Motion to Take Note
My Lords, this is a peculiarly apposite day on which to introduce a debate on trade in this House. Today, the Lisbon treaty, which gives the European Parliament powers of co-decision with the Council on matters of trade, comes into force and, today and tomorrow, a World Trade Organisation ministerial meeting is taking place in Geneva to discuss the method of resuming the stalled Doha round in the hope that it can be concluded by the end of next year.
We began this report in spring 2008 and it was published in early December 2008. Simon Blackburn was the clerk for the inquiry, Petros Fassoulas was the committee specialist and Professor Jim Rollo of the University of Sussex was specialist adviser to the committee. Our thanks are due to them and to our many distinguished witnesses, who included my noble friend Lord Mandelson not once but twice—once in Brussels in his capacity as Commissioner for Trade and once here as Minister with responsibility for trade—and Pascal Lamy, who has worked tirelessly in the cause of expanding world trade, as well as several senior ambassadors involved in the negotiations, whom we saw in Geneva just before the WTO ministerial meeting at the end of June 2008.
The report was published after the July 2008 ministerial meeting was unable to conclude the negotiations but it was emphasised to us that the inability to conclude should not be seen as a failure: progress had been made, work would continue and the talks would resume. International trade has been reviewed as part of the response to the financial crisis. G20 meetings have emphasised the need for a conclusion to the Doha round and, at the G20 meeting in late 2008, leaders agreed not to introduce any measures or tariffs that were not compatible with WTO rules.
Our report focused on four main areas: the Commission’s external trade policy, the Doha round, the future of the World Trade Organisation and the assistance—aid for trade—necessary to help developing countries to take advantage of trade liberalisation. At the time, the Commission was solely charged with the responsibility for developing trade policy and negotiating for all members of the European Union. Unsurprisingly, it started from the premise that liberalisation benefited the global economy, with which my committee agreed and had agreed in several previous reports. The EU benefits particularly from removing tariffs on industrial goods and from increasing access for service businesses but, historically, has also wished to improve access for poorer countries to the European Union markets.
The Doha round of trade negotiations started in 2001 with the aim of unanimous agreement by all members to a document setting out reductions in tariff and non-tariff barriers. We were really hopeful that the Doha round would conclude soon after publication of the report in December last year, because it offered the possibility of great steps forward in trade liberalisation. However, we acknowledged that even agreement not to raise tariffs above the rates currently applied, as opposed to the rates formerly agreed, would be a useful step.
Under current agreements, many countries would have been able significantly to increase generally applied tariffs without breaching their WTO commitments. Even this step was not achieved, but in practice no significant tariff increases have taken place due no doubt to worldwide recession rather than to countries not feeling able to do so. We called in the report for the Government to ensure that the positive rhetoric surrounding the G20 meeting in the summer of 2008 is translated into the conclusion of the round. We also expressed concern over the pace of service negotiations, as the UK has a lot to gain in this area. Services make up 77 per cent of the EU gross domestic product but only 28 per cent of EU external trade. We encouraged the business community to be more vigorous in advocating completion of the round.
Alongside the WTO multilateral negotiations, liberalisation can occur through unilateral, bilateral or regional agreements. The number of bilateral agreements has increased in recent years and we were told that the disadvantages of bilateral agreements included the possible political motivations behind a deal and the complex “spaghetti bowl” of agreements if you did not have a multilateral agreement. Despite these disadvantages, we noted that bilateral deals are now a fixture of the trade landscape and could usefully contribute to economic growth. The EU moratorium on bilateral deals, concluded in the interest of encouraging multilateral deals, ended in 2006 and many more member states are expected to support a move to bilateral deals in the absence of the conclusion of a multilateral deal.
We did manage to conclude that the Commission’s work on bilateral agreements had not undermined its commitment to multilateral agreement. However, we recommended that the Government and the Commission look at ways of helping developing countries to deal with the complexity of bilateral agreements.
We also considered the impact that the inability to conclude the round and the increasing prevalence of bilateral deals would have on the WTO itself. There was a danger, we felt, that the organisation might be rendered increasingly irrelevant in the face of a proliferation of bilateral deals. We thought that, if this occurred, there would be a real risk that the WTO would lose its authority in other areas, including the settlement of trade disputes, where the organisation commands universal respect. The risks to the WTO add further weight to the need for a swift conclusion of the Doha round and we recommended that the WTO should for the future play an enhanced role in monitoring bilateral deals and encouraging good practice.
We also considered the WTO itself—its history, its efficacy and whether the structure of “one country, one vote” had contributed to the difficulty of completing the Doha round. We supported the Minister’s praise for Pascal Lamy and welcomed the Government’s support for his decision to seek a second term as director-general of the WTO. We also looked at ways of speeding up the organisation’s decision-making process. We concluded in the end that the consensual approach was its key strength and must not be undermined, but we encouraged increased use of plurilateral deals, which would allow progress between willing parties without the consent of every last WTO member, subject to agreement by a critical mass of the membership. This could end the practice of moving towards agreement at the pace of the slowest.
The committee also invited the Government to provide detail on the emerging conclusions of their work on the role and structure of the WTO in their response to the report. The Government replied in their response that they would share their conclusions with the committee “as they emerge”. I hope that my noble friend Lord Mandelson will be able to tell us what progress the Government have been able to make in bringing forward any conclusions reached since last year.
We also considered the position of the less developed countries in trade negotiations and their problems in accessing the benefit of trade agreements. There is not much point in a poorer society being legally able to export produce free of tariff to richer countries if the port facilities, including any necessary health certification facilities, simply do not exist in the poorer country. In the words of one of our witnesses, it is like putting a beginner on to the centre court of Wimbledon and expecting him to be able to play. We therefore took some time to consider aid for trade, an initiative whose importance was also emphasised by Pascal Lamy in his recent article, which involves supporting poor countries in developing their trade capacity. We welcomed the Government’s leadership role but expressed concerns that aid for trade might in many cases be nothing more than a rebranding of existing or pre-planned development aid. We urged more support to be given to infrastructure projects in developing countries in order to increase trade capacity. In their response, the Government pointed to DfID’s 2008 aid for trade strategy, which focuses particularly on sub-Saharan Africa, where better infrastructure and border crossing procedures are crucial in unlocking Africa’s trading potential.
We also took evidence on economic partnership agreements, which are replacing previous trade agreements made between the European Union and the ACP countries. The European Union will have greater access to the ACP countries, the ACP countries will work more closely together and the European Union will provide better access to its markets. It all sounds very good, but there have been difficulties in concluding these agreements and some of our witnesses were very critical of the Commission’s approach, suggesting that countries had essentially been hustled into concluding them before they had time to consider all the implications. The committee has kept an eye on this and many of these agreements have come before Sub-Committee A for scrutiny since the publication of the report. While we support the regional approach to the negotiations, we are concerned about some practical effects. The report therefore cautiously accepts the principle of economic partnership agreements, but we were critical of the Commission’s handling of the negotiations.
The report also considers two issues that are important for international trade. The first is the rules of origin, which are the tests applied to an import to determine where it was produced for tariff purposes. With global production, something can be partly manufactured in several countries. It is a difficult issue but one of major interest to less developed countries, which very often do not undertake the final production of any artefact. We supported a more flexible approach to the rules of origin, in order specifically to help less developed countries.
We also considered dumping, which is the practice of exporting below cost to gain a market share. The European Union can apply anti-dumping measures equal to the difference between the export price of the goods and their production cost. Proposals for the reform of anti-dumping have not progressed since the Commission Green Paper of 2006. We expressed our disappointment in the report and there the matter rests, obviously squarely in the Commission’s “too difficult” box.
An underlying theme of the report is the difference between rhetoric and action. Independent witnesses warned us of increased protectionism, while Ministers and officials were always optimistic about the imminent conclusion of the round. Promises of aid support have not always materialised. The disconnection between word and deed appears to be in the nature of the subject. The fact that the Doha round has still not concluded speaks volumes on this point.
Several of our witnesses, including my noble friend Lord Mandelson, were keen to emphasise last autumn that the Doha round did not fail. Yes, but it did not succeed either and various explanations were offered for its lack of success. The proximate cause for failure of these particular negotiations rests, oddly enough, with the least developed countries and their anxieties about agricultural preference and with the developing countries’ disappointment that further concessions on access for their agricultural products could not be achieved. In this context, while it was hoped that the European Union would have been able to make more concessions on agriculture, it was on the whole felt that it had done enough and that the problems probably lay with the United States.
Other less concrete reasons were adduced in evidence: that larger nations, such as China, had got most of what they urgently needed from the Uruguay round and, indeed, that most of the low-hanging fruit, in trade terms, had been garnered in that round, so that the further tariff reductions being sought in the Doha round were just not important enough. It was also rightly suggested that 2008 was a difficult time politically. Two major participants, India and the United States of America, were already in an election period and the European Union was in the last year of the Parliament and the Commission. The Lisbon treaty was being disputed by some member states and, of course, there is a recession, which was particularly worrying in the summer of 2008. Negotiations were hampered by WTO members’ anxieties about their economies, which made them reluctant to concede any further opening of their markets.
All these factors must have played a part but, as Pascal Lamy so eloquently urges, we can do better, and this time we must, so as to meet the objective of concluding Doha by 2010. The US presidency is resolved, as is the Indian presidency. The Lisbon treaty comes into force today, a new Parliament was elected this summer and a new Commission is being put rapidly into place. Major players such as the US and most of the EU are emerging from recession and it is to be hoped that any industrialist who was not convinced of the need for further trade expansion knows better now and will want to engage with the process. We in the European Union understand and accept the necessity of continuing to reduce direct subsidies for our agricultural products in order to facilitate negotiations further.
That concludes my description of our report and I beg to move.
My Lords, I congratulate the noble Baroness, Lady Cohen, on securing this debate on a very important matter. Like her, I thank those who gave evidence to the committee, and its staff and advisers. It has helped us enormously through a very difficult area.
As the noble Baroness has said, the Doha round started in 2001. Last year, there were hopes that that might have been concluded but it has still not been concluded. It has gone on for a long time and, while one would like to be optimistic that it will be concluded, for various reasons which the noble Baroness gave there cannot be a great deal of optimism that it will. It may not be a bad idea to reflect on the structural problems of the WTO.
One of the things that we enjoyed most on our visit to the headquarters of the WTO was discovering a diagram that Pascal Lamy has to guide him through the various groupings. All the countries count as one, but there are others, and if noble Lords have not done this before, I urge them to pick up the report and turn to page 13, which they can get a glimpse of from here as I hold it up. It has lots of lovely coloured circles around the various groupings in the WTO. There are about 13 of them. We have a G1, a G10, a G20 and a G90. There are others as well.
We welcome the fact that this organisation includes so many countries, but by doing so it creates difficulties in reaching unanimity. In the past, this was not a huge problem because the United States and the European Union dominated world trade and the WTO, but that is in the past and quite different structures have now arisen. People refer in this context to the BRICs: Brazil, India, China and Russia. I am not quite sure why Russia has been included because I am not sure that it carries as much significance as the others, but it helps to round out the acronym.
My Lords, I thank the noble Earl for that advice, and will content myself simply by urging people to read the report. They will get a much better view of the matter by doing that than by my holding up the relevant page.
As I was saying, the numbers and the different interests in the WTO militate against it being easy to get an agreement. We may not get rounds in which everyone agrees—indeed, trying to get everyone to the same position at one time may not be the best way of proceeding—so perhaps we should be open to looking at different ways of doing this. If the current Doha round is not going to be concluded, even an agreement that bound in existing tariffs would be worth while because that would provide a bulwark against protectionism—a significant thing in the present economic activity.
As the noble Baroness mentioned in her speech, most of the recent liberalisation has occurred not through comprehensive rounds but through unilateral action or through bilateral, multilateral or plurilateral agreements. Since 1980, between 65 per cent and 70 per cent of the reduction in tariffs has been through unilateral actions, a significant proportion of which have been as a result of IMF pressure. That in itself is not to be regretted because that pressure will encourage countries to move their economy into a position where they are more successful, as we think liberalising world trade will be in itself.
A higher proportion of actions take place through unilateral and plurilateral agreements because it is easier for the country concerned to justify the changes that they are making. If they are making changes to their tariffs as a result of a round, that round will largely have been negotiated by the major players in the WTO. It will be a compromise. The country may not be one of the major players that go back from the round to justify to its electorate and its people the changes that are being made. As with any compromise, some areas would be available to criticism. It would be difficult for the trade Minister or the Government of that country to justify the changes that have been made, other than on the grounds of, “Well we had to accept it because all the major players had agreed this”. That is not a comfortable position to be in. If a Government decide that liberalisation is a good idea, it is much better for them to do it by themselves. They would have a simpler task in terms of convincing their electorate and their people that these are the right things to do because they can say that they have decided that the best way to develop their economy is by opening it up. A further factor with regard to bilateral agreements is that the developing country can choose those other countries to which it is prepared to open up its economy. Again, more choice is put in the hands of the countries which would not carry a great deal of weight within the WTO.
Our committee’s locus in terms of looking at the Doha round was that it is a report on developments and EU trade policy. Our function is that of scrutinising the trade policy of the EU. I am pleased to say that in this context, as part of the Doha round and the effort to achieve a successful conclusion of it, quite significant offers were made by the European Union. Paragraph 40 of the report states:
“On agriculture the EU has offered: to cut its agricultural tariffs by an average of 54%; to use a ‘banded’ system for tariff cuts that will cut the highest tariffs … by at least 66%; to reduce trade distorting subsidies by at least 75%; to eliminate export subsidies completely by the end of 2013 so long as partners who operate their own export support programmes do the same”.
Those measures being offered are significant. It results in a situation whereby in the past some of us were critical of the European Union through its policies, particularly that the agricultural policy had negative effects on other countries and that it would be a good idea to change that. It was good to see that those offers were made by the European Union.
Previously, some people tended to blame the European Union for the failure to make progress within Doha, but those offers moved the Union into a position where it no longer was going to be blamed for failure. As the noble Baroness pointed out, the finger of blame was pointing in another direction. I have to say that the noble Lord, Lord Mandelson, shares some of the credit for moving the European Union to a place where it was no longer blamed.
I notice that in that context, in paragraph 44, the noble Lord used the curious phrase that,
“he was ‘not ashamed’ of the offers that the Union”,
had made, which is a rather interesting way of expressing it. Whereas he is to be congratulated on moving it so far, if his stance in regard to that is of not being ashamed, the implication is that he would have liked to see it move even further. If that was the implication, he was right, and if it was not what he intended, it ought to have been because I think that that should be the approach of the European Union in this context with regard to the future. Rather than seeing ourselves as just one party within the WTO trying to achieve these universal comprehensive agreements, as some have suggested, it is probably better to work towards achieving progress where it is possible, dealing with groupings of countries and letting other nations that perhaps are not ready to move at this rate come along later when they can do so. It is almost as if we were trying to apply a form of variable geometry to the WTO decision-making process.
I learned from an article in today’s Financial Times—although I gather that the proposal was made last year by a gentleman from the Peterson Institute in Washington and another gentleman from the World Bank—that the WTO should address currency undervaluation and look at the effects of climate change. But it was the reference to currency undervaluation that caught my eye. It would be an excellent thing if the WTO were to find a way of addressing it because among the underlying causes of the recession that has gripped so many parts of the world are the global imbalances that have built up, particularly as a result of the undervaluation by the Chinese of their currency. While it is not the sole reason for these global imbalances, it is a very significant contributor. It should also be noted that global imbalances produced the asset price bubbles in Europe and North America, the bursting of which have given us this recession. Moreover, as the Governor of the Bank of England warned only last week, it looks as though nothing has been done to address global imbalances and that they will return as nations come out of recession and probably be there to cause problems in the future. Something needs to be done about them.
The WTO should not be seen as an institution that exists purely to bring about successful rounds of tariff reduction. That is a good thing if it can be done, but the WTO does a lot of other good work in terms of dispute resolution. Indeed, that might well be the best future contribution the organisation can make. Indeed, if that focus on the problems of dispute resolution procedure could somehow also get around to tackling currency undervaluations and the way in which countries may be tempted to manipulate their currency for a short-term benefit, that would be another good development. Indeed, it could be something that the European Union might like to take on board.
My Lords, I join in the thanks given by the noble Lord, Lord Trimble, and the noble Baroness, Lady Cohen, for the help we were given by officials in producing this report. I also thank the noble Baroness for her leadership. How much the world has changed since we embarked on this report; indeed, it has been a somewhat long 12 months since we published it, and I am gently reminded of the expression of an author whose name I cannot remember, although others will: “The past is another country. They speak a different language there”, because so much has changed since we were in Geneva in July 2008. Then, people were still hoping to complete a Doha round when, remarkably and for the first time, the European Union was not the villain of the piece thanks to the then Trade Commissioner being prepared to take on the French and Irish farmers, never mind the French President. I heard some very uncomplimentary remarks about him in Mullingar one time in the middle of last summer.
The global economy was still steadily moving forward. Yes, there were a few small dips on the horizon such as Bear Stearns and Northern Rock, but in general people felt that they were a little local difficulty that we would ride over. Even in November the same EU Trade Commissioner, now translated into a member of the British Cabinet, said that, like the rest of us, he was still hoping for a deal of some sort. In fact a deal nearly happened, but the Americans and especially the Indians could not settle their differences. Today, Doha is a low priority for the world’s leaders. The discussions taking place right at this time in Geneva are mentioned in only one national newspaper today. Even the anti-capitalists are a shadow of their former selves when compared with the excitements of Seattle 10 or 12 years ago—a bonfire in Geneva on Sunday did not make the headlines.
Alan Beattie’s brilliant article in today’s FT, to which the noble Lord, Lord Trimble, referred, is deeply depressing. The banking crisis has brought Doha to a shuddering halt and events today make a settlement even harder to achieve than when we wrote the report. This is self-evident. First, there is widespread illiquidity, both corporate and national. Secondly, protectionist rhetoric has arisen from the banking crisis, both inside and outside the EU—the US, China, France, Germany, Russia—and even the British Prime Minister referred to British jobs for British workers. Thirdly, there has been a substantial decline in global trade volumes as a result of the crisis, which is inevitable as countries look more inwardly towards the way they do business and less outwardly than they did. Fifthly, there are continued severe trade imbalances, as the noble Lord, Lord Trimble, mentioned, with the US and Britain in huge deficits and China and Germany in huge surpluses. Sixthly, there has been severe exchange rate volatility over the past 12 months with the dollar and the euro; the Chinese position is volatile and the pound and the euro have become difficult to do serious business with. All of these factors seriously distort trade.
However, it is encouraging to note that, despite all these pressures, the rules of the WTO and of the European single market have been largely respected, although there have been a few hiccups within the EU and between China and the rest. Furthermore, there is a general recognition of the need for international co-operation in dealing with the banking crisis—unlike the 1930s—and this is the most crucial element. The IMF is better resourced and is having a relatively good war; the G20 is having some effect. I read somewhere that Russia is now seriously pursuing membership of the WTO. If that is the case, it is welcome news.
So why does getting a Doha agreement still matter? The world must trade itself out of recession—that is the only way it is going to do it—and Doha is the focal point in enabling that process to continue and to develop. The worst thing that could happen to the world would be a 1930s-type resort to protectionism. We must press on.
What are the obstacles to making progress? The banking crisis is far from over, as witnessed by what happened in Dubai this weekend. Doha is, unfortunately, low on the radar compared with that banking crisis and with Copenhagen. The new US Congress is much more protectionist than the old one. The distorting trade imbalances remain. Agricultural commodities are again unstable and farmers, not only Irish and French farmers, are demanding more state support, especially the dairy farmers. Agriculture has always been a stumbling block in WTO negotiations. Cross-border banking failures have undermined trust and confidence between countries. The regulation of financial markets remains a national responsibility, which is a large problem. Business support, which was critical in getting a settlement in the last WTO Uruguay agreement, seemed non-existent at the time of the report, which is fairly worrying.
It may be more difficult to get the EU 27 to agree a single position in 2010 as the noble Lord, Lord Mandelson, did in 2008 despite the French and Irish farmers. The EU, incidentally, has always been at a disadvantage in these negotiations because, unlike the other countries, it has to have two negotiations: one within the EU 27 to agree a position, and then with the WTO itself. Of course, during the process of the internal negotiation within the EU 27, it reveals its hand and enables other people to take a position.
I urge the G20 to intensify its pursuit of greater international co-operation in the following areas in order to lead the world out of the crisis: first, a more effective IMF with adequate financial resources, much of which is already in place; secondly, greater co-ordination and harmonisation in the regulation of global financial markets, especially between the US and the EU; thirdly, greater co-operation to tackle climate change; and, fourthly, greater co-operation to tackle tax scams. We need to make sure that the bilateral agreements which are still being made complement but do not undermine the WTO.
Where does this leave the WTO? Have international capitalism, world trade and the WTO itself been mortally wounded by these events? No, of course they have not. However, realistically, because of all these factors there is little prospect of meaningful progress in the short term in Geneva. The dust must be allowed to settle but, before that happens, I fear that there will be more banking shockwaves and even new earthquakes.
The priority, therefore, must be defensive: to ensure that countries abide by the existing rules of the WTO and, for Europeans, the rules of the single market, which are as critical. Pascal Lamy and Neelie Kroes have both done an excellent job so far in holding the line and resisting rises in existing tariffs, but they need to keep a close eye on President Obama, Premier Wen, President Sarkozy and even our own Prime Minister, and resist their protectionist rhetoric. At present, the world’s leaders are caught like rabbits in the headlights, but normality will return to the global economy only when, once again, the WTO can return to its grand objective of promoting more fair but free trade across the globe. I hope that the Minister will dissipate my pessimism.
My Lords, I begin by congratulating the noble Baroness, Lady Cohen, and her sub-committee on having produced such an excellent report for our discussion today. It has taken some time to get this debate but it is a report of great importance and I believe that, as we have already heard, it is a debate that we need to have here.
I thank the Lord President for his work as Trade Commissioner and for the evidence that he gave to the committee, as well as for coming to reply to the debate today. It is probably unprecedented for a non-ministerial witness to a Select Committee to reply to a debate on the committee’s report in this House. However, that has occurred on this occasion. As the Lisbon treaty has come into effect today, I also send my good wishes to our colleague, the noble Baroness, Lady Ashton, who today takes up her responsibilities as high representative and will in due course be a vice-president of the Commission.
I do not usually speak in debates on reports prepared by one of the European Union sub-committees. However, given that the Lisbon treaty comes into force today, I thought that it might be appropriate for me to say a few words. The coming into force of the treaty marks the end of a long period of institutional discussions and negotiations. I hope that this means that the European Union will now be able to concentrate on policy issues that are crucial to this country and to the world. The EU’s trade policy, which we are considering today, is an important example, and it is perhaps worth noting that the Lisbon treaty today extends the competences of the European Union in trade matters to include international negotiations on trade in services, intellectual property and foreign direct investment.
As the Lisbon treaty has today come into effect and this has implications for the work of your Lordships’ House and for the committee which I chair, I hope that I may be permitted to say a few words about that. For the first time, the treaty recognises a specific role for national parliaments. From today, either Chamber of Parliament is able to submit to the Commission a reasoned opinion drawing attention to any proposal that it believes is inconsistent with the principle of subsidiarity. If enough chambers of national parliaments across the European Union submit reasoned opinions, the so-called yellow or orange card procedure will apply. This will put negotiations on the proposal concerned on hold and require the Commission to respond to the concerns of national parliaments. Your Lordships may be interested to know how the EU Select Committee has prepared for this new power. We already pay particular attention to subsidiarity in the scrutiny of proposals but will in future work to try to identify subsidiarity issues at the earliest possible stage. This will be perhaps as a result of an alert from another parliament, through our own examination of one of the Commission’s strategy documents or when proposals are deposited in Parliament.
If a concern is raised, the committee will have the option to fast track its scrutiny of a proposal to ensure that its work is completed within the eight-week scrutiny period allowed for in the treaty. As soon as concern is identified, our committee staff will alert the devolved Assemblies in this nation and other national parliaments. If a sub-committee agrees that there is a breach of subsidiarity, it will produce a reasoned-opinion report for consideration by your Lordships’ House.
The treaty also enhances the House's scrutiny of government decisions to opt in to justice and home affairs measures. That goes beyond the topics of today’s debate, but I will return to it on another occasion.
These are potentially significant new powers, but I remind the House of one of the conclusions of the 2008 report on the Lisbon treaty prepared by the committee under the chairmanship of my colleague the noble Lord, Lord Grenfell:
“The novelty of the card procedures, and their prominence in the Treaty, should not give rise to overestimation of their importance … National parliaments will no doubt take the new procedures seriously, but they should not distract attention from scrutiny of policy”.
The committee will make full use of these new powers, but it will continue its vital scrutiny work of which this report of the committee of the noble Baroness, Lady Cohen, is such an excellent example.
My Lords, like other speakers, I congratulate my noble friend Lady Cohen on securing the debate and on so ably chairing the committee that produced the report before your Lordships today. As the noble Lords, Lord Haskins and Lord Trimble, said, the report was produced in 2008 and published almost 11 months ago. Since then, the financial crisis and the collapse in demand in north America and Europe has caused global recession, reducing the volume of merchandise trade by over 10 per cent this year alone, and taking the level of global trade back to where it was in 2005.
We know the recessionary consequences here, but the severe falls in global trade caused even bigger problems in low-income countries that do not have the market flexibility or social and economic safety nets to withstand such a shock. Our committee was concerned that global recession and price volatility in commodities might increase the pressure for protectionist measures. I refer noble Lords to paragraphs 18 to 21 and 54 of our report.
However, no WTO member has retreated into widespread trade restriction or protectionism, nor has there been any significant instance of trade retaliation. According to the WTO, any such measures that have occurred—and some have—covered collectively at a maximum more than 1 per cent of world merchandise trade, concentrated in particular on agricultural and iron and steel products. Evidence from WTO trade policy reviews this year confirms that most developing countries have kept to their existing trade policy course, including autonomous steps to liberalise imports in many cases, even in the middle of this global recession. Very few have reacted with trade restrictions. Zambia is one of several African countries assisted by Aid for Trade, for example, that has continued with major reforms to open up its economy despite the global recession.
The robustness of the world trade scene in the face of the worst recession in both my lifetime and that of the WTO speaks of the determination of world leaders—the G20 and others—of the massive financial and fiscal stimulus programmes that have been injected into economies, and of the robustness of the WTO itself. It speaks well of the WTO system that it has been able to withstand this massive shock to world trade.
I turn to trade in services, considered in paragraphs 23 to 25 of the report. Services make up around 77 per cent of GDP and employment in the European Union, but represent only 28 per cent of EU external trade. Services make up 64 per cent of the US economy, 80 per cent of the Australian economy, 55 per cent of the Indian economy, 54 per cent of the Brazilian economy and 40 per cent of the Chinese economy. They are therefore very important across the world, not just in Europe. Despite restrictions, international trade in services is several times that in agricultural products, yet liberalisation of trade in services has, in the words of paragraph 23 of the committee’s report,
“been curiously neglected: left until last in the negotiations and of less interest to most witnesses”.
It may be worth reminding ourselves of the wide diversity of services—there is a splendid list on the WTO services gateway page; I shall not bore your Lordships by reading it all out. An enormous range of services, not just financial, exists, in very many of which this country and the rest of the world have enormous interest.
Part of the problem in making faster progress on reducing barriers to trade in services is that the barriers are not those of negotiable tariffs, or export/import duties. More typical is the huge variety of different laws, regulations and administrative restrictions that applies to service industries. In most poor or developing countries, these are labour-intensive industries, with deep cultural and political resistance to perceived threats of competition. Often, when one barrier to a service or trade is overcome, another barrier pops up. Many government departments, agencies and interests are involved. We know how difficult it has been in some parts of service industries in the European Union to ensure free movement of trade in services. This still applies in some cases of public services in the EU. Recent banking experience in cross-border problems of consumer protection and government bail-outs in Europe alone demonstrates that liberalising trade in services, harmonising standards and agreeing regulatory frameworks are not easy matters. Nevertheless, services are an integral part of development and of prospering economies. It is the lack of many services that holds back development in some developing countries.
What is the Secretary of State’s judgment of the current status of negotiations on services within the ongoing discussions around the Doha report? Are services a matter to be dealt with after progress has been made in agriculture and industry? Or is there a desire at the European level to make progress alongside?
Due to the variety of services, there are very different interests in different countries. The lack of relatively simple targets such as bound and applied tariff levels and non-tariff duties make it difficult to go forward. Does the Secretary of State think that any significant progress can be made on services in the Doha round? If he does, what are the objectives of Her Majesty's Government as far as services go in those negotiations, bearing in mind that this country ranks second in the world as an exporter of commercial services and third in the world as an importer of services? We have an enormous interest in this.
As those figures show, the United Kingdom is a very open economy for trading in services and buying and selling abroad. What are Her Majesty’s Government doing to ensure that international market opportunities for United Kingdom service businesses are opened up more widely and quickly, whether through the Doha round or through other European Union bilateral negotiations?
The Lisbon treaty entered into force this morning. Previous speakers have made that point in tones of great gravity, but I think a little levity is in order; even a touch of enthusiasm might be allowed to creep in.
I propose three cheers. Cheer one, and here I join the noble Lord, Lord Roper, is for the noble Baroness, Lady Ashton of Upholland, who guided our exhausting and exhaustive scrutiny of the ratification Bill on the treaty with such skill. Today she starts making history as the first double-hatted vice-president of the Commission who is also president of the Council of Ministers, meeting as the Foreign Affairs Council, and high representative for common foreign and security policy. That is a very big portfolio. She carries, I am sure, the good wishes of the whole House.
Secondly, I cheer the Opposition because they decided after all that it would be best to “let the matter rest”. It was a wise decision. To campaign against a treaty already in force would be a little quixotic. But I am not sure whether it is wise, or good politics, to signal to potential European Council partners that one intends a five-year campaign to reopen matters settled in three previous treaties—the Amsterdam treaty, the Maastricht treaty and the Single European Act. It is an odd way to win friends and influence policy. Still, I have no doubt that there will be active discussion on that with the party’s new friends in the European Parliament; unfortunately, none of them is in the European Council.
The third cheer is for the press, for the wonderful skill with which they changed gear. Having spent six years denouncing the proposal for a full-time fixed-term president of the European Council—a new Napoleon, a Charlemagne, a Colossus who would dominate Europe and destroy our island liberties—within 24 hours they were denouncing the modest, consensual, collegiate prime minister given the job as quite unsuited to the tasks in hand, as if the tasks in hand were indeed the tasks of a Charlemagne rather than those described in the treaty. The switch was done with skill, and one has to applaud the effrontery.
Our task today is more mundane. We are considering the excellent report produced by the committee chaired by the noble Baroness, Lady Cohen, and completed exactly one year ago, on the Doha round and other trade matters. Alas, it is out of date in no respects. The Doha round remains virtually exactly where it was when the EU Select Committee stopped looking at it, and I do not think it is even on the agenda of the trade ministers’ meeting in Geneva today. So multilateral trade liberalisation has not moved forward, though one should applaud the efforts that Commissioners Mandelson and Ashton have made; I think Commissioner Mandelson did all that he possibly could have done but was defeated by events. One should also note that there have been advances bilaterally. If the EU-Korea free trade area negotiation is successfully completed, a lot of congratulation is owed to Commissioner Mandelson and Commissioner Ashton.
The noble Baroness, Lady Cohen, conducted the inquiry with great skill. One of her greatest skills was in controlling the recalcitrant members of the committee. We disagreed on almost everything en route. In that spirit, I would like to disagree with what the noble Lord, Lord Trimble, said today about adding financial stability to the remit of the WTO. One of the reasons why WTO negotiation has become progressively less successful is that too many issues not directly related to trade are thrown into the pot. Although I believe in development, it was not a good idea to make it a “development round”. Free trade is a better generator of economic development than aid, and to throw in an aid dossier was not a good idea.
Some would now throw in an environment dossier, but the argument that those who emit a lot of carbon should pay a trade price for it, such as a tariff or tax on their imports into other countries, is extraordinarily self-defeating. Some say that labour standards should be thrown into the WTO. I do not agree: that is for the ILO. It is often a disguised form of protectionism to demand a trade price if you consider somebody else's labour standards inadequate. I would try to keep things simple if possible. If we are ever to see this round completed, that will happen because extraneous issues are pushed to one side.
I have three questions for the Minister. First, as has been mentioned, it is exactly a year since the heads of Government of the G20 promised to,
“refrain from raising new barriers to investment or to trade in goods and services, imposing new import restrictions, or implementing WTO inconsistent measures to stimulate exports”.
That is a key pledge, because it was not the Wall Street crash that caused the great depression but the Smoot-Hawley tariffs subsequently introduced by the Americans, and the round of trade restrictions that they touched off.
Cynics last autumn pointed out that within 36 hours the Russians broke the pledge with tariffs on imports of motor cars. But I do not feel cynical about it. I cannot sense a protectionist spiral yet, either in the world trading system as a whole, or in the EU’s internal market where the Commission seems to be enforcing competition policy with sensitivity and skill, as a more recent example also involving cars, with which the Minister will be very familiar, perhaps shows.
We have a rather liberal single market. Think of the contrast with the United States. How would the American Congress have reacted had an American car manufacturer been told that it could not close a Mexican or Canadian factory and subsidise a US plant unless the US plant was the more efficient one? There would have been uproar in Congress. We have to hang on to that liberal core of the single market. In a recession it is under pressure, but I think we are doing so. Therefore, my question to the Minister is how are we doing? How is the G20 performing against its pledge; and am I right in thinking that the European Union's record has so far been pretty good?
Secondly, despite all that the Minister did from Brussels and all that Pascal Lamy did in Geneva, the round is stuck. The Select Committee’s call for further work on how best to breathe life into the process is getting more and more pertinent. As the noble Baroness, Lady Cohen, reminded us, the committee said that 10 countries represent 80 per cent of world trade, and 50 countries represent in excess of 90 per cent of world trade, which raises the question of why the other 100 WTO members have a veto, jointly or severally. The committee said:
“The consensual approach to agreement should remain a fundamental tenet of the WTO, but it is no longer appropriate however that the Organisation should move at the speed of the slowest … We therefore support an extension of the plurilateral approach to negotiations. If groups of WTO members wish to negotiate agreements on particular subjects, within the consensual approach and on terms which they then make open to all WTO members, they should be allowed to do so”.
The Government’s reaction to this recommendation has so far been slightly “Sir Humphrey” in character. They responded:
“The Government would also support consideration of increased use of plurilateral negotiations in the WTO, to allow groups of members who wish to negotiate agreements on particular subjects … on terms which they then make open to all WTO members. However, it is important to give further consideration to how this would work in practice and how to mitigate potential risks, including the capacity of the WTO to negotiate plurilateral agreements”.
I would like to know from the Minister how that consideration is getting on. I would also like to know whether he thinks, as I do, that the emergence of the trade G7—the new group made up of Australia, Brazil, China, India, Japan, the EU and the US—is a positive development, and one which might provide the key to unlock the round.
Finally, and much more speculatively, has the Minister been struck, as I have, by some of the new thinking coming from the new Government in Japan on the issues that we are talking about, particularly on how best Japan should handle its trade and economic relations with China? Mr Hatoyama has issued a number of calls for regional, rules-based economic co-operation. He has talked about the possibility of establishing in the longer term a common east Asian currency, and has pointed out more than once that,
“the experience of the European Union shows us how regional integration can defuse territorial disputes”.
Does the Minister share my view that such thinking makes a refreshing contrast to the more negative views of China that one hears in the United States and parts of the European Union; and that the right response to the recession, as Mr Hatoyama seems to be saying, is more, not less economic, interdependence and more, not less, trade?
My Lords, I am glad that the noble Lord, Lord Kerr, concluded with his remarks on Japan. It has been a feature of the recession and its effects in the West and other parts of the world that we have not paid so much attention to Japan on a number of different issues, which are all related to world economic development and progress and the resumption of growth. Japan also experienced a serious prolonged period of extraordinary recession and semi-depression, when it searched for solutions without finding them, and tried all sorts of things, including zero interest rates and so on. Japan took a long time to begin, at long last, to come out of that period. It therefore went off the radar screen in the sense of providing much intellectual thinking for the West; people had previously paid the closest attention to everything that was going on in Japan, because it was such a wonderful success story.
I mention the noble Lord, Lord Kerr, again because of his initial remarks, when he reminded us about the Lisbon treaty, as did the noble Lord, Lord Roper. We thank him for his stewardship of the Select Committee. The work that is being done in this new regime is a matter of great celebration here. Even the comics that masquerade as newspapers in Britain had to admit that Lisbon would be a good thing.
As the noble Lord, Lord Kerr, said, the extraordinary change that took place vis-à-vis various personalities was astonishing. Yet there is always strong nationalism in the British press about these matters. Pascal Lamy was regarded with great suspicion, but now the FT says that he is a much respected head of the WTO who has done well, and thank goodness his term has been renewed. Michel Barnier was not much noticed by the British press when he was Minister for Europe. More recently, however, the press has said, “This man will report straight back to President Sarkozy as a Commissioner. How disgraceful. Thank goodness we have Jonathan Faull, who is British, as his second-in-command, so it won’t be too bad, but really it is very nasty indeed”.
I remind everybody that Commissioners take an oath to represent the development and interests of the Community as a whole. The press is now saying how good it is that the noble Baroness, Lady Ashton, is now the High Representative and the vice-president of the Community because she can report back directly to the British Prime Minister on British interests and the maintenance thereof.
This is all nonsense and phantasmagorical rubbish in the British press, which has never become used to Britain being in the European Community. It even applies occasionally to the FT, which has used similar phrases in the past few days. The Financial Times would never have done that a few years ago. Given the declining circulation of all these “comics”, they are grasping at attention-seeking headlines and getting more and more desperate about the future as we see the ominous threat of the internet arresting the development of newspapers.
I also live in France, where there are real newspapers—that is a very old-fashioned thing to say—as there are in Germany. I suppose that they are slightly dull, but they are actually newspapers rather than the comics that we have in this country. The fact that the Doha round has got stuck—it has not failed but has not succeeded either, to use the able expression of the noble Baroness, Lady Cohen—will mean that we have to attend to a lot of these questions in the future. The European Union has already played a leading role in these matters and will continue to do so.
I repeat that it is sad that the United Kingdom is not a member of the eurozone because the euro has become probably the most successful currency in the world. It has some effect at the margin on global imbalances, to which the noble Lord, Lord Trimble, referred, but it is none the less an outstandingly successful international currency as well as an intra-EU currency. Britain should have had the courage to join the euro. There is still time to do so. The rest of the Union might agree, probably reluctantly, to allow us a reasonably rapid period of adjustment before we join, if any Government in Britain had the courage to say, “That is a good idea”.
We have recently informally devalued in the marketplace—not formally, this time—for the sixth or seventh time since the war. That is the easy way out; whenever there is trouble in Britain and internal economic pressure, we devalue rather than join a strong currency. The French authorities, on the other hand—not the Front National and the Communist Party, but all other parties—educated the French public for 10 years about the virtues of the strong currency system that Germany had enjoyed for so long, building up a huge rate of investment in new assets and therefore becoming the world’s strongest exporter. Germany is derided in this country. It is regarded by the British press as an unsuccessful country because its internal rate of growth was so low—until recently, when it started to pick up—as all the growth was going into exports, which used to be regarded as a very good thing in Britain.
None the less, the United Kingdom has been the subject of legitimate praise, because it has always strongly advocated free trade all over the world, as well as in the European Union with a single market, although we traditionally have always had a deficit with other advanced countries in the world. That pattern persists. We cannot seemingly get out of it. We rely therefore on the invisible earnings from the City of London to provide the difference. But here again it is very important for the City of London not to go back into a sectoral nationalism in saying, “We do not want the Commissioner in charge and the European Union regulation system to interfere too much with the City of London”. That would be very short-sighted. The City of London will benefit enormously from a Union-wide regulation system—that is supported by the Financial Services Authority and Adair Turner—with great strength and resilience. It has been agreed, quid pro quo, that the college of regulators from the nation states will work closely with it.
I, too, praise not only the new President of the European Council, the Belgian Prime Minister, who is well known and highly respected in Europe—even if not in Britain or by the British press—but the noble Baroness, Lady Ashton of Upholland, and her work.
I am looking forward to hearing the winding-up remarks of our distinguished friend, the noble Lord, Lord Hunt of Wirral. He has always been an enthusiastic European and we were grateful for the way in which he handled the Lisbon treaty, because that was difficult for him, given some of the attitudes of his senior and other colleagues. He did that very well. He has a background in the English Speaking Union and has carried out a lot of good work in the glorious free trade of the English language throughout the world. Language also assists trade and, therefore, we are lucky that we are a major trading country.
The report rightly looks forward to further reform. As we know, from 2013 the CAP will be in a much freer system, depending on how the new single farm payment mechanism works. We must ask ourselves how the banking crisis will affect the resumption of world growth and free trade that we want. I conclude with a quotation from this very good report. We thank the noble Baroness, Lady Cohen, and other members of the committee for all their work. The noble Lord, Lord Mandelson, when he gave evidence on Thursday 6 November 2008—a long time ago—said:
“I regard the cause of world trade, the openness of markets, our ability to prevent the global economic machine rolling backwards under the pressure of protectionism as vital if not more vital now than it has ever been, but I also see trade as a huge opportunity for poorer countries in the world”.
We thank him for saying:
“The main feature of my approach to trade and development during the last four years has been to harness trade to the cause of development and that too will be undimmed as I exercise my responsibilities in my new role”.
I thank the Minister for coming here to conclude this debate and I ask him to reassure us all that the Government will stick to that approach. The rest of the world needs a place in the sun as far as free trade is concerned, but that has not happened yet.
My Lords, I declare the interests set out in my entry in the Register. I warmly echo the words of many speakers in paying tribute to what the noble Lord, Lord Roper, called an excellent report. It was extremely detailed and intelligent, and this debate has been a welcome opportunity to discuss its contents. Each and every speech has underlined the importance of the issue. I have to say to the noble Lord, Lord Kerr of Kinlochard—with whom I had the honour to work when he was ambassador and UK permanent representative to the EC/EU in Brussels throughout the five years that I was in the Cabinet, between 1990 and 1995—that he is not at his best when he embraces sarcasm and levity, but I join him in his tribute to the noble Baroness, Lady Ashton of Upholland, in her appointment.
While the development of EU trade and EU participation in worldwide trade is fundamental to our economic growth, in order to unleash full economic potential, we must ensure that every nation can benefit and fairly compete in the world market. For some 50 years, trade has been getting more liberal and much of the world has been getting richer. Global trade has helped lift entire nations out of poverty. Free trade is a progressive and powerful tool for social justice and offers the most sustainable path out of poverty for those in the developing world. That has been the key message of this debate, and I commend all those who have participated.
We must recognise, as I think we all do, the critically important role that the WTO plays in this area, ensuring that free trade is also fair trade, as the noble Lord, Lord Haskins, pointed out. We have to ensure that the WTO has the authority, support and status that it requires to carry out effectively its most vital role of insisting on fair trade and monitoring protectionist attitudes of nations. I know that the First Secretary of State will say, “Where are the Conservative policies?”, as he did the last time we exchanged views across this Chamber. I refer him to our excellent document, One World Conservatism, which stresses that a deal at the WTO would be an important firewall against backsliding in the face of protectionist pressures. Yet the talks remain deadlocked. Politicians and negotiators seem to trade insults instead of letting their people trade with each other. As long as that deadlock continues, the entire world trade architecture is in danger of losing credibility. That would be a tragedy for the world and particularly for the poor. I think that the WTO is a boon for poor countries. Even the smallest country has a veto on any deal and, as the excellent speech by my noble friend Lord Trimble pointed out, it makes argument more difficult but it represents the best way forward.
We on these Benches strongly believe that the utmost priority must be given to strengthening the status of the WTO with the intention of reigniting negotiations and reaching a successful conclusion to the Doha development round. Of course, as the noble Baroness, Lady Cohen of Pimlico, pointed out, the Doha negotiations had previously broken down. I think her words were “They did not succeed”. We would like to know from the First Secretary of State what hope he holds of having a successful Doha round in the future and what actions Ministers are taking to help to improve the chances of success. The noble Lord, Lord Haskins, said that it had all come to a shuddering halt. We now need to hear from the First Secretary of State what he intends to do in response.
In their response to that report, the Government have said that they agree that trade liberalisation remains important for economic growth and development both for the UK and for developing countries and that they will continue to press through the EU for that to be a priority. Will the First Secretary of State tell us exactly what measures the Government will use to ensure that? All speakers have agreed that retreating into a state of protectionism would have hugely negative effects on the recovery from recession. As the noble Lord, Lord Woolmer of Leeds, pointed out, fortunately very few trade restrictions have occurred but there is always that danger. The ultimate goal has to be the comprehensive dismantling of trade barriers at a pace which allows British producers and those in the developing world to adapt to a truly open market. I reiterate that free trade must also be fair trade. Without going too much into the history of what happened in 2005, it was sad that the Government balked at tackling the vested interests of some of the nations. Consequently, we made only nugatory progress on agriculture, far short of what is urgently required.
The majority of the world's poorest people live in rural areas. It is said that global income could increase by almost $300,000 million within five or six years if trade-distorting policies in the merchandise trade could be eliminated. Half of that would come from the eradication of agricultural protectionism in rich countries. That sort of reform could lift between 50 million and 100 million people out of poverty.
The Government have said that they will continue to press for further reform of the common agricultural policy. What new approaches are they going to take? What assurances can the First Secretary of State give us now that opportunities will not be wasted again? Can he explain what action is being taken to push for such reform? Are Ministers also engaged actively in talks with other rich nations outside the EU to try to persuade them to liberate their policies too? One step which the UK could push for would be an immediate end to all production-related support under the CAP to bring the rest of the EU into line with England, which has fully decoupled. Can the First Secretary of State tell the House whether this action is likely to be taken? Can he also give an insight into what he feels are the opinions and policies likely to be espoused by the new EU Agriculture Commissioner-designate, and in particular whether the Government support that appointment and look forward to working with the new Commissioner, and what will be on the agenda of their first meeting with him?
I commend all those who have participated in this debate and particularly the various points raised at various stages, which I think were exceedingly helpful. This has been a short but intense debate. I hope no one thinks that I am exaggerating when I say that I think that this debate has been the House at its best. Both the evident expertise on display and the generally co-operative and positive atmosphere have done all noble Lords who have participated great credit.
There is a natural human instinct, when times are hard and the future is uncertain, to pull up the drawbridge; as several speakers have reminded us, this has happened in the past. I suppose that there has always been a tendency in the Democratic Party in the United States to do precisely that. One great president, Franklin Delano Roosevelt, courageously overcame that instinct at a time of global crisis. We must all now hope that his most recent successor, Barack Obama, will prove himself to be a great leader, too, by following the same path.
For our part, we must ensure that the EU rises to the challenge of these troubled times by reasserting its belief in free and fair trade. Although I occasionally criticise the policies of the First Secretary of State—I think he understands why I do—I just want to commend him for the skill, expertise and effort he showed when he was the Commissioner for Trade. I think that all noble Lords who participated in this debate want to put that on the record. Consequently, however, an even greater challenge now faces the First Secretary of State. What is he going to do to follow up this report? The report points the way. Are the Government going to follow? What steps will the Secretary of State take in the right direction?
Before the noble Lord sits down, can he address the issue of how his party, if in government, would consider its position to be enhanced in influencing the European Union to follow the central recommendation of the report, to which I had the honour to be a signatory, that the Government should continue,
“to pursue further trade liberalisation through the EU as an important policy objective”,
having withdrawn from the largest political group within the EU? How does that strengthen his party’s negotiating position?
My Lords, I welcome the fact that the noble Lord has entered into the debate, but had he listened to every speech in the way that I have, I would have hoped that he would have accepted that no party-political points have been made. This has been a very good debate, with speakers from all sides, so I am not going down the road he invites me to, except to say that he should read One World Conservatism, which I strongly support. I will give him a free copy.
My Lords, I hope that the noble Lord, Lord Hunt, has not got only one copy and I look forward to receiving mine in the post. I am glad to have been translated to my new role at this Dispatch Box in time to make this timely and opportune appearance in order to comment on the report, to which I originally gave evidence when I was the European Union’s Trade Commissioner. Sitting through this informative and important debate, I feel as if I have just heard four years of my previous life flashing past me in what noble Lords said about the Doha round. Their contributions reminded me how complex and technically challenging trade and trade negotiations are. However, that makes eventual agreement all the more satisfying; when, on rare occasions, you reach an agreement, you can celebrate. It is true that my time as Trade Commissioner had its highs and lows. I was burned in effigy during mass demonstrations of farmers in the capitals of various European member states and my relations with the President of France experienced the occasional bumpy ride, but I am pleased to report that all those bumps have been removed and we now experience very comradely relations indeed.
I add my cheer to that of the noble Lord, Lord Kerr of Kinlochard, in respect of the treaty of Lisbon. I cannot agree entirely with the noble Lord, Lord Hunt, that the noble Lord, Lord Kerr, is not at his best when he is at his most sarcastic. I think most of us would agree that the noble Lord, Lord Kerr, has turned sarcasm into an art form and are constantly refreshed, if not reinvigorated, by his contributions to our debates. I add my own small half-cheer for the Conservative Party’s decision apparently to let the treaty of Lisbon now rest, it having come into force. That is fine, as long as the Conservatives do not contrive to create a succession of other pegs on which to hang their anti-European hat, should they ever have the chance to do so in future.
Let me try to dissipate some of the pessimism that has been contributed during this short debate. I shall make two preliminary observations. Last month, I said in a speech in Brussels that the European Union, which represents our weight and our negotiating leverage in international trade, is at a “What kind of Europe do we want?” moment. I argued that our economic dynamism in Europe would be critical to our future overall global influence. An open trade policy is clearly central to sustaining that economic dynamism across Europe. We in Britain are an international supply-chain economy. Our customer base is literally global. You only have to look at the car industry, to which other noble Lords have referred. We export more than 80 per cent of what we manufacture in that industry, so open markets and free trade are literally our economic lifeline in this country. We therefore need the European Union to be an ambitious persuader and lever of open trade in the world. It certainly has the weight to be so, but it also needs the political will, not least to remain open to others in the world on a reciprocal basis.
My second observation is that, in negotiating the Doha round on Europe’s behalf, I was acutely aware of how the international trading system has changed to reflect the new economic balance of power in the world. It is true, as some have observed, that in previous eras and during previous trade rounds it was almost as simple as the United States and the European Union deciding what they wanted and how they wished to divide the pie in international trade and passing down these tablets of stone to a grateful world, but the world has changed completely and utterly, and for the better. We now have very many more partners in the international trading system. They have taken their place in the WTO and, as the noble Lord, Lord Trimble, observed, they have many more interests and issues at stake to introduce to those negotiations. That, of course, complicates those negotiations hugely and makes them very much more difficult to complete.
On the other hand, those interests and issues also bring many more markets to the international trading system. Some of those markets are hugely populated and are expanding very quickly. They are becoming members of the WTO and observing the rules of that remarkable institution of global governance. They are therefore providing hugely important outlets for the export of the goods, services and technologies that we generate in our own economy.
Of course the complexity is great, but so too is the opportunity offered by this fast-expanding international trading system. We have to ensure that we sustain and strengthen the WTO and its system of world trade rules and bring more and more countries and economies into the membership of the WTO. That body must provide the vehicle for international negotiation, which it does ably, apply those rules more liberally and ensure that markets around the world are not only open but remain open by binding their tariffs and the commitments into which they enter in multilateral negotiations.
It is therefore important that Britain leverages the weight of Europe and that Europe leverages its collective strength in the world both to match those emerging economic powers and giants in the global economy and to engage them very seriously in a very practical way, using primarily the multilateral means at our disposal but also, I accept, the bilateral and plurilateral means when those opportunities arise. I will come back to those opportunities in a moment.
Let me also make a simple and obvious point: open trade and the resumption of international trade—at the level and in the way we observed and experienced it before the financial crisis that we are now going through came about—are central to our economic recovery. I am afraid that global trade has gone backwards so fast over the past 18 months and more that the only precedent for this contraction is when the global economy was shut down by world war. While many countries are starting to see signs of recovery from the economic crisis, world trade is still likely to shrink by 10 per cent to 15 per cent this year. That is grave. Foreign direct investment is down 30 per cent on 2008 levels.
We are facing quite a challenge to get a strong tide of trade going again that will lift all our boats. When I say “all our boats”, I mean the economic boats of developing and developed countries alike. I can assure the noble Lord, Lord Dykes, that the Government will certainly maintain their commitment and stick to their principles in harnessing trade to the cause of development to enable developing countries—the more advanced and the less developed alike—to take advantage as they need of the international trading system. We have to remain vigilant to achieving this end. I agree with those who have observed that it will also be an important means to unwind the current massive global imbalances that exist in the global economy, which are a key contributor to the current crisis. Bluntly, we need a few more American exporters and rather a lot more Chinese importers.
Our overriding priority is to make this contraction in trade temporary and reversible. While the foot is temporarily off the gas, the last thing we should do is to start dismantling the engine of trade. We have to resist protectionism. The UK has funded the Global Trade Alert—the global trade watch—to act as a worldwide watchdog on protectionism and we have strongly backed Pascal Lamy and the WTO in their efforts. The most recent WTO report observed that we have avoided a full-scale descent into protectionism, but we cannot be complacent. We have to exert peer pressure.
In response to the first question asked by the noble Lord, Lord Kerr, on this subject, it is very important that not only the G20 maintains its peer pressure to ensure that all its members live up to the standard that they voluntarily embraced in their original communiqué, but also that the European Commission is vigilant in overseeing the working of Europe’s single market. It is true that the Commission, I think rightly, decided to introduce some flexibility in the operation of the state aid rules during the course of the crisis—not in the case of the rules applying to competition, although even in those circumstances my former colleague, Neelie Kroes, experienced considerable pressure on her, which she withstood very well. I think that it is important, and the Government’s view is, that the state aid rules should revert to their original status and kind during 2010, a view that I repeated recently in an article in the Financial Times.
Let me move on quite quickly. Having congratulated ourselves collectively on avoiding the global mistakes of the 1930s, we now have to rise to the challenge of doing everything that we can to complete the multilateral trade round, the Doha negotiations. Here, I would like to compliment the noble Baroness, Lady Cohen, and the members of her committee on their report. If I may say so, they have offered a stern clarion call. The British Government will continue fully to commit ourselves by doing all that we possibly can to help the European Commission and our negotiator, the Belgian Commissioner, who is new to the trade portfolio, to carry forward these negotiations. I would say of the new Commissioner that he is a knowledgeable individual with plenty of international experience, as I well remember from when I worked with him in Brussels. I think that he will do an excellent job and I shall certainly support him.
Without question, however, the completion of the Doha round has to remain the top priority for the European Commission, even though we all recognise the competing pressures that are operating in Washington on the US Administration. Frankly, that is not helping the United States to come together with the European Union in the sort of partnership and leadership role that ideally we would like to offer the negotiations at this time. Trade and certainly the Doha negotiations are not taking centre stage on the US Administration’s radar, I am afraid. That is acting as a bit of a brake on the negotiations and, as others have observed, the political balance and climate in the US Congress are acting as quite an obstacle to achieving further progress.
Incidentally, I remain proud of the contribution of the European Union to the negotiations previously, even in the area of agriculture. I do not recall saying that I was not ashamed of the offer; I think that I meant to say that I am very proud of the fact that we got the EU’s offer on agriculture as far as we did—that might have been a better way of putting it. The argument that we have to make both in Washington and around the world is that the Doha round and its successful completion would be a major stimulus package and a very important and timely aid to the recovery of the global economy. That is why we have been consistent in putting Doha at the front of G20 commitments.
I would like to think that success at Copenhagen on climate change would inject a bit of multilateral vigour from which Doha might benefit, but I do not think that we are yet in a position to cheer the outcome of Copenhagen. Equally, however, open trade is an important tool for securing the change that we need in order to tackle the climate crisis by technology transfer through commercial solutions and in the way in which we trade. It is important that we look to the trading system in order to strengthen our combat against climate change, but equally it is important that we do not encourage the climate change talks unwittingly to lose their way and suddenly find themselves on a by-way or, as some would put it, in a cul-de-sac through the introduction of border adjustment mechanisms. They would be trade restrictions and therefore protectionism by any other name. We have to be careful to prevent the climate change negotiations from pursuing that route.
Let me now touch, briefly, on one or two other issues that have been raised. The noble Baroness, Lady Cohen, referred to the risk of bilateral agreements between the European Union and other countries and groups of countries in the world becoming a kind of spaghetti bowl in which we would see a glorious diversion of world trade without necessarily adding to its sum total. I was acutely aware of that risk. The Commission is avoiding the risk in its continuing negotiations with south-east Asia and with Latin America—with the central American and Andean communities and with Mercosur.
The noble Lord, Lord Kerr, raised the interesting question of whether, in addition to pursuing bilateral trade agreements, we should favour plurilateral negotiations that might lead to plurilateral agreements. I am not against a plurilateral approach. I agree with the importance of the trade G7 as a route to securing an advance in the DDA and I am ready to encourage work in the WTO and by its members on making progress through plurilateral negotiations and agreements as long as they do not undermine the multilateral system and the multilateral goal of a completed world trade round.
The noble Lord also made the interesting suggestion that we should welcome rules-based regional co-operation in east Asia and the possible creation of an east Asian market and currency. I do not think that that prospect is near—it is certainly not around the corner—but the ideas put forward are imaginative, stimulating and useful, not only in the context of regional relations in east Asia but also by injecting impetus into the international trading system via that plurilateral route. We are not against that.
The committee entertained some criticism of the way in which the Commission approached and handled the negotiations—taken on largely by me—with African, Caribbean and Pacific countries, which are among the least developed countries in the world. This is not the moment—we do not have the time—to go into the ins and outs and the whys and wherefores of these challenging negotiations with African countries but, in my experience, most of the criticism of our handling came from people who rejected the principle and concept of trade agreements between the European Union and the ACP countries. They did not want the negotiations to start in the first place because they have a backward-looking view of the role of trade in bringing about development. They saw liberalisation—gradual, of course, in the case of the least developed countries—and the slow integration of those countries into the international trading system as a threat rather than as an opportunity. I do not accept that world view. I ask noble Lords to take into account the fact that in most cases, but not all, the criticisms came from those who did not agree with the idea of trade being harnessed to development in the first place.
My next point concerns the European Parliament’s new role in European trade policy. I think that it is good: we need to engage colleagues in the European Parliament and help them to play a constructive role in supporting and shaping the Commission’s negotiating work. This new framework will be good for the legitimacy of the European Union’s trade policy as long as we can avoid the wider institutional process slowing down the wheels of policy advancement, as we have seen happen in the United States. I think that it would be damaging to our trade policy if we were to lose sight of our objectives and the urgency of what we are trying to do in the corridors and committee rooms of the European Parliament. It would set back the credibility of Europe’s trade policies and standing in the world if we were to find our mandates being blunted and feet being dragged in the European Parliament when it came to endorsing the results of our negotiations.
I conclude by apologising for not responding to all the points that have been raised. My noble friend Lord Woolmer raised an important point on services, which I shall be happy to write to him about. I would say only that in the context of the DDA the negotiation of services liberalisation is on a different timeline from that relating to goods, but it is absolutely essential for us not to lose sight of the importance of services liberalisation. This is not, as my noble friend pointed out, a matter of tariff reduction or elimination; it is a matter of coming to grips with legislative and other regulatory restrictions to trade. That is very difficult to negotiate but very important for us to do, particularly in the context of our bilateral negotiations and agreements when agreement on services liberalisation remains so elusive in the multilateral context.
I have always been a defender of open trade and I think that, in a sense, the banking crisis has been seen as a crisis of globalisation. I accept that what we have gone through raises questions about globalisation and its close cousin, the international trading system, but I do not think that that should lead us to the conclusion that it negates the huge benefits generated by both globalisation and international trade. Certainly, the banking crisis raises all sorts of problems relating to the openness of capital markets and how we manage them, but it has not undermined the basic case for openness and the free movement of capital, goods, services and people. As I said at the outset, those remain absolutely fundamental to our prosperity and standard of living in this country. That is why the Government’s policy, backed by the views of the whole House, with one or two notable exceptions, will remain committed to the openness and health of the international trading system, which your Lordships’ report has done so much to underpin.
My Lords, I thank everyone who has taken part in the debate for their very thoughtful contributions. In particular, I thank my noble friend Lord Mandelson. Most of us who have spoken in this debate had thought about trade, had taken evidence on trade and had read about trade, but my noble friend Lord Mandelson has actually done it—he has done the negotiations and the hard graft, and it is extremely valuable to have that experience.
My noble friend has not been able to give us any real reassurance on when negotiations can restart, or their likely success when they do. As he rightly pointed out, there are many difficulties in front of us—quite as many as when the talks failed to conclude in 2008.
I am well aware that in urging him to keep going I am preaching not only to the converted but probably also to the “saved” in this context. However, we all need international trade. If the opinion of this House can add any weight to my noble friend’s elbow in deliberations, we are absolutely in favour and wish him well in any negotiations, in the hope that he can get this round started again.