Where next for EU Trade policy?

Speech by Pascal Lamy, Trade Commissioner EU at the German Council on Foreign Relations, Berlin, 11 June 2004

Ladies & Gentlemen,

It's a great pleasure for me to be in Berlin again for one of my regular visits, and indeed to be back here at the DGAP which has become one of my usual ports-of-call. As EU Trade Commissioner, I tend to spend most of my time outside Europe. But I can of course only do my job if I know how trade debates are evolving inside the EU, and I am well aware that Brussels is an insufficient benchmark for that. So opportunities for exchange, such as today, are precious to me. I appreciate that so many of you could make it – and this despite the choice of a very “Berlin-unfriendly” hour and indeed week day!

What I wanted to do today is briefly run you through the main issues on our trade agenda. Top of the list, of course, is the Doha Development Agenda. But I also wanted to say a few words about the ongoing negotiations with our Latin American partners on the EU-Mercosur Free Trade Agreement as well as on how things look trade-wise in the transatlantic relationship, in view of the EU-US Summit that will take place towards the end of the month in Ireland.

Because, while the DDA is certainly the most important show in town, it is not the only one. We need to look at the whole picture of the EU's trade policy strategy: we seek a balance of market opening and global rule-making, and in doing so accord priority to the multilateral dimension. This is completed with bilateral agreements aiming at higher standards and geared towards fostering regional integration.

DDA

So let's start with the Doha Development Agenda. Where are we? Seems a long time since we launched the Round in Qatar two and a half years ago. But the current signs are relatively good. I have said before that trade talks are like volcanoes, with three modes: sleeping, smoking and erupting. The last few weeks have convinced me that that the Round is now ‘smoking' rather actively, and the stage is set for a decent eruption in July. When I used this metaphor some days ago, a hobby geologist pointed out to me that there are different types of eruptions: some merely discharge steam and other gases, others quietly extrude quantities of lava, and the most spectacular ones consist of violent explosions that blast great clouds of gas-laden debris into the atmosphere. Needless to say that the eruption we are all hoping for is of the quietly productive varietyThis would be satisfying in lots of ways, not least to show people that conventional wisdom – in this case, that 2004 is a year for the dogs - can be profoundly wrong.

And I hope you will agree that the EU has done its bit to regenerate momentum. A few weeks ago, Franz Fischler and I decided to give a clear signal of our will to move forward, in the letter we sent to all WTO Trade Ministers. The theme of that letter is: we are ready to do what it takes to move the Round forward this year. And essentially, that means we have been listening, primarily to what developing countries are saying to us, and making concrete moves in their direction.

There are three issues I want to highlight in particular: agriculture, Singapre issues, and development. But that doesn't mean that other issues are unimportant. On industrial goods and services, for instance, where negotiations have stalled, we need much more ambition, because this is where the biggest gains will lie, for both industrialised and developing countries. On industrial goods, we suggest that negotiations focus on a simple, general and ambitious formula for market opening accompanied by a short set of qualifications or exceptions in country or product terms. For example, Members could accept clearly identified exceptions for products of particular sensitivity to developing countries. More generally, we have all accepted the principle of “less than full reciprocity”, but it needs to be made more operational.

This means that developing countries should undertake commitments in line with their importance in world trade. All developed, as well as advanced developing countries, should afford duty- and quota-free treatment to all imports from the least developed countries. Services negotiations need to move from second into third gear. It will be inconceivable to conclude the DDA without a significant level of new and substantial commitments on services.

But for the moment, there is no way around the fact that attention is firmly focused on agriculture, though this is rather paradoxical if one considers that agriculture on average represents 3 % of GDP of developed countries, 10 % of GDP of DCs and 10 % of world trade. But the politics of trade do not necessarily reflect the economics of trade, and so Franz Fischler and I decided to take the bull by the horns and tackle the politically sensitive issues head-on in our letter to our WTO counterparts.

On agriculture, we set out that the EU is ready to move further, and to put all its export subsidies on the table, provided we see full parallelism on all forms of export competition including export credits, food aid and State Trading Enterprises, and a satisfactory result across the full range of agricultural topics identified in Doha. To put it bluntly, we have listened, and moved: and we now need others to do the same. On domestic support, we need to see a very substantial reduction of all forms of trade-distorting subsidies. The new disciplines to be agreed this summer have to ensure this. Here, the pressure is on the US, and they need to be prepared to change the Farm Bill, to meet the new disciplines, if the Round is to move forward.

The picture is rather less clear on market access, where differences between us – or apparent differences – have slowed progress. We need to find ways to address the concerns of the agricultural exporters, our own sensitivities, and those of developing countries like India. We are glad that the G20 have tabled a new proposal for discussion.

On the question of multilateral rules for investment, competition, transparency in government procurement and trade facilitation, I can be very brief. We very much regret that these issues have not been picked up by other WTO members because we believe they can and should make a real contribution to development. But we cannot push water uphill. So it seems that we will only get a consensus for Trade Facilitation to fall within the Single Undertaking of the Round, although I still harbour some hopes for Transparency in Government Procurement.

Let me now turn to Development. I fear there is some cynicism on all sides about the label of the Doha Development Agenda, as if we were trying to co-opt developing country support for the Round by pretending it is not about difficult policy choices in opening markets, putting together complex new rules, but really “just” about development.

Of course, the Round won't succeed, won't be seen to have succeeded, if it doesn't manage to integrate developing countries better into the world economy. That is a cornerstone policy for us. That is why, indeed, we insist on regional integration in the context of our negotiations with the Mercosur countries (of which more later), why we pushed for the completion of the customs union amongst the Gulf Cooperation Council before getting into negotiations with them.

But at the same time, we also have to be alive to the reasons that the Cancun meeting failed last year. The most important reason, in my view, having analysed it in some detail, is that the G90 group, the least developed plus the ACP, made clear their frustration and sense that they had the least to gain and the most to lose from the Round. Most to lose, in the sense of losing their preferential access, notably to the EU market, if tariffs were reduced too sharply on an MFN basis, for example.

So to be very frank, we have been looking for ways to reassure this group of countries, essentially the G90, that the Round will not be a burden for them. There are many ways you can assess who are the really vulnerable countries in the world trading system. I have found, having flown around the world for the last five years, that lack of negotiating capacity is an excellent way of measuring the problem. India and China have many poor people, but they have the resources, the know-how, to defend their corner in international trade negotiations. So does Brazil. Ethiopia, Chad, Laos, do not.

So I have used the slogan, including in this letter we have sent to all Trade ministers, of the “Round for Free”. Perhaps that it is too politically incorrect for some, and in any way is something of a misnomer because there are some rather low key things we would like them to do, notably on binding their tariffs in some areas, and participating in negotiations in trade facilitation. So what we are offering is “the Round at a modest price” to the poorer, more vulnerable countries on this planet. We should offer them this reassurance for a whole host of reasons – because it's the right thing to do, and it is also the most practical thing to do. There's no point negotiating for years with countries who don't have the capacity to implement what is agreed, and where – just to get the deal done at the end – we agree to give lengthy derogations or carve-outs from obligations.

Of course, there are plenty of people out there ready to argue that this is just another sneaky EU effort to split the developing countries, and others saying we are disincentivising active participation in the Round. To these points, I would simply say: these ideas do not originate from the EU, but from some of the key members of the G90 itself. Indeed, we did not define the G90, or the G20 for that matter. They defined themselves. All we can and should do is take them seriously. While it would be classic trade negotiating strategy to make a grandiose offer in the closing days of the Round, probably in the form of a big derogation from commitments on market opening and rules, I think that would be too late. We need the proactive involvement of these countries now and we will only get that by delivering reassurances now.

So these are the three key elements in the EU's latest moves. The reception for our ideas has been generally pretty good, except for some flak from within my own camp, but mercifully trade questions within the EU are decided by qualified majority voting, and I have that. Outside the EU, we have had some nice compliments, but on their own, they are useless. What we need is others to move too. That way, we can deliver on modalities on the DDA by end July, or in other words get ot the point to which we should have got in Cancun, that is, do 50% of the round.

But let me also reassure you that we keep pushing for a good result on the trade and environment negotiations. True, there hasn't been a lot of action here recently, but outside the limelight, we keep pushing for some governance principles ensuring the mutual supportiveness of trade and multilateral environmental agreements, and we want a deal on improved market access for environmental goods and services. This will require convincing developing countries that such a deal willl not only be in the interest of industrialised countries' exporters that have a technological advantage in this area (and I don't need to spell this out here in Germany), but also in the interest of developing countries.

Last point related to the WTO: of course we are now in the midst of the Round, which must take precedence, but I hope we do not lose sight of the need to improve the workings of the WTO as an institution. This is in particular a good chance to draw lessons from Cancun on how to improve the way in which we work in the future. And the fact that developing countries are now negotiating as a group is recognition that they, too, want to make progress in the WTO, to fight for their interests and move forward.

Before leaving the DDA, let me comment on a point that is not part of the ongoing negotiations, but that mustn't drop off our radar screen: we must not forget that trade opening needs to move hand in hand with improved recognition of core labour standards. I regret, not for the first time, that the WTO did not pick up this baton at the launch of the Round in 2001, although it was not for the want of trying on our part. The fact is that more and more countries, companies and investors are now recognising that equitable sharing of gains, labour force protection and high labour standards are crucial to economic growth. The recent ILO world commission report has very constructively demystified the linkage between free trade and social development, and the European Commission has just put forward a policy paper that picks up a number of strands regarding the social dimension of globalisation. I have discussed this with the DGB this morning, but I would like to invite all of you to have a look at this paper.

Mercosur

The Doha negotiations are not the only ones that are keeping us busy at the moment. Another one on the front burner are our current talks with the South-American Mercosur trade block. Let me try to counter some popular misperceptions about these negotiations: This negotiation is neither proof of the EU's faltering commitment to the multilateral round, nor is it another sneaky EU attempt to divide the G-20, nor is yet another example of the EU being put on the defensive on agriculture. In fact, this negotiation is a perfect example of our trade policy strategy as I set it out in the beginning: building on the multilateral trading system, we seek a WTO+ agreement characterized by first a high level of ambition both in market opening and rules (eg on services, investment, intellectual property), and second a region-to-region dimension. What we are seeking is nothing less than the biggest free trade area between two regional entities in the world. The interregional nature of this exercise explains part of the attraction, but also part of the difficulty in this negotiation: Negotiating with a regional entity in the making is a lot more challenging than the country-by-country approach favoured by others. On the market access side, the EU offer (including on agriculture) is testimony to our high level of ambition – and this has caused some criticism from parts of the EU constituency. But let me also say clearly that this offer is conditional on significant improvements of the Mercosur offer. The Guadalajara Summit end of May allowed for some useful clarifications. The eu and Mercosur agreed to work in the perspective of a target date of October 2004 for the conclusion of the negotiations. But whether this date will be met depends on the willingness of our Mercosur partners to improve their offer, notably on services, investment and government procurement. We are not going to sacrifice substance over timing. The ball is in their camp, and they are aware of it. I will meet my Mercosur counterparts in Sao Paolo, in the margins of the UNCTAD Conference, for which I will be leaving tomorrow.

EU-US trade relations

A word on EU-US relations, which as ever is a much discussed issue, including on the trade side.

It is worth recalling what was said a few years ago about the transatlantic relationship. Namely that things were fine on the strategy / security front, where the greater good was recognised on both sides by mature diplomats, and the problem was the squalling, squabbling tradesmen, who couldn't agree on anything from agriculture (where we had a full menu of obscure wars ranging from chicken to pasta to bananas), steel , indeed anything under the sun.

Now I have to say that the boot is rather on the other foot. Trade is the stabiliser in the transatlantic relationship – a billion euros a day of stabiliser, and although we have still have difficult disputes, they only affect around 2% of trade, and by putting WTO compliance at the heart of our policy on both sides of the Atlantic, we have made good strides in the last five years. We have put the bananas dispute to bed, finally, and on our side we believe that we have satisfactorily solved the hormones conflict. On the other side, the US has dropped its illegal safeguards on steel, and now seems rather close to implementing the findings of the WTO on the Foreign Sales Corporation case. Where we are struggling, quite frankly, is in the so-called “new” trade areas – such as on genetically modified organisms, where the US has – in my view – unwisely taken the case to the WTO. There is no “protectionism” on GMOs, just a rather sharp difference of view between citizens as much as governments, and the risk is, frankly, that those who do not believe in the application of sound science to these problems would be delighted that this has gone to Geneva, because it gives them the chance to say that the problem lies in the WTO and the international trading system.

The other question is whether we should do more, proactively, to tackle transatlantic trade barriers. In my view, we should, but the way forward is through a pragmatic, step by step approach, and not by grandiose efforts to arrive at a Transatlantic Free Trade Area, a Transatlantic Marketplace, or whatever current label is in vogue. Tariffs, quotas, are not usually the problem. The problem is regulatory differences, and so we should use our regular exchanges at political and official level to tackle the barriers in a rather concrete way. That I hope will be the signal that we send at the upcoming EU-US Summit in Ireland on 26 June.

Russia

A final word on Russia, which has made good progress on its road to WTO accession, thanks to the deal concluded fifteen days ago in Moscow. For the EU, Russia's membership of the WTO is more important than for others, basically for three reasons:

• First, the EU is by far Russia's most important trading partner, and there are on both sides good market opportunities for the future.
• Second, we intend to build with Russia a ‘WTO plus' type of economic partnership, which we call the Common Economic Space, and the sooner the better.
• Third, we need to avoid having next door an area of energy and environmental dumping.

The agreement we reached shows that Russia now shares these objectives, which provide us and them with a clear policy direction for the next years.

Of course, as is the case with the US and China, we will have to ensure that implementation follows these policy commitments which, for sure, will require clear determination.

Conclusion

So let me stop here: I think I have done the tour of the most urgent trade questions. I recognise that I have rather ground you into the detail here this lunchtime. I hope that hasn't spoiled your appetite for a discussion on this and other trade questions – the floor is yours.