Motion to Take Note

Part of EU Trade Policy: EUC Report – in the House of Lords at 4:30 pm on 1st December 2009.

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Photo of Lord Mandelson Lord Mandelson Lord President of the Council, Privy Council Office, Secretary of State, Department for Business, Innovation and Skills, The Secretary of State for Business, Innovation and Skills, Lord President of the Council (Privy Council Office) 4:30 pm, 1st December 2009

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.