Is the EU a Responsible trade partner?

Transcription

1 Sheila Page, Group Coordinator, International Economic Development Group, ODI Meeting Presentation 22 October 2003 Is the EU a Responsible trade partner? This is not a trivial question because, unlike aid, trade is semi-independent of foreign policy, so that there clearly is a trade policy. 2 aspects in multilateral and in bilateral agreements: How it chooses partners How it behaves to them once chosen In multilateral Yes, has liberalised, and in the end has followed rules, But there are some blots on its record: CAP, AD, imposing EU model on the world, and bilateralism CAP It is perhaps necessary to remind ourselves of how damaging it is, to Europe and to the rest of the world. By using subsidies to raise prices of an important final product and import, it lowers the income of European consumers, directly and through taxation. It raises costs (reduces competitiveness) of European manufacturers and services producers (directly, as agriculture is an input; indirectly, by raising the cost of labour). It therefore reduces total European income. Lower European demand reduces the welfare of all exporters to the EU. Controls on imports, domestic support, and subsidies to exports further reduce the income of actual and (probably by now more important) potential agricultural exporters, both to the EU and to other markets. For countries with a greater than average dependence on agriculture for exports and greater than average share of manufactures in imports, such as Mercosur, this mans a continuing unfavourable distortion in their terms of trade and reduction in their income. The example of a major trader protecting a small domestic interest group at the expense of the rest of the world not only reduces the benefit to other countries of accepting international constraints, but weakens the credibility of arguments for an international system based on economic efficiency and rules. Multifunctionality, is the argument that the EU believes that it needs to have an interventionist policy in agriculture and farming in order to achieve aims of income distribution, food security, food quality and a good rural environment. That agriculture is a sector where market results are not to be the only criterion for action. Liberalisation of agricultural markets has effects, on predictability of food prices or incomes and on the distribution of income, which governments do not wish to allow. In contrast, the assumption on which the multilateral trading system is based is the conventional economic welfare conclusion, that liberalisation increases incomes, and the results can be made to conform to government or society aims by appropriate second round policy. There is, therefore, a fundamental problem of inconsistent beliefs. Recently, there has been a new concept of a type of self-sufficiency: that the EU and its consumers need to have assurance of the nature of supply, not just of adequate quantities, to have confidence

2 in standards, use/lack of use of organic methods, GMOs, etc. In principle this could be met by traceability and labelling, but the logical position, given lack of confidence in others, which includes in their tracing and labels, is that the EU must supply its own. Even direct EU supervision, as, of course, already happens, e.g. EU inspection of abattoirs, setting of internal standards, etc., will not satisfy this desire. All this tends to confirm that the basic problem is unwillingness by some in the EU to use foreign food, just because it is foreign, whether this stems from is traditional protectionism towards farms or from xenophobia, in the most literal sense, i.e. fear of what is alien. Lamy summed this up at Cancun when he said that there was no question of ending all domestic subsidies because we want to keep some farms. (to ACP 12 Sept) But what those who support this fail to recognise is that we cannot simply assert the different EU characteristics: they break EU commitments. The EU and its members have signed up to WTO (and GATT) since 1947, and have agreed not to use trade protection except in accordance with WTO rules. Under the principles of the WTO, the EU should pay the external costs of internal measures, taken for objectives that are not explicitly recognised in international agreements. It is possible (although unlikely) that the CAP would still be the lowest cost way of achieving the range of EU aims (including quality, security of supply, preservation of the landscape, appropriate distribution of income between small and large farmers, animal welfare ) even allowing for full compensation to non-eu producers who lose external or internal markets as a result of it, but this is the calculation which the supporters of multifunctionality have not yet been willing to make. The question relevant to the rest of the world about the EU s position is not whether multifunctionality is justified (or even whether it is desired by the EU population), but whether the EU can continue to impose any of the costs of the policies to achieve it on the rest of the world. As EU exporters have gained access to other countries and gained other countries acceptance of rules by making these agreements, it is the EU s responsibility to keep its non-wto-compatible interests from having an external effect, not the responsibility of the rest of the world to adapt to them. If they are genuine concerns, it must find internal ways of dealing with them. If it now wants to go back on its commitments, this requires compensation. By protecting standards and inefficient small farmers, the EU requires costly production methods. The resulting increase in costs should lower EU production and increase its demand for food from the rest of the world. But the subsidies and import controls maintained to meet the desire for selfsufficiency prevent this from happening. EU net imports therefore remain below (in some areas, net exports remain above) what they would be with no barriers and no intervention, and even further below what they would be with no barriers and protection of the non-trade concerns. Anti Dumping The EU is among the principal users of this. Briefly, It hurts new suppliers It hurts particularly countries which do not have the resources (or experience) to fight It sets a bad example, which, in an outstanding example of technology transfer, developing countries are now following. Singapore: What I want to emphasise about these is not that the EU may or may not have used them as a shield for agriculture, or even whether the EU is trying to impose its model of integration on the rest of the world, but that introducing them as natural evolution of the WTO suggests that the EU is not keeping a clear distinction between what is appropriate in a region, where countries 2

3 have come together because of basic common interests which go well beyond economic advantages from greater efficiency as a result of trade, and what is appropriate for an international system that only wants to gain these advantages, while avoiding unintentional damage from one country s policies on another. And, of course, its love of bilateral deals. This is how all of us have described EU trade policy for decades, and although it stated a few years ago that it was cutting down, the continued insistence on deals with the ACP countries makes it clear that it is still addicted. This may have been reinforced by Cancun, although it is not certain that it was made any easier. Question of whether it is likely or possible to move from multilateral to bilateral at present. Even if the WTO forum is no longer able to meet the needs of trade negotiations, it is not clear that there is an effective alternative. The experience of weak developing countries, for example the ACP with the EU or Central America s negotiations with the US, suggests that developing countries will be at a greater disadvantage in bilateral negotiations than in mulitlateral. For developed countries, this could be an additional reason for not negotiating seriously in the WTO. The larger developing countries, however, have shown more ability in these negotiations as well. Mexico chose to negotiate NAFTA, and then preserved its access to more diversified markets by negotiating parallel agreements with the EU and (now in progress) Japan. South Africa negotiated first with the EU and is now negotiating with the US. Brazil, with or without the rest of MERCOSUR, is also looking in both directions, and the FTAA negotiations have not gone well since Cancun, because the same differences between Brazil and the US surfaced. The risk is an unstable system of some arrangements imposed by developed countries on their satellites and interlocking agreements with the middle-level countries (with all the disadvantages of trade diversion and inefficient rules of origin). Choice of partners The obvious point is that the EU is fairly promiscuous, but we can identify 2 broad strands: balance of power: Mexico, Chile, MERCOSUR, now talking to Asia development: ACP, plus now least developed can be more cynical than this, if these are regarded just as a way of recruiting vote fodder (particularly in the run up to Doha, when both were used), but probably not: it has been a consistent strand. But what is clear is that there is no permanent commitment to the trade side of the development agreements: they are not seen as an agreed partnership, whatever the legal form, but a unilateral commitment to help dependents, which can be altered at will. So there was no consultation or compensation for: enlargement effect on existing preferred partner Or an agreement with S. Africa on S. Africa s neighbours Or the negotiations with the Latin American countries on the ACP Or the offer of EBA to least developed on ACP Behaviour to bilateral partners reasonable to countries big enough to look after themselves 3

4 EU-South Africa This did achieve the first permanently 'asymmetric' agreement between a developed and developing country. South Africa had a strong interest in securing access to the EU, including on some agricultural goods which were highly sensitive for the EU. It stressed its position as a new and deserving government, and carefully defined what it needed to achieve. Its position was strengthened by the size of the market which it could offer for investment as well as trade, including its possible regional position. There was strong public and development interest in the EU in showing support for the new regime. Even the limited preferential access to the EU which it achieved was new for South Africa, anything that it achieved was an advance. EU-Mexico Following the signing of the NAFTA agreement among the US, Mexico, and Canada, the EU had a clear interest in preserving its market and the rights of its investors in Mexico, while Mexico also had an interest in preserving diversification in its trade. It had a particular interest in access to the EU because it had lost a substantial part of its preferential access under GSP under the revision of 1995 (because of graduation). The result was stages of tariff reductions designed to give the EU the same position as the US, while Mexico regained access for its manufactures. As in the agreement with South Africa, a substantial proportion of agricultural trade remains permanently excluded: for this Mexico's major market remains the US. Negotiating an FTA with the EU was part of a general trade strategy for Mexico, not the principal element of it; both sides had clear and limited objectives; and its negotiators were experienced. EU-Chile This began as a parallel negotiation to the EU-MERCOSUR negotiation: the latter had been justified as an agreement between customs unions, and Chile had then signed an FTA with MERCOSUR. But the negotiations with Chile acquired a momentum of their own. Chile, even more than Mexico, has a wide range of FTAs, so that this is becoming its normal relationship with trading partners, while the increasingly active negotiation of a Chile agreement with NAFTA (to precede, or, if necessary, replace the FTAA) gave the EU the same motive that it had with Mexico, of avoiding losing market share to the US. By 2001, it was clear that the EU-MERCOSUR negotiation remained effectively stalled partly by the economic difficulties of Argentina and Brazil, but more fundamentally by agriculture. This would provide the main gains for MERCOSUR, but any access for them would require major reform of the CAP. While there are some sensitive agricultural products in Chile-EU trade, they are not fundamental to it. For all three of these countries, an agreement with the EU came as part of a trade strategy, not a reflection of dependence on EU trade or aid. But there are two current cases where the other side does have a strong interest in securing a deal. MERCOSUR and the ACP countries. In both, The EU doesn=t want much from the negotiations. There has never been much mercantilist interest in obtaining access to ACP countries. Only small or weak economies were allowed to be members, so there are few large markets (Nigeria the only exception), and few are rapidly growing. Mercosur countries are bigger, but still much less important to the EU than the EU is to them. There is some interest in not losing relative access to other exporters (notably to the US in the MERCOSUR countries and the Caribbean, and, a weaker threat, in Africa under AGOA). In 1997, the (then) Commission still had a strong commitment to the idea of regionalism, so that there was some ideological gain to be obtained, but that has now dissipated (as seen by the many negotiations with individual countries). The Least Developed ACP also have little to gain: some legal assurance on EBA, and possibly some improvement on areas like the commodity protocols or rules of origin. They may therefore 4

5 have a relatively good position, but a negotiation in which neither side has a strong interest may simply stall. The non-least Developed ACP have little to gain, but (in some cases) much to preserve. The ACP find themselves with a particularly difficult negotiating position: they can only preserve their existing access by making concessions, so they must negotiate about how much to give in return for no loss. And for many, the EU is a major market, so they cannot simply accept the loss. It is vitally important for the Mercosur countries to reach an agreement because EU tariffs are particularly high on MERCOSUR s major exports (and potential exports) with tariff peaks and tariff escalation in products such as cereals, beef and poultry, dairy products and others in which Mercosur has a comparative advantage, and because the SPS framework in the EU is becoming more cumbersome. It hoped to combine agricultural reform in the WTO with better access through bilateral negotiations. Mercosur s position in a bilateral negotiation is much weaker than in a WTO negotiation. The EU is even trying to impose greater integration on the Mercosur countries as a pre-condition for any agreement The ACP are more relevant to this series The EU is not trying to give them better integration into the global system, as it argues, but specifically to keep them closely tied to the EU, ie. Not encouraging general liberalisation, but bilateral, trade diverting, arrangements. The way it negotiates cannot be explained by the ACP s interests, but is derived either from an ideological commitment to regions or from the traditional divide and rule The proposed format for negotiations with the EU is of regions, not those with common levels of development (e.g. Least Developed), those with common characteristics (e.g. small), or interest groups (e.g. sugar producers). This regional approach is rare in negotiations with the EU. MERCOSUR, the only example, is still at an early stage. Other negotiations (including those with North African countries, as well as those with Mexico, Chile and South Africa) have been with individual countries. The sugar producers in the ACP and, separately, the Least Developed ACP sugar producers are now trying to work together: this could be effective, but is difficult to fit into the regional format. Conclusion The EU has no particular development or responsibility content to its trade policy, and it is now more like the US, i.e. big, non-trade dependent, and therefore without strong interests in a functioning multilateral trading system. 5