Commissioner Lamy's Speech on Trade Crisis

Introduction

Ladies and gentlemen, good afternoon, and thanks as ever to my old friend Jacqueline Grapin for inviting me back to the European Institute. Very pleased to see that the Institute continues to go from strength to strength.

The time to make this kind of speech is at the start of a visit, rather than the end, to enable me to try to set the agenda. Too bad for me, but the flip side is my chance to explain what I have been up to in the US, and to give my spin on what I picked up. A quick word on the programme. I came back from Beijing through New York on Friday, made a quick speech at the UN there, ran the marathon, not a very good time I'm afraid, and I have since been easing my sore legs by working my way around some old and some new contacts here in Washington since yesterday.

So I had a good session with Bob Zoellick, I had the honour of meeting for the first time Senate Majority Leader, Bill Frist, over lunch, I saw the Chairman of the House Ways and Means Committee, Bill Thomas, and the Chairman of the Senate Finance Committee, Chuck Grassley, together with several other Members of the US Congress. So it was a case of "getting around to talk about the Round", and of course one or two bilateral trade issues did come up, and it has proved very worthwhile.

But here's my current state of mind on the Round and the state of transatlantic trade relations. First thought: if you read the newspapers, which we all do from time to time, if only by accident, it is clear that we, the trade guys, are back in the dog house, both on bilateral and multilateral issues. The press says that both the EU and US have deserted the Round, and are back, snarling at each other, like two cats in a bag. So what's going on? Let me try to give you a quick overview of all this, starting with the multilateral situation.

Who killed Cancun ?

But let us start with the currently fashionable parlour game: who killed Cancun ? Some believe that Cancun was just an accident. That we were going along in the same old WTO way towards a deal, that we could have made it, and we were just a hard day's night away from success. This is not a wholly discreditable view: the Geneva preparation of the Cancun meeting had not been bad for once, although Geneva, seemingly like everyone else, collectively missed the important issue of cotton. And the EU and US had come up with a framework deal on agriculture, as requested. And then suddenly, like a party that ends too early, the meeting just fell apart.

The second set of explanations play down the sense of Cancun as an accident, except in the sense of an "accident waiting to happen". They point out that not everything was rosy in the Cancun garden, pointing out that the negotiation itself barely got under way at all, and, after a few days of inconclusive consultations, aborted shortly after getting down to real business. They tend to suggest that there are serious underlying problems that blocked the negotiations in Cancun and that we have to resolve before we can move on.

I have to say that there is quite a lot going for this view. Consider the systemic issues raised by the emergence of new developing country groupings inside the WTO. And no problem with that. We can't call for developing countries to get involved, and then complain that they are setting the agenda or that they are positioning themselves as a counterweight to the G8.

The G20, for instance, can't be seen as simply an agricultural phenomenon. If its mother is agriculture, the father is clearly geopolitics.

And why, if this is the case, should we complain about the G20 even if it is rather self-consciously positioning itself as a counterweight to the G8 in terms of global economic governance? For me, the problem, now the paradox comes, when we see that if the G20 is united only by politics and agriculture, or parts of the agriculture dossier, it will struggle to thrive as a unifying force on other parts of the trade agenda. The challenge for the G20 now is to show that it has the capacity to make things move, and not just the capacity to say 'no'.

And don't forget the G90 - the group of African, Caribbean and Pacific countries, together with other least developed nations such as Bangladesh. This is a group to which there is not nearly enough attention paid these days, but I wonder if they have or had a large enough stake in these negotiations to want them to succeed. And my perception is that they are particularly worried about the impact of the certain erosion of their trade preferences, notably on the EU market, of continued liberalisation at a multilateral level. But we clearly have to address this concern, or the development round simply will not succeed.

So, was there a north-south split at Cancun ? I don't think so.

North-south explanations miss the reality of the detail. On the Convention on BioDiversity, for example, the line-up was China, and India, backed by the EU. Even on agriculture, we in the EU have moved, step by step, towards developing countries following the reform of the Common Agricultural Policy which was decided in June. Just to give you one example, we accepted, for the first time, the elimination of export subsides on products of interest for developing countries.

So what was going on? Perhaps a melange of different things. The key traditional supporters were not always at their best. I think it is true to say that there is a generalised fatigue, and not just in the US, with the constant pressures and challenges of globalisation in general, and trade liberalisation specifically, and this has the capacity to affect all of us to a greater or lesser degree.

Then there was China. Sometimes it seems as if the US, with the tough rhetoric about the need to reduce the trade deficit over the last weeks, is the only country concerned about China. But I don't think that is right. Clearly, no-one likes to say it, but many developing countries in particular are concerned about China's seemingly limitless capacity to produce and seemingly bottomless comparative advantage. In other words, if you are already worried about China's ability to scoop the pool, indeed perhaps the phrase is to dredge the pool, the last thing you want is trade liberalisation. This goes to the very heart of the argument about preferences.

And add to this rather potent mix the institutional problems which exist inside the WTO itself. I don't have time to dive into the subject here, but the WTO, at very least how we saw it operating in Cancun, is not a perfect mix of efficiency and legitimacy, the model of global governance. Conclusion: I hope you agree that it is hard to avoid the view that there are some serious underlying problems behind the Cancun failure that we have to address.

So where next ?

And that is, ultimately, my concern about too much accident theorising after Cancun. If this was just an accident, then we could just get up, brush ourselves down, remount the horse and press ahead regardless with the negotiations, perhaps with a decent down-payment of early concessions up-front to stress our bonne volonté, our determination to bring the Round, come what may, to an early conclusion. If you believe, however, that there are some real problems to solve, that means hard thinking from all quarters. It also means that if you jump back on the horse, you may fall off quite quickly, or indeed go off in the wrong direction.

Like, for example, the amazing race over the last week to endorse the text produced in Cancun on 14 September. For our part, we thought - in Cancun - that the text was a pretty good effort, even if it caused us some real grief on agriculture. But it clearly failed to get anywhere near the middle ground on issues such as cotton, for example, where it took a strongly pro-US line. And, as we know, the text failed to get even close to a consensus.

The EU consultation

And so these are the circumstances in which we in the EU are insisting on a moment of reflection. Why ? It is necessary if you consider the extent to which the European Union has already tailored its agenda and its approach to development objectives - such as on agriculture, or indeed on Singapore issues. So a brief period while we reconsider our position is essential if we are to carry our constituencies with us. The goal is to be ready by the time of the General Council meeting in Geneva on 15 December, a date which was agreed in Cancun: before then, we will have a further informal meeting with the Member States on 2 December, and discussions with the Parliament, NGOs, the business community. And of course I am very much in the same listening mode with trade partners, such as the US, the G20, the G90, Japan, others. So our consultation is being properly nourished. We have not disappeared from the scene. As Billie Holiday never sang, "Geneva's always on my mind".

Bilateral vs multilateral

But it is precisely because some are worried that Geneva has been forgotten that we need to briefly consider the balance between bilateral and multilateral trade agreements, which is one of the issues we are consulting on. Indeed, some in the press are also saying that it is too late for reflection, because after the shock of Cancun, the American horse has bolted for the simpler, more homespun world of the bilateral trade agreement.

Let's try and get this into perspective. Yes, if the Round were dead, and I don't believe it is, then it would be reasonable to think about putting most of one's eggs in the bilateral basket. Even if the Round is only stalled, then yes, again, it is reasonable to ask whether we cannot and should not advance on other fronts in the meantime, whether on market access or indeed new rules. But I am not going to lose any sleep about Bob Zoellick pursuing an FTA with Morocco, where the US starts from a tiny percentage share of Morocco's total trade, any more than he worried about me doing one with Mexico. And did you know how many FTAs the US has ? Six, including counting NAFTA as two.

The EU, as Bob loves to point out, has got a fair few more than that, even though we have been at this for a long time. Having pronounced on the parentage of the G20, I must remind myself that I have dined out on the phrase that the while the EU's father was a political union, her mother was a free trade area.

But hard to miss, since Cancun, and since the US announced its new platform of FTAs, and we in Europe started to consult on whether we should continue to support the Round, how much the rest of the world has suddenly come to love the multilateral system. Anyway, the issue is not so black and white, so cut and dried. For the foreseeable future, we in Europe, you in the US, and increasingly, they in Asia, are going to pursue a mix of multilateral and bilateral trade agreements. I think that is healthy.

EU-US trade disputes

I cannot conclude, however, without a quick overview of where matters stand in our long-standing and sometimes loud transatlantic trade disputes. To answer the question I posed at the start: is there a similar maladie affecting both transatlantic and multilateral trade? For the most part, I don't think so. In the multilateral sphere, there are some genuine confusion about what needs to be done, plenty of differences of view out there as to what to do next with the Round.

In terms of our bilateral trade problems, I don't think it is nearly so complicated. We know what has to be done, and at different times we have both said it to each other. We need to comply with WTO rules. On our side, with bananas and hormones against us from 1999, it is been one of my primary goals to bring ourselves back into compliance. We have achieved it on bananas, a case thankfully now put to bed. And we have now achieved it on hormones, with our revised ban based on a state of the heart scientific evidence, and believe that the S must now in turn lift the retaliation measures which have been in place for more than four years. In that spirit, we will be going shortly to Dispute Settlement Body to ask the US to lift the sanctions. The US has made clear that it doesn't agree, but that doesn't change what we have done !

So the common denominator between the FSC and steel cases, or indeed their link with the bananas and hormone cases, is not whether or not the EU is going to retaliate or not, which areas our retaliation will hit, when we are going to do it, and so on. The question to answer, as the US put it in the hormone and bananas cases back in 1999, or on GMOs, where the US has launched a case this autumn, is: when is the other side going to bring itself into conformity with the rules ? On steel, when is the US going to lift the tariffs it imposed back in the spring of 2002 ? On FSC, when is the US going to pass the repeal legislation, which we have been eagerly awaiting for three years now, to end the illegal export subsidies which have been around for years and years. And you will understand that this has been my primary focus in discussions over the last couple of days.

For those who remain interested in the simpler question (whether or not we will retaliate), the answer is yes, if the US does not move to comply within the clearly recognised deadlines. Consider FSC, where we have been waiting for compliance since November 2000 when the WTO Appellate Body found against the FSC for compliance. We have said that retaliation will begin in the early part of next year if FSC is not repealed before the end of the year.

On steel, the EU has already taken a decision to retaliate if the Appellate Body on 10 November finds in our favour, and if the US tariffs are not withdrawn within 5 days of the adoption of the report by the Dispute Settlement Body within a month. So if the US does not move, retaliation is a racing certainty in mid December.

Lest all this sounds like we somehow relish the prospect of retaliation, nothing could be further than the truth. Retaliation is the last resort that the system provides, the final tool that can be used to incentivise compliance. Retaliation clearly hurts. But anyone remotely connected with the FSC case, for example, will know we have moved with both patience and transparency. No-one could say we have been rash, or made sudden moves.

So I have to say that while I know how politically sensitive FSC and steel are in the US, the actual substance of the questions is rather straightforward.

It is not really on to try to conclude that because Cancun failed, because the US took us to the WTO on GMOs, and because there is a risk of sanctions in the next few weeks, there is some overall sickness in the world trade system.

Except perhaps in one sense: in the sense that there is clearly a lot less support out there for trade, whether in the NGO community all over the world, on Capitol Hill, or in the heartlands of Africa. All these constituencies remain to be convinced that the trade system works in their interests.

So what's the answer ? Simply to shrug ? To back off from the Doha Round because it is too difficult ? To conclude that the EU should not retaliate against the US because it is obviously difficult to assemble a majority for WTO compliance in the Congress ? I don't believe so. This would send the message that the next episode we will see in the development of world trade is the law of the jungle: might is right, beggar thy neighbour, and forget the basic rules of the road. So I conclude that we are left with two rather unglamourous solutions: perseverance with the multilateral round; and compliance with agreed rules. Neither will be very easy, but it seems to me probably to be the only way to go.

That, ladies and gentlemen, is why it is genuinely the right moment to say: "the stakes are high". Thank you very much.

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