Speeches
THE
ROAD TO HONG KONG:
MIXING AMBITION WITH REALISM
By
Ambassador John Bruton
Head of the EU Commission Delegation
to the United States
to the
Washington International Trade Association
Breakfast
December 7, 2005
Hemisphere Suite
Ronald Reagan Building
Washington, DC
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1. Why the
Round is important to the EU and the other WTO Members?
• Open markets are a precondition for growth, and growth is essential to
economic development. The only credible way forward is progressive liberalisation,
domestically and internationally.
• The most effective way to achieve this goal is multilateral trade liberalisation.
Bilateral and regional agreements can supplement the multilateral approach,
but they are no substitute for it because of the multiplying power of simultaneous
multilateral market opening.
• The case for Doha can be made for three main reasons:
First, welfare gains for all. While the developing world would enjoy the
largest relative percentage gain, and rightly so, America, Europe, Japan and other
rich countries, because of our volume of trade, would still be the largest gainers
in absolute terms. These gains arise not just from a further opening of the “North”
to the “South” but, crucially, from a big boost in South-South trade between developing
countries themselves.
Second, a successful conclusion to Doha would advance the fundamental reshaping
of the international division of labour, in which Europe and America can flourish
as knowledge-based service and manufacturing economies, with manufacturing success
based on leading-edge innovation, top-of-the-range products and niche specialisation.
For instance, (last year) the discussion on outsourcing of services failed to
highlight that, according to a recent OECD report, the United States, like India
and China, is among the top net recipients of global service outsourcing when
using business and computing services as a proxy for insourcing (about $42 billion
worth of services were outsourced from the US in 2002, but $64 billion worth of
services were insourced. Thus, the US has a surplus of $22 billion).
Third, and perhaps more immediately, a successful multilateral trade deal
can at this moment be the biggest possible shot–in-the-arm for the world economy.
The World Bank has had to revise its figures somewhat on the gains from full global
merchandise trade reform, but the key message has remained the same: multilateral
trade reform raises income and lowers poverty. (According to an Institute of International
Economics study from last February, the average American household is about $9,000
per year richer as a result of the country’s integration with the world economy
since 1945. Achievement of completely free global trade would increase US income
by a further $500 billion per year and increase average household income by another
$4,500 annually).
• However, advances in market access and direct economic growth are not the
only gains expected from the DDA [Doha Development Agenda]. If successful,
the Round would extend the rule of law and the habit of abiding by rules. This
would be a major political advance. Furthermore, updating of WTO rules or
creating new agreements like the agreements negotiated during the Uruguay Round
(e.g., agriculture, services, TRIPS [Trade-Related Intellectual Property Rights],
SPS [Sanitary and Phytosanitary]) are only possible in context of a larger negotiating
round with the possibility of trade-off between the different interests of the
WTO Members. Rounds are like legislative sessions. Without them you cannot make
new law.
• The Uruguay Round created for the first time a truly multilateral process,
and brought developing countries into the game. But that Round left crucial
unfinished business:
little liberalisation in the field of services;
hugely diverging tariff conditions across the WTO membership, including
the persistence of very high duties in middle-income countries;
unacceptable pockets of high tariffs in high income countries; and agricultural
policies of major trading powers to be further reformed.
• The current negotiations, the Doha Development Round, is attempting
to deal with this.
2. What are the key EU objectives?
• The Doha Round is different from all previous trade rounds because it is focused
on ensuring that the world’s poorest countries benefit from the global trading
system. Any final outcome that does not reflect their needs will be unacceptable
to Europe. First objective is, therefore, that Development must remain central
to the purpose of the Round. The needs of the poorest countries must be addressed.
• Let me explain: We all know that there are issues which will have an impact
on the economies of the poorest developing countries. I am referring to the erosion
of
preferences. I fully understand the concerns about the social and economic
impact which tariff cuts will have on these countries. This is an inevitable process
because of the very nature of MFN [Most-Favored Nation] liberalisation; it is
a systemic problem. But this liberalisation should take place in a progressive
and sequenced way, should benefit all and not just a tiny minority of competitive
exporters and should not be more than what the market can bear.
• In that respect, the EU proposes a self-standing development package
for Hong Kong which should include more aid for trade, more flexibilities for
the poorer countries and ensure that all developed countries provide duty-free
and quota-free access to products from the Least Developed Countries (as the EU
currently does).
• This approach should come as no surprise. The EU is committed to development
and has proven that. Through its preferential market access schemes (Everything
But Arms Initiative), Europe already has the most open market in the world
for developing countries’ agricultural goods. Europe takes more farm exports
from Africa than the rest of the world combined, and most of that produce
enters the EU market tariff- and quota-free. Other developed countries have schemes
that are more selective or none at all.
• Moreover, the trade round can deliver benefits that reduce poverty by stimulating
South-South trade, which requires the more advanced developing countries
to reduce their tariffs. These tariffs have more impact on the poorest countries
than they do on the economies of the developed world. Seventy percent of tariffs
in world trade are paid by developing countries to other developing countries.
• The second objective is that we need to ensure that negotiations are balanced,
within the different negotiating areas as well as between them. Market opening
for goods and services badly needs to catch up, as do talks aimed at strengthening
existing rules. All these areas are important for global trade. Members, therefore,
urgently need to adopt a broader, more inclusive approach to all aspects of the
negotiations.
• A lot of focus has been on the agricultural negotiations and more particularly
on EU’s contribution. On October 28th, the EU gave the
most substantial offer ever made by the EU in multilateral agriculture
negotiations. This offer needs to be matched by partners in other negotiating
areas. As [EU Trade]
Commissioner
Mandelson said, we have existed too long in an “agricultural silo” and only
recently started looking beyond it. As a result we have not had time to discover
potential trade-offs, narrow our differences and get down to details. These are,
however, necessary if we want to maintain ambitious results for the Round overall.
3. What is the essence of the EU proposals?
• Out of deference to the alphabet, I will start with agriculture. Let
me be clear: The EU is determined to contribute to a fair and market-based
trading system for agricultural products in a way that is tolerable for the EU’s
reforming agricultural sector and that does not undermine the preferential access
of the world’s poorest countries to the EU.
We do recognize that agriculture is the key to progress in other areas. In this
spirit, the EU has offered to
eliminate its export subsidies completely,
reduce by 70% the trade distorting domestic subsidies,
cut our import tariffs on all agricultural products on average by almost half
- from a current average of 22.8% to 12.2% (close to US current average of 11%)
- and to
reduce tariffs even for the most sensitive products.
• Our offer guarantees significant market access improvement,
also for the sensitive products, as required under the 2004 Framework Agreement.
It will create new opportunities for agricultural exporters without wiping
out preferential access for poor developing countries or doing excessive damage
to our own agricultural sector. The offer is within the outer limits of the mandate
provided to the [European] Commission by the Member States and we have no plans
to make a further offer in agriculture.
• However, let me remind you of the context within which the EU made this offer.
While some WTO Members may have been sitting around waiting for the DDA Round
results to deliver comprehensive reform, the EU has already been thoroughly
reforming its
Common Agricultural Policy. Just as the US Farm Bill is seen as a contract
with the American farmers, the CAP Reform is a valid contract we have made with
the EU farmers until 2013 entailing an upper limit on the CAP budget and a
reform of the CAP instruments. We have moved away from world market for most
commodities. In the case of wheat, beef, poultry, for example, we used to
have more than 30% of world market share, now our exports are much more limited
-- less than 5% in some cases. We have become a major net importer of beef:
from a position where EU exports were 30% of world exports early 1990s, the EU
now imports some 500,000 tonnes; and forecasts made on the basis of the EU offer
show that this would increase to more than 1.2 million tonnes. Likewise,
the sugar reform we just agreed upon will move the EU from 2nd largest
exporter in the world after Brazil into the major net importer category. During
the last 15 years, the EU has managed to shift away from “trade-distorting subsidies,”
to domestic support that does not distort trade. Other developed countries have
not undertaken such reforms. Some have even increased their support. There
is a need, therefore, to ensure that trade-distorting agricultural support is
dismantled by all WTO Members in a progressive and balanced manner.
• At the same time we recognize that agriculture is important and sensitive for
a great number of developing countries. The EU, therefore, proposes that developing
countries should not have to make as high tariff cuts on agricultural products
as developed countries and they should be entitled to special and differential
treatment. Least Developed Countries should be free to make no tariff cuts at
all if that is what they want.
• Furthermore, even though we have proposed steep cuts in our agricultural tariffs
– the steepest we have ever offered, we have not and will not agree to cuts
that would completely eliminate the preferential access we offer to African and
Caribbean countries, as other’s proposals imply. This is neither realistic
nor desirable. For the sake of development a serious negotiation must now converge
on ambitious but realistic middle ground.
• We intend that our offer will help to resolve the blockage in the agricultural
negotiations and result in parallel movement across the full range of negotiating
sectors. However, we cannot sustain the EU’s offer if we do not see substantive
progress also in other negotiating sectors. The EU will not be the sole banker
of this Round.
• At the same time, we wonder at the content of certain proposals. The
US proposal, for example, is, as far as agricultural market access is concerned,
very ambitious. However, it would imply radical cuts in commodity-specific programs,
for which Congressional support is by no means certain.
• Furthermore, the debate on agriculture is seriously flawed as it places
too much emphasis on market access. For example, a lot of ink has been spent
on the 93% figure put forward by the World Bank (i.e., that 93% of the welfare
gains would come from market access concessions and only 7% from domestic and
export subsidy cuts): this is not only misleading, as its assumptions are based
on a full elimination of agriculture tariffs and subsidies (which is utopian),
but it also contradicts a USDA study on the impact of trade liberalisation on
world prices. The USDA claims that 46% of gains would come from reductions in
domestic support and export subsidies, that 38% of total gains would come from
EU’s reform alone and, more importantly, that two-thirds of the EU contribution
would come from reductions in domestic support and export subsidies. The key is,
therefore, to look at the cumulative impact of reforming trade-distorting
support and not place undue importance in any of the 3 agri pillars (domestic
subsidies, export subsidies, market access).
Moreover, we have strong doubts about whether everything else - services, NAMA
[Non-Agricultural Market Access], rules, development - would automatically
fall into place if the agricultural negotiations were deemed by all parties to
have advanced well enough. The other negotiations areas are lagging far
behind (except perhaps Trade Facilitation) and need our urgent attention
to catch up. The outcome of the Doha Round must, I repeat, be balanced.
• On non-agricultural market access (NAMA) I quote the Pakistani Minister
of Commerce Humayun Akhtar Khan, (recently nominated to help develop a consensus
declaration text on NAMA), who said last week in Washington, DC, that developing
countries including Brazil and India should be more forthcoming on NAMA than they
have been so far. They should not wait for the EU to improve its offer in agriculture
before showing how much flexibility they have in other negotiating areas.
• This means cuts to tariffs as they are applied, not only on bound tariffs. In
concrete terms, we are prepared to do so ourselves and asking other developed
countries to cap their industrial tariffs at 10% maximum. The bound tariff rates
of the EU, US and many other industrial countries already average 4% (NB: average
tariff: includes tariff peaks in certain products). According to our latest calculations
based on the WTO database, the EU average bound tariff rate is 4.06% (average
applied 4.04%) while Brazil’s average bound tariff is 29.97% (average applied
11.61%).
• At the same time, we do recognize the principle of “Less Than Full Reciprocity.”
All developing countries, even the advanced ones, are entitled to flexibilities
in their NAMA commitments, as long as -- as far as the advanced developing countries
are concerned -- the overall result still leads to improved market access. It
is also important to make sure that the tariff cuts, including those by emerging
economies, also create new market access opportunities for weaker developing countries.
As I stated above, increased South-South trade is a vitally important aspect of
the development agenda for the Round.
• On services, the opening of services markets is a key area of modern
economy and global trade and it contributes to creating and strengthening the
backbone of developed and developing economies alike. Services represent the
bulk of the EU economy and a satisfactory outcome of negotiations in this area
is of vital interest for the EU. WTO Members need to agree on new opportunities
for service providers worldwide. These opportunities should include greater commitments
in areas of interest to developing countries and in areas that are the most relevant
from an economic development perspective, in particular the infrastructure-related
services sectors.
Indeed, developing countries have much to gain from the DDA negotiations in
services, both in terms of market opening for their offensive sectors and regarding
an increased liberalisation of domestic sectors which are key for their development,
notably in order to attract investment (telecommunications, financial services,
transport). The absence of a reliable banking system or of cheap communications
can seriously hamper export trading opportunities. I come from a previously underdeveloped
country which modernized through foreign investment and can testify to the efficacy
of that approach.
• Negotiations have, however, been stalled by the negotiating method itself (the
so-called “request-offer” process). WTO Members must agree on complementary approaches.
First WTO Members should agree on the number of service sectors in which each
Member would be required to make an offer. This numerical target would be
different for developed and developing countries. WTO Members should also agree
on qualitative elements indicating what kind of market access should be offered
for these sectors. For instance, on Mode 3 (trade in services through commercial
presence), Members could remove or reduce limitations on foreign ownership.
Second, this multilateral approach would be complemented by a plurilateral approach,
where a critical mass of Members would agree to further liberalisation commitments
in a specific number of key sectors (e.g., in the sectors of, financial services,
professional services, maritime transport, to name a few).
The EU believes that developing countries that join such a critical mass should
have flexibility. They should be able to test the water in sectors of their choice
with transition periods if needed. Least Developed Countries and small and vulnerable
countries would not be obliged to participate in these multilateral and plurilateral
approaches if they do not wish to.
• The EU also suggests that special attention should be given to sectors and modes
of supply of export interest to developing countries. The US should adequately
answer requests made by developing countries in the area of the so-called Mode
4 (provision of services through temporary presence of foreign nationals): the
EU suggests that improved commitments be included in areas de-linked from commercial
presence (for so-called contractual service suppliers and independent professionals).
• This approach should lead, by the end of the Round, to genuine further liberalisation
of services – while preserving Members’ national policy objectives and their right
to regulate. The EU is not seeking to deregulate markets. Governments should remain
free to regulate services as long as this does not discriminate between domestic
and foreign suppliers. Likewise, the EU is not seeking to privatize or dismantle
public services.
• In short, both in NAMA and services we need to see increased business opportunities
on the world’s major markets. That is essential to our economy and vital to balance
the Round so that we can sell back home the difficult concessions we have offered
to make in agriculture.
• In the area of trade facilitation, the EU is looking to improve existing
WTO rules that would simplify, standardise and modernise import, export and transit
procedures for goods, in particular customs procedures, to the benefit of companies
(especially small and medium-sized businesses) and governments (both in developed
and developing countries). Improved rules would make a significant contribution
to help put trade at the service of development as they would promote transparency,
cut red tape and help economies grow.
• The EU also advocates a revision of the WTO anti-dumping agreement to
prevent overzealous, abusive or protectionist use. This will benefit all WTO Members,
as all countries can be targets of overzealous or abusive use of anti-dumping
measures that frustrate the benefits of lower tariffs.
• Lastly, an area which is often overlooked but is very important for the EU as
it represents, perhaps, the only area of offensive interest in agriculture concerns
geographical indications. Geographical Indications [GIs] are denominations
that indicate the geographical origin of a foodstuff or handicraft. Examples of
GIs are: Napa Valley wines, Idaho potatoes, Blue Chesapeake crabs (USA), Ceylon
tea, Bordeaux wine, Tequila, Veracruz coffee, Chiapas coffee, Olinala wood (Mexico),
Antigua coffee (Guatemala), Long Jing tea, Saoxing rice wine and Maotai (China),
Blue Mountain coffee (Jamaica), Gobi camel wool (Mongolia), Café do Cerrado or
Valhe dos Vinhedos wine (Brazil), Catamarca oil (Argentina), Maipo Valley wine
(Chile), Chuao cocoa (Venezuela), Hom Mali rice (Thailand), nuoc mam of Phu Quoc
island (Vietnam), Basmati rice, Darjeeling tea, Alphonso mangoes (India), Jamao
coffee (Dominican republic).
• GIs are important marketing tools for farmers, both in developed and developing
countries, which focus on quality production and want to “market” their regional
specialties. GIs provide a guarantee on production methods, fair trade, origin
and quality. They ensure that the revenues coming out of that added-value are
retained by the people of the region. Finally, they contribute to prevent
the misuse of regional names by free riders.
• The protection already accorded to GIs under the WTO Agreement on Trade-Related
Intellectual Property Rights (TRIPs) is difficult to realise by small producers
because it requires them to seek protection for each individual country separately.
This demands hiring lawyers, registering GIs, paying fees and sometimes results
in slow and expensive litigation. This is simply beyond reach of the large majority
of GI producers (both in developed and developing countries) which are small or
medium-sized enterprises. The existing protection under TRIPs is clearly insufficient
for GIs on all products except wines and spirits, which enjoy a more elaborated
protection. This discrimination hits developing countries in particular, as
they export products such as coffee, tea, rice and other commodities1.
• The EU’s objective is therefore to facilitate GI protection through the establishment
of “multilateral register” for GIs. This would help producers in all countries
(including the EU) – but most particularly many producers in developing countries
who currently lack adequate protection.
4. What we expect out of Hong-Kong?
• The 6th Ministerial will take place next week. The EU reluctantly agreed to
the scaling down of ambitions for the meeting, but in doing so made clear that
lowering expectations for Hong Kong didn’t mean lowering ambition for the Round
as a whole.
• The full negotiating modalities, numbers and dates are no longer expected from
Hong Kong but need to be reached sometime early next year, so that the Round can
end as scheduled at the end of 2006 or early 2007.
• But certainly we are not going to Hong Kong just to chat; we want to use the
Ministerial to move the Round and in particular those areas of the negotiations
which are lagging behind. We do now have a text which the Director General of
WTO has put on the table and which mirrors the reality of the negotiations; that
will be the starting point. But Hong Kong should also be the opportunity to agree
on a Development Package.
• The reason the WTO cannot afford a failure in Hong Kong is that this process
is not just about trade. It is about maintaining the credibility of a multilateral
organisation, it is about demonstrating that multilateralism can still play a
key role in modern international politics, it is about proving that 149 members
can make progress together in their mutual interest.
• We also cannot afford a failure because this would damage our commitment to
the central idea of the Round: to put trade at the service of development. This
is why we need to top up the Hong Kong result on market access by a trade and
development package.
• The EU aims at an ambitious outcome for the DDA, because it is the only
way to realize developmental and global gains fully. The Hong Kong Ministerial
from December 13 to 18 is an important milestone and should lock in the progress
made since the 2004 Framework Agreement and serve as a launch pad to intensify
negotiations in 2006. The EU will therefore continue to strive, with others, for
a way forward and for an outcome in Hong Kong that significantly advances all
areas of the negotiations.
• We hope our negotiating partners will do likewise. They must stop hiding
behind unfounded criticism of the EU, or patently unrealistic and tactical demands,
and join in a real negotiation on all issues. It they continue merely to ask
for more from Europe, without paying into the pot themselves, they risk destroying
the Round – and they will come away with nothing.
1 The protection for GIs other than wines and spirits is insufficient
in that it demands producers to prove consumer deception via costly and inconclusive
consumer surveys attempting to prove consumers’ confusion. In contrast, GIs on
wines and spirits cannot be use by producers from outside the designated region
without any need to prove consumer deception. This is simple and more effective.
