Speech by EU Commissioner Mandelson- "Ambition and Realism: Europe's Approach to the Doha Round"

In this speech delivered in Helsinki on 21 April 2006, Peter Mandelson, EU Trade Commissioner , sets out his views on the way ahead in the Doha Development Round and calls for an effort from all sides to achieve agreement. He emphasises the need for a balance of ambition and realism, and a redoubling of efforts to complete the Round this year.

"My starting point, as always, is that for Doha to succeed we need balanced ambition in all areas of the negotiation and a proportionate contribution from all players in the talks. We need a Round that unlocks the door to development across the full range of economic activity - agriculture, goods and services".

Mandelson also praises Finland as a shining example of an EU Member State that has balanced the needs for economic reform and openness with the creation of modern social welfare system.

Openness is not a threat, Mandelson says: "Finland is a shining example of a country that stands open to the world; a country that sees globalisation as an opportunity rather than a threat; a country whose geography and history have taught it the importance of borders, but whose industry has been ready to reach beyond them to create global brands."

Finland has shown how the right combination of public policies and private action can build in Europe one of the world's most competitive economies, which also has one of the world's best social welfare systems. Mandelson argues that these two things are not "either, or".

Europe's trade policy must reflect that openness "our trade policy must support excellence and innovation in Europe. We need to defend the interests of our companies - not by protectionism at home but by activism abroad. We must deliver better market access for European goods and services around the world, and effective defence of their intellectual property once they are there. We must also secure fair trading conditions through enforceable international rules and uphold the rights of European businesses where this is not the case."

Doha Development Agenda

Peter Mandelson sets out his views on what is achievable in the Doha Round of Trade talks and calls for an effort from all sides to achieve an ambitious but realistic outcome this year.

"We must keep pressing even harder for a conclusion. First because the negotiations need greater momentum. Second because we should aim to complete the whole process of negotiation and implementation before the US Congressional Trade Promotion Authority runs out just over one year from now. A conclusion will not be at any price but, in my view, we can find agreement as long as this contains the right mix of ambition and realism."

The need for ambition: "Without sufficient ambition across the board - including in liberalization of trade in services and strengthening world trade rules - we will not have the ingredients needed to reach a balanced deal, sellable to all constituencies. But without realism, too, we will be in danger of aiming too high and missing our end deal all together. That would mean losing out on the opportunity for developing countries to negotiate the restructuring of trade in agriculture."

Mandelson argues that any deal on agriculture has to be practicable and sustainable, economically and politically. "In the case of agriculture, many smaller developing countries are fearful of excessive, abrupt change that can wipe their preferential access to developed country markets."

Mandelson calls for more realism at this stage in US demands on agricultural market access: "The US is demanding that the EU makes a combination of further cuts in agricultural subsidies and tariffs that would tower over what may be envisaged in the US. If accepted, these cuts would make agricultural productions impossible to sustain even on Europe's present scaled down version of the CAP. It would also, because of the severity of the tariff reductions it is seeking from all countries, place huge pressure on farming production in many developing countries, including subsistence sectors. It would also wipe out the vast bulk of the preferential agricultural export trade of the poorest developing countries with Europe."

Mandelson also calls for realism from other partners: "Just as the US is overbidding on agriculture market access, so the G20 are under offering on industrial tariffs. I have explained why the only basis for a deal has to be "real cuts for real cuts". What the G20 has so far offered on industrial tariffs falls well short of this in the evaluation of both the EU and the US."

In the final section of his speech Mandelson sketches the outline of an ambitious but realistic endgame. He presents an across the board package in all main areas under negotiation - farm subsidies, farm tariffs, industrial tariffs, services and trade rules. This is a package that is fair: "representing a significant and manageable advance in trade liberalisation, with developing countries the main winners. I think all could accept it with a clear conscience that we have met the Doha challenge."

How to get there? "To do it, we need political engagement by all governments: and the courage to negotiate - really negotiate - in the realms of the possible rather than hiding behind high-sounding but unrealistic demands. And it will require all the main players, including the EU, to be ready to supplement existing offers if all the pieces of the puzzle are to fall together in one go."

Finland's Lessons for Europe

Finland is a shining example of a country that stands open to the world; a country that sees globalisation as an opportunity rather than a threat; a country whose geography and history have taught it the importance of borders, but whose industry has been ready to reach beyond them to create global brands.

We all in Europe have a lot to learn from your success:

• First, you faced up to the need for tough reforms in the early 90s. It is no good trying to protect jobs in traditional industries if they are no longer competitive. You invested heavily in knowledge and innovation. And you reformed your Social Model by recognising that modern social systems are as much about spreading opportunity for people to grow, as holding out a safety net to catch those who fall.

• Second you did not turn in on yourself or give in to the temptations of national protectionism. That was the logic of your decision to seek membership of the European Union. And Finland has been consistent in backing subsequent enlargement. Rightly. The newest members of our European club are among the most dynamic in terms of growth and investment. If there has been a political failure associated with enlargement, it has not been lack of courage to enlarge, but lack of conviction among national leaders in explaining its benefits, and how it is a crucial part of our response to globalisation.

• Third, Finland has looked beyond Europe to global markets. You have viewed overseas trade as an opportunity. Not just to open up new markets and trading opportunities. Nor simply to provide a sustainable pathway from poverty for people in Africa and across the developing world. Finland has recognised that open markets represent an essential discipline if competitive European businesses are to perform at the top of their game.

Economic Reform in Europe

This Commission has committed itself to transforming the Union's five year old Lisbon strategy into a new agenda for growth and jobs.

It is easy for critics to say that Europe is doing too little; that Member States have lost the appetite for reform; that the Lisbon vision of 3% growth, high rates of employment, sound public finances, investment in knowledge, modern social systems and open markets is a pipe dream.

Of course we have problems - big problems - with economic reform. But I believe there is growing recognition that the stalemate has to be broken. My real worry is the growth of populist attitudes on both the Right and Left in Europe, and the temptation of those with political responsibility to take a path of least resistance and opt out of reform.

When respectable Left wing politicians take to the streets against the Services Directive, and fuel unjustifiable fears of the Polish plumber; or when leaders take up the cause of economic patriotism and imply that the EU's fundamental freedoms and competition rules shouldn't apply to their country, they are playing with fire. They not only undermine the openness of markets that should be the driver of innovation, growth and jobs. They also put in doubt the very basis on which European integration has been built.

It need not be like that. Let's forget the shibboleth about core Europe never accepting the Anglo Saxon model. It's a false argument. A false dichotomy. Finland has shown how the right combination of public policies and private action can build in Europe one of the world's most competitive economies, which also has one of the world's best social welfare systems. These two things are not "either, or".

And let's bear in mind, too, that enlargement of the EU helps this cause. If companies are to adapt to maintain their competitiveness, enlargement can offer them the chance to do so by keeping investment, production and jobs within the Union, not just by taking advantage of cheaper labour and good transport and communications, but by drawing on a dynamic and skilled workforce - all in Europe rather than in Asia.

Trade Policy and Competitiveness

The European Union's external trade policy is another tool driving growth and jobs. Trade and competitiveness are two sides of the same coin. Without an active and modern trade policy, we cannot build the markets we need to grow into. And without the stimulus trade provides, our companies will not grow, creating the wealth for us to fulfil our economic, social, development and environmental ambitions.

That's why our trade policy must support excellence and innovation in Europe. We need to defend the interests of our companies - not by protectionism at home but by activism abroad. We must deliver better market access for European goods and services around the world, and effective defence of their intellectual property once they are there. We must also secure fair trading conditions through enforceable international rules and uphold the rights of European businesses where this is not the case.

The Doha Round

We now need a successful conclusion to the Doha Round to take this openness and competitiveness agenda forward. Multilateral agreement, negotiated in the WTO's democratic forum, will bring benefits for Europe and for the rest of the world, including the poorest countries, that bilateral deals cannot provide.

The biggest development gains will not come from agricultural liberalisation. Lasting economic and social development requires a broad basis for growth. Many commentators and NGOs - and some self-interested agricultural exporters - focus on the agriculture pillar of the current Round, but this is not, in fact, where developing countries will receive the largest or earliest benefits. Patterns of international trade are changing.

One striking statistic is that high tech exports from developing countries have actually increased by 20% per year since 1980, twice as fast as in industrialised countries. The share of high tech exports in developing countries' total exports is now around one fifth - only slightly behind that of Finland today, even if the absolute levels are inevitably lower. Meanwhile the share of agricultural products in trade in goods by developing countries has dropped from 42% in 1970 to 11% today.

So my starting point, as always, is that for Doha to succeed we need a balanced ambition in all areas of the negotiation and a proportionate contribution from all players in the talks. We need a Round that unlocks the door to development across the full range of economic activity - agriculture, goods and services.

Where do we stand right now?

The Current State of Play

Negotiating groups have been meeting in Geneva this week. The atmosphere is serious-minded and relations between negotiators are good. But there are problems.

First, there are differences of analysis of the relative value and weight, in market access terms, of what parties are offering. For example, the EU believes, sincerely, that we are offering considerably more real agricultural market access than the big agricultural exporters, notably the US and Brazil, are prepared to acknowledge. We are doing this through a combination of tariff and subsidy cuts, including the complete removal of export subsidies.

Similarly, Brazil and other G20 countries argue that what they are offering in industrial market access is worth more than the EU and the US believe. This is because, principally, G20 negotiators argue that reducing the ceilings limiting their tariffs, as opposed to the tariffs themselves, is worth as much economically as the marginal cuts in certain applied tariffs they are also offering.

There is also a real difference of opinion between developed and developing countries about how we should calibrate the levels of ambition between agricultural and industrial market access. Developing countries argue that cutting into their high bound ceilings for industrial tariffs - as opposed to the tariffs they actually apply - is comparable to the real cuts in actual tariffs being proposed by developed countries in agriculture. They call this less than full reciprocity. We call it a one-sided bargain.

Instead, in the EU's view, with the US and quite a few other developing countries in agreement, the only viable basis of comparison is 'real cuts for real cuts'. Real tariff cuts for real cuts is the only way that new business opportunities arise, the only way that companies on all sides can increase exports. Of course, we accept that these need to be proportionate. We do not expect developing countries to do as much as the developed world should do. But the principle of less than full reciprocity does not mean no reciprocity at all. The advanced developing countries should take their share of responsibility.

Another difference is this: what, in overall terms, is the fair contribution that developed and developing countries should be making to the outcome of the Round? This question goes to the heart of the Doha mandate. I acknowledge that it was conceived as a "development" agenda rather than a conventional trade round. But if all, or virtually all, the onus of these negotiations is placed on developed countries, two consequences will flow, neither of which will be pro development.

• First, there will be insufficient economic return to compensate for what the EU and the US, primarily, are offering in their agricultural tariff and subsidy cuts. This will make the Doha result impossible to sell politically to domestic constituencies, with the risk of failure which none of us want. Some may not like to hear this, but it is a fact.

• Second, if big developing countries make little or no effort in tariff reductions, there will be a substantial loss of potential market opening between developing countries. In other words, little new south-south trade will be created, which is where major and early new trade benefits are to be found, and which smaller developing countries badly need.

This, then, is the complex canvas on which Doha negotiators are trying to find an agreement. No one should be surprised that it is difficult to do. Former trade rounds have taken many more years. The differences are conceptual, analytical and, to a certain extent, ideological.

Ambition and Realism

In my view, however, we must keep pressing even harder for a conclusion. First because the negotiations need greater momentum. Second because we should aim to complete the whole process of negotiation and implementation before the US Congressional Trade Promotion Authority runs out just over one year from now. A conclusion will not be at any price but, in my view, we can find agreement as long as this contains the right mix of ambition and realism.

Without sufficient ambition across the board, - including in liberalization of trade in services and strengthening world trade rules - we will not have the ingredients needed to reach a balanced deal, sellable to all constituencies. But without realism, too, we will be in danger of aiming too high and missing our end deal all together. That would mean losing out on the opportunity for developing countries to negotiate, once and for all, the restructuring of trade in agriculture.

We need agricultural reform on both sides of the Atlantic. In overall terms, historically, the EU has been the bigger spender and therefore the more trade distorting. But, recently, this has changed. The EU is re-habilitating itself.

We have started since 2003 to reform our domestic expenditure, sector by sector, to transform it into non-trade distorting support, recognising in advance that this would be a major plank of the WTO negotiations. Building on this, we are ready to pledge a full 70% reduction of such farm support if the US comes near to matching this. We have also agreed to eliminate completely our export subsidies, if everyone else takes similar steps. On top of that we have agreed to cut into our real farm tariffs by 47%.

In CAP terms, this is a small revolution. It is cumulative and, if the Round is a success, will be irreversible. It involves real economic cost, in lost incomes and livelihoods amongst Europe's farming community.

The reason Europe is able to make this major down payment into the Doha round is because we decided to begin the reform process first and then bring it to the WTO. The EU believes in multilateralism. We are prepared to pay for our beliefs, and to keep the process moving forward. Indeed, we are willing to pay more than others. But we cannot pay, almost literally, for nothing in return. That is not an acceptable definition of multilateralism. It is not sensible politics. It is not viable economics.

As for realism - at this point in the talks, I am looking first to the United States for more of this. While we, since 2003, have been implementing decisions the US has yet to cut a single dollar or dime from its escalating farm spending. No legislative reforms have yet been put forward by the Administration let alone agreed by Congress, and I don't underestimate the political challenge involved in getting reform passed.

But the US, in the meantime, is demanding that the EU makes a combination of further cuts in agricultural subsidies and tariffs that would tower over what may be envisaged in the US. If accepted, these cuts would make agricultural production impossible to sustain even on Europe's present scaled down vision of the CAP. But of equal concern, it would also, because of the severity of the tariff reductions the US is seeking from all countries, place huge pressure on farming production in many developing countries, including subsistence sectors. And it would wipe out the vast bulk of the preferential agricultural export trade of the poorest developing countries with Europe.

This is why what the US is currently demanding is not acceptable to most WTO members - representing half of humanity in fact - and not implementable in Europe. Quite simply, this has to be recognized for the negotiations to make progress, as I want them to do, in agriculture and elsewhere in the talks.

But the need for realism also applies to others. Just as the US is overbidding on agriculture market access, so the G20 are under offering on industrial tariffs. I have explained why the only basis for a deal has to be "real cuts for real cuts". What the G20 has so far offered on industrial tariffs falls well short of this in the evaluation of both the EU and the US.

A Reasonable Outcome

I am convinced that a balanced and realistic outcome is possible, which is sufficiently ambitious to satisfy all those of us who want to see fairer trade, new market opening and substantially stronger multilateral rules. Not least because what is already there for the taking in this Round goes well beyond what has been achieved in previous Rounds. This is certainly the case in agriculture, where the changes envisaged are completely unprecedented.

Let me try to sketch the contours of this endgame.

In the area of farm subsidies, the Round must generate - and bind - a substantial reversal of the negative trend created in the United States by the 2002 Farm Bill. This must involve a real reduction in overall trade distorting farm support as well as a disciplining of the most distortive individual programmes. Neither has yet been fully offered by the US. The EU, I repeat, will reduce its overall spending more than the US, as it has already begun to do, recognising that it starts from a higher point. But the US must begin to match our efforts, even though we know that, unfortunately, it will not catch up in one go through the next Farm Bill.

In the area of farm tariffs, this Round should make a major step in the reduction of border protection worldwide. This is largely uncharted territory, since relatively little was achieved in the Uruguay Round. We are all starting from a relatively high tariff base, and in Europe and elsewhere the reductions have to be economically bearable. What Europe does in the DDA will not be the end of the story - unless we push too far, too fast, and create a collapse, and domestic political backlash.

But given the progressive way we have agreed tariffs will be cut - ie higher tariffs being cut more than lower ones - there will be a significant impact on market shares worldwide, giving many competitive developing countries new opportunities to exploit their comparative advantage, and forcing EU producers both to exit third country markets and to face strong new competitors in home markets.

In industry, all developed countries, and all developing countries in a position to contribute, will have to deliver on a commitment at the heart of the Doha mandate: to create new commercial opportunities across the board and to eliminate tariff peaks, tariff escalation and high tariffs. For developing countries that are not the poorest or the most vulnerable, and in particular for the large emerging economies, this implies offering into this Round cuts in currently applied tariffs. In return, the developed countries will make significant real cuts in their already low tariff levels, benefiting enormously developing country exporters to the EU, US and other big developed markets.

I am not asking for the moon here. As in agriculture, what the emerging economies do today need only be one step towards greater liberalisation further down the road. It has to be a substantive step, but it can be one which still leaves developing countries a lot of room for policy space and which provides for much special and differential treatment.

In services, the EU and other players need, and are entitled to, a substantive result out of this Round. The Round is a single undertaking. Services are a vital part of the global economy and a driver of development. And following the Uruguay Round, services were as much part of the "in-built" negotiating agenda as agriculture. In this sector I am practising what I preach: the EU has already taken a cold shower of realism. We have scaled back our ambitions. But the bottom line is this: all countries in a position to contribute should offer new commercial opportunities as well as predictability and non discrimination where services markets are already open to competition.

The realistic outcome also requires a strengthening of the WTO rule book in a limited number of areas. We need a new multilateral agreement on the facilitation of trade, particularly in the implementation of customs procedure, with technical assistance for developing countries to put this agreement in place. Studies suggest that this can be the biggest outcome of all for sub Saharan Africa. We also need further disciplines on the use of antidumping. This requires the US to accept a limited number of changes to WTO rules in this area. In the long term, we will all benefit from this.

Finally, the small and vulnerable economies will need an extra push to make their full integration into the world trading system a success. The acceptance of other developed countries in Hong Kong to follow the EU some of the way in granting duty free and quota free entry to products originating in the Least Developing Countries was an important move. However, there still remains much to do in increasing Aid for Trade and countering the effects of preference erosion. And of course, we are not asking LDCs - the vast majority of WTO members - to reduce their tariffs or open their services markets at all if they are not ready.

Conclusion

This is a fair package, representing a significant and manageable advance in trade liberalisation, with developing countries the main winners. I think all could accept it with a clear conscience that we have met the Doha challenge.

It can and should be agreed by the WTO membership this year. It has enough "teeth" to provide gains to all parties across all the negotiating areas. But it is also realistic enough not to cross the frontier into what is simply not deliverable.

To do it, we need political engagement by all governments: and the courage to negotiate - really negotiate - in the realms of the possible rather than hiding behind high-sounding but unrealistic demands. And it will require all the main players, including the EU, to be ready to supplement existing offers if all the pieces of the puzzle are to fall together in one go.

That is the only way this deal will finally be done.

| Arriba |

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