiveness, while retaining and updating key features of our social model. We start from the incontrovertible fact that the way businesses operate and the way they are supplied are changing fundamentally, creating new opportunities for growth and development on an undreamt of scale, alongside new markets and opportunities for production.
Ireland has benefited tremendously from the Internal Market and increasingly benefits from trade integration with global markets. However, change on this scale also creates understandable concerns. While change is not new, the pace and depth of the current transformation are unprecedented. Competition for markets and raw materials is increasing; globalisation is putting global resources, not least our climate, under heavy pressure, while new challenges are arising for traditional industries and livelihoods, particularly in low cost manufacturing sectors. Fear of competition from abroad, whether next door or a continent away, is becoming endemic worldwide. This phenomenon even affects Ireland, despite the benefits it draws from its open economy.
We face the twin challenge of turning the tide of protectionism and showing how Europe can help to find answers to the changes implied by globalisation. Some of these answers will come directly from trade policy, while others will stem from action on innovation, skills and research, or ensuring EU funding can support the people or regions most affected by change. As far as trade policy is concerned, trade openness increases wealth which can then be used to fund redistributive policies at the core of Europe's social model, including education, health care, social safety nets for the weakest and better opportunities for all. However, we must also show that trade helps to reinforce other policy goals such as sustainable development, decent work, poverty eradication and the fight against human right abuses. Therefore, the core argument of the new Global Europe approach is based on rejecting protectionism at home and working to create open markets abroad.
We must also show that trade is not only compatible with but helps reinforce other policy goals, be they sustainable development, decent work, poverty eradication or the fight against human rights abuses. The core argument of the new global Europe approach is, therefore, rejecting protectionism at home and working to create open markets abroad. This is about both the economics and the politics of openness.
Our priority remains the boosting of the global system of international trade and supporting development through the successful conclusion of the ongoing Doha round of trade negotiations. I will return to that topic at the end of my presentation.
We can also build on the platform created by the WTO to generate new opportunities and have identified six key priorities. First, a comprehensive strategy towards China, which was launched by the Commission at the end of October in a separate policy paper devoted specifically to trade issues with China. China, with its populous market, low-cost production and voracious appetite for energy and other natural resources, has come to symbolise globalisation, notwithstanding the social, political and environmental challenges that it faces. That is why getting the relationship right is so important. We in Europe need to recognise the benefit China's re-emergence into the global economy brings us and to firmly reject calls to close the door to China's exports, because that is the only way China can develop. At the same time, five years after it joined the WTO, an anniversary which was celebrated this week, China needs to do more to meet the responsibilities that come with its growing weight in international trade. We are engaged in a constant dialogue with China about this and in the new year will begin negotiations to update our 1985 trade agreement.
Second, we will do more to protect our businesses' intellectual property rights, IPR, which are of critical importance as Europe moves increasingly into the high value-added end of the economy where ownership and the capacity to protect property rights become very important. We published a comprehensive survey of business views in October and have identified a priority list of countries for tackling some of the major IPR challenges. We are discussing with our partners further steps we can take to improve IPR regimes and enforcement around the world.
Third, we want a renewed market access strategy to focus more closely on the key barriers to trade, particularly non-tariff barriers, faced by industry in our major trading partner countries but notably in emerging economies. We have just launched an important web-based public consultation on this issue. We regularly receive the message from industry that, as well as tariff issues, it increasingly faces non-tariff barriers and discriminatory behaviour in emerging markets, which it wants us to show more muscle in addressing.
Fourth, we are looking at what we can do to open public procurement markets abroad. This is a sector that largely escapes trade disciplines today and where European firms have great potential. We in Europe have an extremely open Government procurement regime that enables firms and industries from third countries to participate actively but we do not always find the same degree of openness in our trading partners so it is an area in which we can considerably enhance our penetration in key markets.
Fifth, we are reviewing the way our trade defence instruments, mainly our anti-dumping rules, operate in a globalised economy. Many European companies now have global supply chains. They invest and produce outside of the EU market, just as companies like Dell, Eli Lilly, Cisco, Google or Pepsi have chosen to invest in Ireland. The EU's economic interests are global and highly complex. The recent case involving Chinese footwear showed just how difficult it can be to build a consensus among member states on how best to take account of the disparate interests at stake. If a company thinks its best way of remaining competitive is to outsource production to a low-cost area, while retaining the intellectual property and the value added from that activity, the question arises whether its goods are purely Chinese imports or to some extent European-derived imports.
This is a debate about where our economic interests lie and there are disagreements and controversial views on it. We need to be sure that our trade defence instruments allow us to take full account of the new realities of globalisation. Tackling unfair trade and trade cheats is the flip side of winning acceptance for free trade. Last week the Commission issued a Green Paper on these questions. We have drawn no preconceived conclusions on what adjustments we should make but it is clear that we want to operate the best set of anti-dumping rules internationally. We will listen to what stakeholders and industry tell us about the way our system works at present.
We are committing ourselves to a new generation of trade deals, building, we hope, on top of what a successful Doha Round delivers. Such bilateral agreements are not new for Europe and we have agreements in place already. We have been negotiating others in parallel to the Doha negotiations. What is new in the approach Mr. Mandelson is putting forward is a more rigorous assessment of the economic case for new agreements, rather than foreign policy, neighbourhood or development aspects. The greater priority we will give to economic considerations in choosing our future partners is also new. This is key to making sure that the agreements can create rather than divert trade.
The new generation of free trade agreements will allow us to pursue our sustainable development agenda, offering greater opportunities to do so than are currently possible in the multilateral talks, where these issues are often seen by our partners as a cover for our protectionism. I refer to core labour standards and, for example, environmental protection norms. We will follow a co-operative approach, not imposing sanctions or seeking simply to impose our standards on our partners. On this basis the Commission brought forward to the Council last week proposals for negotiating directives for three future free trade agreements, with the ASEAN countries as a region, India, which is one of the largest emerging markets, and Korea, which is a smaller but extremely dynamic and profitable market.
On the Doha round and the wider development agenda the EU is pursuing, our primary objective is to buttress support for the multilateral trading system, which has been at the core of the prosperity of much of the western world since the second half of the last century. The general agreement on tariffs and trade signed at the end of the 1940s was a unilateral disarmament from protectionism by the countries of the OECD and it laid the foundation stone for much of the prosperity of the western world in the years that followed. The WTO is a much more broadly-based organisation with 150 members, Vietnam having just joined and Ukraine and Russia waiting in the wings. I hope Russia will accede in 2007. It has become a more complex organisation but it remains one of the key instruments of global governance, promoting fair and free trade worldwide.
As we enter into the final phase of the Doha negotiations, many are now starting to realise the systemic and economic consequences of a possible failure. So, for reasons of both self-interest and global responsibility, we all need to find a way back to the table and the EU must continue to show leadership on this, being one of the biggest beneficiaries of the multilateral trading system.
For that to happen a number of things are needed. First, we must take up the negotiation where we left off when talks were suspended last July, a position which attracted the unanimous support of the member states and kept us within the mandate given to us by the Council of Ministers. The US must now do what it failed to do last July, namely, table a credible proposal on domestic farm subsidies. The US faces some important domestic hurdles, as we all do, such as the upcoming new farm Bill and the renewal of the trade promotion authority, a fast-tracking option for the President to agree trade deals that will expire at the end of June. That will influence the Doha negotiating process in the coming months. Now that the US mid-term elections are over, EU Commissioner Mr. Mandelson is encouraging the political leaders of the US to forge a bipartisan consensus around the need to preserve the multilateral trading system, so as to enable the US to play its part in relaunching the negotiations. At the same time, emerging economies like Brazil, India or China will have to realise that they must take their responsibility in this process by contributing to this round by opening their markets for industrial goods and services, on which, until now, they have been extremely reticent.
Second, we must reject the notion that no deal is better than a less than perfect deal. By definition, the deal will be less than perfect relative to the ambitions we all have for the negotiation. No deal is better than a bad deal but we are not faced with such a stark choice. The Doha development agenda does hold promises for a meaningful outcome and there is a lot on the table. If we simply signed off on what we have now, we have, in the making, the single most ambitious multilateral trade agreement ever negotiated. It could be even more ambitious but one must decide what is obtainable at a certain moment and I am not convinced that three or four more years of negotiations could radically improve this situation.
The third condition, and this will be an important factor here in Ireland also, is that we must take a balanced view of the benefits that a trade deal brings. Important though it is, this round is really about much more than just agriculture. All economic studies show that the agreement on industrial goods, services and new trade rules represents the real gain for the European and global economy. We need ambitious deals on these issues so as to create new trade flows.
If we are to engage again politically, every key player will need to show new commitment and flexibility. We are willing to do our part but we need others to enter serious negotiations. If the other key players show real movement on issues like farm subsidies and trade in industrial goods, the EU will renew its willingness to improve its farm tariff offer, in a reasonable way that remains sustainable from the point of view of our agricultural policies. We are also willing to lock our 2003 Common Agricultural Policy reform into the World Trade Organisation and we will proceed to the elimination of export subsidies if others do the same.
All WTO members will benefit from a progressive and careful liberalisation and from better trade rules. The costs of failure both economically and systemically would be steep, both for developed and developing countries. Therefore, we all need to renew our efforts to bring these negotiations back on track.
Development is an important part of the Doha negotiations, known as the Doha development round. This round was designed to correct the impression of many developing countries that the Uruguay Round that concluded in 1993 was somehow not to their benefit. We have built the notion of less than full reciprocity for developing countries into all aspects of the Doha Round. Less developed countries will not be compelled to contribute at all to the round, though they will get the full benefits of it, and the emerging developing countries that will contribute will systematically do less than what is required of the developed world in every area. There is a specific development component of the DDA, focussed on issues such as aid for trade, to facilitate the situation in developing countries.
There is also a very important negotiation this and next year on economic partnerships with the countries of Africa, the Caribbean and the Pacific. Through our preferential access schemes, Europe provides the most open market in the world for the exports of the developing world and is consequently the biggest importer of its goods. Through the new generation of economic partnership agreements, EPAs, with the countries of Africa, the Caribbean and the Pacific, we are seeking to build sustainable trade and development relationships for the future. We have committed to negotiations with Central America and with the Andean community and have presented requests for these to the Council at the same time as those for the other free trade agreements I mentioned. We give more in aid for trade than the rest of the Organisation for Economic Co-operation and Development countries combined and we are the world's largest donor of development assistance. While Europe's record on development is not perfect, it stands up to the most critical scrutiny.
Our competitiveness driven agenda will also contribute to development. Progressive liberalisation of trade, especially trade between developing countries, is vital for poverty reduction and development. We will also encourage our emerging economy partners to offer duty and quota free access to their own markets for least developed countries. Finally, we should not forget that India and ASEAN countries are also developing countries. We are conscious of the competitive challenge they pose but we should not forget that there are more people below the poverty line in India, approximately 400 million people, than in all of sub-Saharan Africa. By using a free trade agreement with India to support and promote domestic economic reform, a sizeable number of people could be lifted out of poverty. This has been the case in China over the past 10 years.
That was a whistle stop tour of European trade policy. It is a policy at an intersection of some of the key challenges we face in the coming years, such as trade and development, jobs and growth, sustainability and the fight against climate change, and strengthening opportunity and social justice in Europe and around the world. If we can get this sequence right we can help Europe succeed and also provide opportunities for the developing world. This does not have to be about winners and losers, it can be about everyone gaining.
I thank Mr. O'Sullivan. I have a number of offers from the floor but I will raise my questions first.
What connection is there between trade policy and development policy? It has been said that EU Commissioner, Peter Mandelson, has gone beyond his brief in making concessions on agriculture. Has he stretched the mandate he received from the Council? What do we lose and what do we gain in the event of an agreement?
India has a nuclear programme and recently made an agreement with the United States. It was suggested at a previous meeting of this committee that there is an unwillingness to confront this issue because of the economic strength and influence India now has. What role does this play in confronting the issue of the proliferation of nuclear weapons? Is there a link between economic policies relating to India and the almost silent acceptance of its nuclear weapons programme?
I will take questions from the floor before Mr. O'Sullivan begins his answers.
I welcome Mr. O'Sullivan and congratulate him on his various appointments over the years in Europe, particularly his current position of Director General of the European Commission's Directorate-General for Trade.
Mr. O'Sullivan has presented a very interesting scenario depicting a world trade order to be established by the WTO. Some key areas he outlined regarding bargaining power were intellectual property rights, market access strategy, public procurement markets and trade defence instruments are the strong points of established economies such as the European Union. There are few economies that match the EU, bar the United States and Japan, and it is difficult to see China, Brazil or India in the same league. The EU is coming from a position of strength and using it to take an almost imperial approach to negotiations. On the other hand, Mr. O'Sullivan throws some crumbs to the Third World in his closing remarks indicating the EU will not forget its inhabitants. Could he elaborate more on this point?
In addition to a global trading market, there is also an illegal global market trading in illicit goods with huge levels of smuggling, laundering and trafficking. What measures will be taken to curtail this underworld economy if markets are to be opened? Does this fall within Mr. O'Sullivan's brief?
Regarding workers' rights in the area of globalisation, we had the issue of the service directive recently and the European Parliament flexed its muscles by taking the side of the workers. What protections are there? The presentation was somewhat silent on this issue.
While there is free movement of goods, there are serious issues with the free movement of labour. Many member states are loath to go into the global arena without having national control over how that operates domestically.
I join Deputy Costello in congratulating Mr. O'Sullivan on his many great achievements; it is a source of great pride to the country. This committee has consistently raised concerns on the issue of economic partnership agreements, EPAs. We were pleased Mr. O'Sullivan agreed to meet with us because, with the negotiations due to be concluded by the end of 2007, the issue is coming to a head. While I do not want to rehearse all the problems with the EPAs, I will give an example of some of the problems. The loss of revenue for ACP countries is a serious source of concern vis-à-vis income tariffs that would apply in normal circumstances. A process of revenue diversification has been encouraged by the EU and other trading partners. However, the EU disengaged from the revenue diversification process in Swaziland last June on the basis that it was too ambitious.
This is an example of the core of the problem. As Deputy Costello says, we expect too much of the ACP countries. It has taken the European Union 50 years to come up with liberalisation in services, yet we are expecting countries without the same educational structures, liberalisation of their markets or anything to compare with the EU to conclude trade agreements involving reciprocity of market access within a short period. This is not only a practical problem, but the accusation is that duress is applied because Europe has the advantage of trade preferences in many different ways.
People talk about aid for trade and countries sign up to these agreements because they do not have a choice. SADC indicated that it was unhappy with the way the EU had concluded the structure of the EPA. The Commission has told the Council that it will not take those objections on board and will proceed as it intended. These concerns have been raised many times by this committee and I hope Mr. O'Sullivan can give us some direct answers.
The USA has had bilateral agreements with India and ASEAN countries. There is no evidence to show that these agreements are a catalyst for development. What is the evidence upon which Mr. O'Sullivan bases his argument? Is our rivalry with the US for access to these markets the backdrop to this? While I am no expert in this area, that is how I understand it.
My final question relates to the arms trade treaty, which may not be in Mr. O'Sullivan's remit. Given that it is a trade treaty, I thought he might have views on whether the arms trade is a source of potential income for a global tax, as the development sector has argued for some time. We will not achieve the millennium development goals at the rate we are going, and it needs a shot in the arm. I would like to hear Mr. O'Sullivan's opinion on this, but I will understand if it is outside his remit.
I join in the welcome to Mr. O'Sullivan and Mr. Territ and thank Mr. O'Sullivan for his presentation.
Trade liberalisation is an attractive doctrine. Trade is at the heart of the European project and has been part of its success; it was one of the reasons for enlargement and trade benefits have accrued. I accept that we must fit in with the WTO and expand and give access to our markets. I was surprised that, as the WTO talks got into their final phase, the Commissioner seemed to concede a great deal of ground. I did not think he would go as far as he did in the negotiations.
The issue of development has exercised most committee members and Deputy Andrews particularly. The attractiveness of liberalisation is for strong economies. There is an element that relates more to domination than liberalisation and I have got into trouble in the past for saying this with reference to US trade policy. Reciprocity means approximate equality between partners. I do not think arrangements can be described as reciprocal if a strong country imposes certain conditions on a weak one. There is also the issue of aid for trade. While I realise there is a hierarchy and some countries are more vulnerable than others, there is an inherent danger in the Union telling them that they will not get aid if they do not agree to trade. I would be interested in Mr. O'Sullivan addressing that aspect.
Let us say markets are opened, tariffs are reduced but the Union then dumps goods into some of these countries. The usual response is that the WTO will attend to that and the affected country can bring this to its attention. However, that takes so long that the damage has already been done and it is too late to undo it by the time a ruling is issued. Some of the poorer ACP countries are in a difficult position when it comes to this.
The specific question behind this relates to development aid, and whether aid for trade is added to targets that have been set. Is there an element of substitution in this? I accept that we operate in a more globalised market and the Union must compete within the rules that govern the market. However, some of the most vulnerable countries are in an unequal position vis-à-vis protecting their interests. The pace of liberalisation may be something they cannot deal with.
Mr. O'Sullivan is very welcome. I have not met him, but I know of him. I must declare an interest — I am chairman of Eurocommerce and I know Mr. O'Sullivan met our chief executive a couple of weeks ago. Had our chief executive been sitting here today, he would ask whether the importance of commerce and trade gets due recognition in Europe. It seems to me that industry is still regarded by the powers that be to be the most important creator of wealth and jobs. However, all the evidence suggests that future European growth is less likely to come from industry and more likely to come from commerce. That does not seem to be widely understood. Eurocommerce represents 5.5 million enterprises, mainly small shops, around Europe and some 27 million people are employed there. The growth potential exists. Part of the reason the Lisbon Agenda has not taken off as well as was hoped is the introduction of regulations and costs that have stifled the ability and freedom to grow. I read a figure during the week that was frightening. The industry Commissioner, Mr. Verheugen, referred to €600 billion a year for complying with EU regulations; he was referring to industry as well as commerce. Those costs arise each time we introduce and pass regulations, and they are frightening. Mr. Barroso makes all the right sounds about making better regulation but it does not appear to happen when the Commission and the Council continually introduce new regulations without an impact analysis being done. What do we have to do to convince the powers that be that before a new regulation is introduced, some sort of regulation impact analysis should be done?
Will Mr. O'Sullivan discuss the single European payment area, SEPA, because one of the areas that concerns commerce is the cost of cards and the almost anti-competitive practices on the part of banks. I am aware Eurocommerce is taking action against MasterCard; it accuses it of being a monopoly. I am not sure of the position on that. Will Mr. O'Sullivan give us some information on that because that is not in the consumer's interest or in the interest of trade and therefore it is not in the interests of the citizens of Europe. My questions are to do with trade, although I am not sure how many of them come under Mr. O'Sullivan's remit.
Before Mr. O'Sullivan replies, I would like to welcome Mr. Territ to the meeting. He is head of the European Commission office in Dublin.
Mr. O’Sullivan
I thank the Deputies and Senators for their wide range of questions. I will try to do justice to them.
It is interesting that the members' remarks have focused, by and large, on the development side. Elsewhere in Europe I would find a different emphasis — either criticism that we were too liberal, that we let in too much and therefore we should be more protectionist or that we are too protectionist, which is another criticism made of EU trade policy, and that we do not do enough to protect jobs and industry in Europe.
The third criticism is that our trade policy is not sufficiently development friendly. My point is that I hear those three criticisms in different orders in different places. I respectfully suggest that to some extent they cancel out each other in the sense that they show we have probably got a reasonable balance in what we are doing.
On the issue of trade and development, trade cannot solve all development problems. Trade is a tool by which we create additional wealth. Everyone accepts that trade is the basis by which countries, by interacting together, benefit from the process and everyone comes out on top. How we then distribute that and use the wealth which is created is another issue. I also accept there are issues about countries at a different stage of development and how and when they choose to engage with the global economy. That is an important point and no one in the European Commission, least of all Mr. Mandelson, is saying developing countries must engage from one day to the next in total liberalisation, take down all the barriers and open their markets. We know that will not happen and we would not even recommend that it happens.
On the other hand, there are no anti-globalisation success stories. There are no countries that have moved along the path from poverty to prosperity without opening their markets and engaging with the global economy. There can be a debate on pace and timing but there is no debate about the direction in which they must move. One has only to examine the history of this country in that regard. I remember Ireland in the 1950s, 1960s and 1970s — I note Dr. Ken Whitaker celebrated his 90th birthday recently — and the dramatic change between the first 30 or 40 years of economic policy and the tremendous difference made by the opening up of the economy. We first had the Anglo-Irish Free Trade Agreement and then joined the European Economic Community. One only has to look at this country, which has done so well since I left. That was an amazing achievement but it came about through accepting the challenges of external trade and the squeezing of the economy, so to speak, that had to take place. There are lessons to be drawn from that in terms of development.
What does that mean in concrete terms? First, in our trade policy we are the trading bloc that offers the most unfettered preferential access to the developing world. We are committed to duty free, quota free access, zero tariff and no quotas on all products from the least developed countries. We were the first people to take that initiative. In the Doha Round we were the only ones willing to take that initiative to 100%. The United States and the Japanese will take it to only 97%, sheltering some of their most sensitive products and those of most interest to the developing countries. We take the largest proportion of goods and agricultural products from the developing world. We are very open without asking for any reciprocity. They are unilateral preferences given freely by Europe to those countries, asking nothing in return.
We are also the world's largest donor of development assistance — 55% of total development assistance worldwide comes from Europe. With respect to Deputy Costello, that is not crumbs and it is not patronising or insensitive to the role of the developing world. It represents a huge commitment on the part of Europe to the role of the developing world. It can be said that we have a legacy in that regard and that we are paying now for some of the problems we created in the past. That may be true. I have some sympathy with that view but the fact is we are doing it and we are still the most open, liberal trading bloc vis-à-vis the developing countries.
Trade is important for those countries but it will not solve many of their fundamental problems. Many of those countries are so far down the chain, so to speak, that trade is not necessarily their top priority. They are trying to solve more fundamental problems of subsistence, agriculture, famine, civil war, starvation, governance and problems of corruption in their regimes. There is a wide range of problems and trade will not solve all of them. I am a great believer in free trade but I have no illusions about trade. It is a limited instrument at a certain point. There are limits to what can be done with it and it cannot be made to achieve everything.
On the question of the economic partnership agreements — I will return to the issue Deputy Costello and Senator Dardis raised about abusing our weight in the system and somehow exploiting poor countries — I recognise that the EPAs are controversial. I would even say we are probably losing the propaganda battle, if such there is, in terms of convincing people that what we are doing is useful. To answer Deputy Andrews, it is necessary to examine the history in that regard.
The economic partnership agreements with the African, Caribbean and Pacific countries are part of the development agenda we have with those countries through the Cotonou Agreement and through the first Lomé Convention, which was signed by Dr. FitzGerald when he was Taoiseach in 1973 under the first Irish Presidency. That was the first time a developed part of the world had entered into a contractual relationship with developing countries in the Lomé Convention. We accepted obligations towards those countries, including significant financial transfers.
Part of that involved trade preferences. It has emerged that these trade preferences are not consistent with the principles of the World Trade Organisation and we must change them. In 2001, we were given until the end of January 2007 to find an alternative arrangement. We were given more or less seven years in which to negotiate an alternative arrangement. We agreed with the African, Caribbean and Pacific countries that the best way to proceed was to negotiate, within the framework of the Cotonou overall development agenda, specific trade arrangements on a regional basis. We decided that was the best approach because it would permit a degree of regional integration between the African, Caribbean and Pacific countries.
We must never forget that 60% of tariffs paid by the least developed countries are paid to other developing countries. Neighbouring countries trade extensively with Europe but not at all with each other, even though we know they would benefit substantially from trading more with each other and not just with Europe. They wanted a process of regional integration. We knew there had to be an element of reciprocity in these arrangements for them to be WTO compliant but we have made clear from the beginning that we have no predatory or offensive interests in market opening in these countries. I wish that European industry had more interest in that part of the world. Business people come into my office every day of the week asking for such access and why we cannot do more to help them in Korea and India, but nobody ever mentions sub-Saharan Africa. There is no predatory agenda from Europe to try to access these markets. We are trying to put together a package of measures that will be WTO compliant and, therefore, there will have to be some element of reciprocity. However, we have told all our partners that we are willing to use all the flexibility within the WTO, such as asymmetrical opening, which means immediate market opening with us and slower opening with them, transitional periods, special arrangements for sensitive products, to do everything we can not to in any way damage their economic prospects. We have nothing to gain from that. We are trying to put together a trade package which is in their interests and operates in their favour.
As to the controversial aspects of the package, we are also trying to develop regional integration. It was said here that we are forcing them to go too far too fast. This is a negotiation. We cannot make them do anything. We are trying to persuade them. The agenda we have was one which was jointly agreed. They said that they would like to have regional integration and an element of rules in such integration which will promote their development.
With regard to issues such as investment, we suggest that in such regional integration and economic partnership arrangement there should be some fairly clear rules for foreign direct investment into the region. This is not for our benefit but to try to make these attractive places for foreign direct investment, places in which people do not want to invest currently.
We are also asking them to examine whether they could liberalise some of their services such as their financial and telecommunications services because these are the indispensable building blocks of an economy in which people want to invest. We know that from our experience. There is no gain for us in this. We are trying to help these people to build a trade framework which will enable them to have the best possible beneficial access to our markets and for us to be given no concessions, except a limited amount of reciprocity which will happen over time and be phased in with no pressure from us about how and when that is done. We just have to be able to sell this in the WTO negotiations. We want to create a framework in which these countries become more attractive regions in which people will invest, thereby giving people confidence in the investment environment and gradually helping these economies to move upwards. That is the objective.
The members of the committee may say that is not the way it sounds when they talk to these people. I understand that because I speak to the interlocutors too and they are very critical. On the other hand, if we simply abandon this effort and decide to go for the lowest common denominator and give them some trade preferences and forget about it, we would be failing in our responsibilities to these people. We owe them more than that. The trade preferences we have had until now have not enabled them to really benefit and even though our market is more or less is open, they lack much of the infrastructure and capacity to be able to benefit from these preferences. It is on this that we are trying to work.
On the timing aspect, it is true that the waiver we have from the WTO expires at the end of next year. People say we are putting pressure on them. With respect, we have been in these negotiations for three or four years now; we are under the same pressure. It is important this committee understands that if these negotiations go wrong and, if at the end of next year we do not have these agreements in place, the first people who will be attacked will be the European Union in Geneva; our other trading partners will allege we are illegally giving preferential access to the ACPs and demand compensation. They will seek compensation from us for what they will consider to be an illegal trading regime with the ACPs. It is all right for the ACPs to say they do not feel under any pressure; we feel under a certain pressure that if we have not put something else in place, we will be in a big mess in Geneva. This will be costly, difficult to manage and it will put us under pressure to give additional preferences to other countries with which perhaps we might feel less inclined immediately to give compensation. It is a complex situation and negotiation but I ask the committee to believe that from our point of view we have no offensive economic interest to gain. We are simply trying to put in place a new arrangement for trade with these developing countries which is in their best interests and which will offer them the best prospect for development to lift themselves out of poverty and the circumstances in which they find themselves.
Deputy Andrews raised issues regarding revenue loss. He is right in that there could be issues of revenue loss. We believe that some of studies have grossly overestimated the revenue loss because it is very static. If their markets were opened immediately today, there would be a great loss. I have said that this should happen over many years with long transition periods; there will also be other gains from the increase in trade. Even though the tariffs may go down and there will be more trade, more revenue could accrue. There will also need to be some substitution arrangements, but the committee should never forget that behind all of this there is the tenth EDF with approximately €14 billion of aid to these countries, which is our commitment under the Cotonou Agreement. This is one of the biggest development assistance packages in the world. It is not as if we are simply talking trade; we also have substantial funding which backs up this process. It is part of this global development framework which we have with these countries. This is only the trade element because we have ensured it is WTO compliant. I apologise if I have been lengthy on this point but I believe the EPA agenda is a positive and constructive one.
We have to negotiate with our partners. They do not always share this analysis and ultimately an agreement must be put in place. As we move through this process, we have to adjust our position and try to see the point of equilibrium between us. I fear that there are some people advising these countries that they should agree to very shallow agreements, simply pocket the preferences and leave it at that. That would be a great tragedy. We would be failing these countries and our responsibility to encourage them to put in place a modern framework which will provide them with a platform for true development and progress in the next ten or 15 years, but if we cannot do it, we cannot make them accept it.
I would like to give the lie to the idea that the EU snaps its fingers and tells people what it wants. I am a trade negotiator and I do not find the Brazilians, Indians or the Chinese jump every time I snap my fingers; they are quite capable of snapping their fingers back at me and telling me what to do with my ideas. The world has changed dramatically. I agree that perhaps 20 or 30 years ago the GATT was a cosy little place where the American ambassador and the EU ambassador could have lunch in a nice residence by the lake and then wander across the road to the WTO and tell the people they had done the deal and request that they accept it. It is not like that now and rightly so. There are 150 members; the WTO functions on the basis of unanimity; it is a tough negotiating environment; these people are skilled negotiators; they know what they want and they know what they are prepared to give and not to give. We have a certain weight in the system because we are the largest trading bloc but we also have to negotiate and find consensus; we have to make deals and give in order to get. It is not all one way by any means.
On the question of whether Commissioner Mandelson has exceeded his mandate, I do not believe he has. I accept that the mandate is not carved in stone. The mandate on agriculture is that we respect the 2003 CAP reform and we do not accept in the WTO negotiations anything which undermines the fundamental balance of that reform. We believe that is the case and that none of the flexibility we have shown would fundamentally destabilise or change the terms of the 2003 CAP reform. People can have differing views on this but the committee will realise that Commissioner Mandelson negotiates hand in glove with Commissioner Fischer Boel and I negotiate hand in glove with my colleague, the Director General for Agriculture. They are the people dealing with agriculture who tell what we can and cannot do and they follow closely the link back to the reform. I do not believe Mr. Mandelson has in any way exceeded his mandate. He did a skilful job in July because when the talks broke down, probably for the first time in the history of the WTO or the GATT the blame did not fall on Europe. It largely fell on the United States. It was recognised that the United States had been responsible for causing this breakdown and Europe came out of it relatively well, including among the developing countries which admitted that Europe had shown a greater degree of flexibility and openness than was the case for others.
I cannot comment on the nuclear aspect of India as it is not my bailiwick. What I can say is that we hope to engage in a free trade agreement with India because, first, India has expressed a strong interest in such an agreement and it takes two to get involved in such negotiations. Second, the preliminary talks between us have shown that we both share the same ambition of a deep integrated free trade agreement with strong liberalisation on goods trade, and with chapters on competition, services, investment, IPR and government procurement, all of which are issues which are difficult to address through the multilateral systems and where our industry sends clear signals that it wants us to work on its behalf in this important market. Clearly, India has its own agenda and will seek to gain extra access to the European market.
There has been a debate in the Council about the extent to which we should look at trade only or at the wider agenda. In the end it has been decided that we should focus on the trade dimension in this particular agreement, but the member states will want to keep a close overview on our overall relations with India, including some of the points such as non-proliferation made by the Chairman earlier, before any trade agreement is finally signed off.
On workers' rights, Commissioner Mandelson spoke at a conference on decent working conditions last week on which we worked closely with the European Trade Union Congress and with the ILO. Europe is fully committed to the promulgation of ILO standards and conventions on workers' rights.
We prefer to try to work through the internationally agreed standards rather than imposing our own because when there are internationally agreed standards, it is easier to ask other trading partners to sign up. It is much more difficult to get them to sign up to a purely EU concept of workers' rights.
The ILO has provided a good basis. It covers most of the key issues, including trade union rights, child labour, etc. The following are two illustrations. First, we declined to offer GSP plus to El Salvador because it had failed to ratify a number of key ILO conventions. El Salvador recently finally relented and stated it will now ratify those conventions and we will then, in return, give the GSP plus to it. Second, Commissioner Mandelson has just proposed, and the Council is on the verge of accepting, to withdraw GSP plus from Belarus, which benefits from it at present, because the ILO published a critical report on labour standards there. If memory serves me well, Belarus is failing to implement two key conventions for which we are proposing to penalise it. This shows that we take workers' rights seriously.
What is GSP?
Mr. O’Sullivan
The general system of preferences, GSP, is a preference system for developing countries. GSP plus is an incentivised top-up to the GSP for countries which ratify labour standards or meet certain obligations, notably in the area of labour standards. That shows our commitment to promoting worldwide the highest possible standards of employment according to the ILO conventions.
Deputy Costello also mentioned the freedom of movement of people. This is an important issue for many of the developing countries in liberalisation of services. In return for giving us more access, for example, for financial services or telecommunications services in their countries, they would like the possibility to send skilled workers to Europe or the developing world on temporary visas in order to perform services on our territory. This will be a big issue in the EPA negotiations. It will also be a big issue in the Doha Round.
I tend to agree with Deputy Costello that member states are rather cautious about this. It is a pity because this form of free movement of people is a good way of allowing the developing countries a certain comparative advantage in this area and to earn money, enabling us to benefit from skilled labour, and not generating the sort of immigration, integration and long-term assimilation problems which can arise from other forms of immigration. It is a good way forward and I hope it can be done.
As I do not know anything about the arms trade treaties, I will refrain from any comment.
Senator Quinn spoke of commerce and trade. It does not have much to do with my brief, which is international trade, but I share many of his views about the importance of commerce and services. All the evidence shows that the big gains for Europe from the Doha Round will accrue more from services than even from manufactured trade, and still less from agriculture.
I take Senator Quinn's point about regulation and costs. This is a strong theme of the Barroso Commission. Not all of those costs flow directly from European legislation. In some cases they flow from the manner in which that legislation is adopted and implemented. We are continuously improving on factoring the cost of regulation into impact analysis. There is always a balance to be found between the need for the most business-friendly environment and the public policy objectives which people want to pursue — workers' rights, environmental standards, health and safety standards, and hygiene standards. I agree that there is a balance to be struck. One cannot dismantle all of this in the interests of simply cutting costs. On the other hand, I agree that the general feeling is that there is too great a burden of regulation on industry and we must work at cutting it back. It is not directly the responsibility of international trade, but it is a matter in which Commissioner Mandelson takes a close interest in his collegiate rather than trade responsibilities.
I hope I have done justice to everyone. I am sorry for taking so long, but some of these issues are fairly complex. If I have overlooked something, I would be happy to address it.
Mr. O'Sullivan has given us a comprehensive reply.
What is the current position on the Doha Round of the WTO talks? What is the timescale? Are the main protagonists like the United States prepared to come out and play? There is a short timescale. What will happen now and how will it happen?
Mr. O’Sullivan
We have been negotiating since 2001. I took over this job in November last year and I am now into my fourth moment of truth on Doha in 12 months. I am sceptical to state that there is now another moment of truth. The consensus among most of the people close to the negotiation is that either we do this deal in the next few months, by which I mean before the expiry of the US trade promotion authority at the end of June, or we are probably launched for a considerable hiatus in the process. This is because 2008 is a US presidential election year and they will not be able to negotiate easily in that context, 2009 is the first year of a new US Administration, and in 2010 we will start the process of looking again at our budget and CAP reform in view of post-2013 and we will probably not be able to engage multilaterally for a couple of years until we sort ourselves our internally. It could well be 2011 or 2012 before another window would open for a multilateral deal. That is far too long to wait for an upgrade of the multilateral system last upgraded with the conclusion of the Uruguay Round in 1993. We are facing a serious challenge.
What would be the economic and developmental consequences of failing to reach an agreement?
Mr. O’Sullivan
Let us face it, the sun would rise the next day. It would not be the end of the world and trade would not stop. First, there would be a blow to global business confidence. There would be a sense that business would feel this is not good news and, as the committee will be aware, business reacts somewhat with a reflex to this kind of news rather than necessarily completely rationally.
Second, everything that is on the table for the developing countries will immediately fall. The Americans are clear that their commitment to duty free and quota free for the least developed countries is entirely conditional on being part of a wider Doha deal. We will lose the opportunity to discipline agricultural subsidisation, which is an important issue for many developing countries. I wanted to come back to that, as Senator Dardis spoke of dumping by the EU. The only dumping of which we are seriously reproached normally is agricultural dumping of subsidised products with export refunds, which we have also stated we will abolish in the context of a Doha Round. I do not know how we will revisit that issue if there is no Doha Round.
The aid for trade package and many of the other measures for the developing world would melt away. The next consequence undoubtedly is that there would then be a proliferation of bilateral trade agreements, which are fine if they are topping up the multilateral system and less satisfactory if they are becoming a substitute for a multilateral trading system. The multilateral trading system generally would take a hit and would be damaged by this, and we all would pay a medium to long-term price for that. In the short term, those who would be most heavily hit would be developed and the least developed because those are the countries which have least leverage in any bilateral context, as many of the members pointed out.
I thank Mr. O'Sullivan for attending and giving us the benefit of his expertise and knowledge.
The joint committee went into private session at 3.10 p.m. and adjourned at 3.15 p.m. until 2.30 p.m. on Wednesday, 24 January 2007.