HL Deb 01 May 1980 vol 408 cc1399-410

3.31 p.m.

Lord DRUMALBYN rose to move, That this House takes note of the report of the European Communities Committee on Trade Policy: the Tokyo Round (41st Report, H.L. 204). The noble Lord said: My Lords, I beg leave to move the Motion standing in my name, which draws attention to the European Communities Committee Report on Trade Policy: the Tokyo Round. Noble Lords will find, if they have not already done so, that the report contains a valuable paper from the Department of Trade in which written replies are given to preliminary questions put to them on behalf of Sub-Committee B, as well as the oral evidence from the department complementing the written evidence, and further oral evidence at a later stage from the Department of Trade after the agreements were open for signature. We also received oral evidence from the CBI. The TUC chose not to give oral evidence.

I would draw particular attention to the conclusions of the report. However, in order that your Lordships may judge the validity of these conclusions, it seems to me that my first task in opening this debate should be to give some account of the facts and circumstances on which these conclusions are based.

The first question obviously is: why was the conference called? It was primarily because there appeared to be a serious risk that, as a result of the deterioration of economic prospects in the early 1970s, individual countries might resort more and more to protectionist measures of one sort or another, and that in con- sequence the objectives of the General Agreement on Tariffs and Trade would be undermined and its very existence imperilled. The energy crisis, which began almost immediately after the conference, made that risk even greater. The negotiations stemmed from the conference held in Tokyo in September 1973, which was attended by representatives from about 100 nations. They were the seventh negotiations in a series of multinational negotiations since the GATT organisation—I will, with permission, use that term throughout—was brought into existence shortly after the Second World War, with the object of liberalising trade and so avoiding the disturbed conditions of the 1930s following the economic crisis in the United States of America, which had widespread repercussions.

The Tokyo Round also gave the opportunity for some bilateral negotiations to take place between participants. The participants included not only the original members of the General Agreement on Tariffs and Trade and countries which subsequently joined, but others as well. Members included East European countries other than the Soviet Union and East Germany. The list of participants is given in Annex I to the report. For the European Community, the Round was of particular significance as it was the first major occasion on which the Commission negotiated on behalf of all Nine of the Members, in accordance with a mandate approved by the Council of Ministers.

The immediate outcome of the Tokyo Conference was a declaration of the objectives to be aimed at the negotiations. These are summarised in paragraphs 4 and 5 of the White Paper (Cmnd. 7724), which was published in October last, in the following terms: The objectives of the negotiations were set out in the declaration agreed at the Ministerial meeting in Tokyo. They were, first, to achieve the expansion and further liberalization of world trade through the progressive dismantling of obstacles to trade on a reciprocal basis, and the improvement of the international framework for its conduct. Secondly, the negotiations aimed to secure additional benefits for the international trade of developing countries. It was envisaged that special and more favourable treatment would be accorded to them in areas of the negotiations where this was feasible and appropriate".

Within this framework the Community wished to achieve a greater harmonisa- tion of tariffs. Some developed countries, notably the United States of America, had a number of high tariffs and others had a significant number of tariffs which were not "bound". The Communities regarded it as even more important to get rid of discriminatory practices which were detrimental to international trade—the so-called "non-tariff barriers to trade".

Thirdly, the Communities wanted to extend the protection afforded under GATT against disruption of trade by enabling countries to take selective action against any particular country or countries in relation to a particular product. In the first two objectives the Community largely succeeded. In the third it failed to obtain agreement, at least for the time being.

The White Paper has summarised the results of the negotiations succinctly as follows, in pargraph 8: Agreements have been negotiated on tariff reductions; on the reduction of tariff and other barriers to trade in agriculture; on trade in beef and dairy products; on the reduction of barriers to trade in aircraft; on subsidies and countervailing duties; on customs valuation methods; on technical barriers to trade; on government purchasing; on import licensing procedures; on the updating of the existing anti-dumping code and on the framework for international trade. An agreement on discouraging trade in counterfeit goods is in draft".

That is a very considerable scope—no wonder the negotiations took five years! So far, of the 99 participants in the negotiations, some participating more intensively than others, relatively few have signed the various agreements, as paragraph 14 of the committee's report indicates. Here, Annex II shows in tabular form the state of play at the time the report was completed, namely March. However, there is no closing date for signatures and some countries have indicated their intention to sign at least some of the agreements. All the developed countries have ratified the tariff agreement, except Japan, which has signed but not, so far as I know, ratified as yet. Perhaps my noble friend will be able to give us further information.

Turning to the tariff protocol, the negotiations took place on a basis of unilateral offers. Final agreement was reached multilaterally on the concessions to he exchanged, the resulting new tariffs being available to all on a most-favoured- nation basis. This contractual agreement forms the Geneva Protocol of 1979 to the General Agreement on Tariffs and Trade. To quote the Commission's report—I am doing this to save time: Taken together with the elimination of all tariffs on imports of commercial aircraft, aero-engines and other commercial aircraft equipment, a tariff cut of about one-third has been negotiated, covering over 100 billion US dollars of trade".

To even out the peaks and troughs of individual tariffs of countries, a formula proposed by the Swiss was adopted. This resulted in cuts in the higher tariffs being proportionately greater than those on the remainder. Not all tariffs were cut; nor were all which were reduced cut by the standard formula. Even some higher tariffs were excluded from cuts where countries regarded the items as particularly sensitive. Even so, only 1½ per cent. of dutiable imports in the United States will be subject to duties over 30 per cent., as compared with only one item in the United Kingdom remaining subject to a duty of over 20 per cent. However, nearly two-thirds of all dutiable imports will be subject to duties of less than 5 per cent. in the United States. The United States' concessions, which are of interest to this country, were mainly in the chemicals, non-ferrous metals, machinery, textiles and paper sections.

In brief, both the United States and the Community have cut their tariffs by an average of 30 per cent. on a trade-weighted basis vis-à-vis each other, and Canada by about the same. The reduction in Japanese tariffs on EEC exports is about 25 per cent., but that is on their effective rates, which are rather lower than the formal list rates. All this sounds as if it were a strong shot in the arm for exporters and a depressant for those threatened by imports. But the cuts are, in general, to be implemented over a period of eight years by equal annual instalments, starting from 1st January this year, so they are hardly likely to cause sudden or violent disturbances. A few cuts made by the Community are not to come into operation until 1st January 1982, and those on kraft paper and board begin in 1983. I shall not give many details, but I thought that it might be of interest to mention those.

One important outcome of the negotiations is the USA's abandonment of the American selling price system, under which duty is charged in the case of benzenoid chemicals and their derivatives not on the invoiced price but on the price at which like goods are sold in the United States of America. This, of course, greatly enhances the duty. This change is to take place on 1st July 1980. Your Lordships will be glad to hear that they have also given up the wine gallon assessment system, which made bottled whisky subject to discriminatory tax.

The Community refrained from making cuts on certain sensitive items, and on others made cuts much less than the formula reduction. I do not think I need give your Lordships the details, but I have them here. The general effect of all Community cuts is to reduce the Community's tariff from a trade-weighted average of 9.8 per cent. to 7.5 per cent.

Not all industries are happy with the outcome as it affects them. In particular, the CBI felt that while the agreement offered opportunities for some improvement in exports, some industries—notably, the textile industry—were far from satisfied. Written evidence to that effect was received from the British Textile Confederation. Moreover, there are strong complaints that British producers have been grievously harmed as a result of the artificially low prices of United States producers of synthetic fibres and tufted carpets, because of the energy and feedstock which is made available to them at less than world prices.

No doubt my noble friend Lady Hornsby-Smith, who I see here, and other speakers, will have a good deal to say about this. I hope that my noble friend who is to wind up the debate will be able to tell us what further steps, over and above those recently announced by my noble friend Lord Trenchard, the Community is taking to eliminate this damaging piece of discrimination.

So much for the general tariff negotiations, and now a word about agriculture. Sub-Committee B did not take evidence on agricultural products, partly because agriculture is not within its remit, partly because the Common Agricultural Policy precluded the Community from dealing with agricultural products in the same way as industrial products in the negotia- tions. One can hardly negotiate for tariffs to be reduced, and bound, when an essential element in one's policy consists of variable levies. The Community had, therefore, to resort to bilateral negotiations, though no doubt the bilateral concessions had some effect on the willingness of other participants to make concessions on industrial as well as agricultural products. This was called the sectoral approach, as distinct from the global approach.

However, the Community was anxious to pave the way for greater co-operation in the future, at least by way of consultation. In the event, an International Meat Council and an International Dairy Council were set up, together with a number of rules to be observed on minimum prices. But an attempt to establish an agricultural consultative committee has not so far succeeded, though discussions are to continue. On the other hand, as I have already indicated, there was some success on alcoholic beverages, in persuading the Americans and the Canadians to abandon their present discriminatory practice.

Personally, I am particularly pleased that some useful concessions were made in favour of products from Australia, New Zealand and Canada. A quota of cheese from New Zealand has been arranged, and also some modest exchanges of cheese with Canada and Australia, as well as some access for Community cheese into the United States of America; some on quota and some without restrictions.

There is to be "improved access" for frozen meat into the Community, and a modest annual quota for high quality cuts of beef from the United States of America, Australia, Argentina and Uruguay. The United States of America is to accept from the Community what it describes as a resumption of "traditional exports" of beef and veal. Lastly, Poland, Hungary and Romania are to be allowed to send the Community young beef stock for fattening and veal for processing. But it was not possible to reach any agreement on cereals, nor does it appear that any agreement on sugar was even attempted, though the Commission did manage to avert a confrontation over export subsidies.

So much for the Geneva Protocol and the sectoral approach. The most pro- mising aspect of the negotiations lay in the non-tariff barriers to trade. Some were designed to clarify existing provisions of the GATT; others broke new ground. What is sad is that, so far, they have not received the widespread support that they deserve. I hope that my noble friend will be able to tell your Lordships that, at any rate, they have the support of Japan.

The agreement on import licensing is designed to ensure that neither automatic licensing nor licensing for the purposes of quantitative restrictions is operated in such a way as, in itself, to restrict trade. The agreement on international trade in civil aircraft not only reduces tariffs to zero on civil aircraft, aero engines and some aircraft equipment, but confers freedom on airlines to buy whatever aircraft, et cetera, they please, with as little Government interference as possible. This came into operation on 1st January this year. I believe—but, again, the noble Lord can tell us—that in Japan it came into operation on 1st April.

The agreement on customs valuations seemed to the committee the most valuable of the agreements to traders in general, and to the Community in particular. It provides that, normally, customs authorities will base their valuations of imports on what is known as "transaction value"—namely, the c.i.f. price—and will depart from that only after consultation with importers. The United States abandonment of the American selling price is a case in point. A special protocol has been drafted in favour of developing countries, which I need not go into.

The agreement on Government procurement virtually extends to all signatories much the same provisions as have operated within the Community since mid-1978. The purpose is to abolish the practice of Governments and Government-controlled bodies, of reserving public contracts to their own nations or giving them price preference. The agreement includes an appendix listing the bodies which the signatories have agreed will be covered. It comes into force on 1st January 1981. Under the agreement invitations to tender have to be published and information has to be provided on request about the subject of the tender and, after the contract is placed, to the unsuccessful tenderers about the reasons for non-acceptance, if they want them.

There is provision for the settlement of disputes to be assisted by a committee of signatories. Obviously the agreement will only work on the basis of manifest reciprocity and, as the report puts it, of goodwill and honesty. The working of the agreement is to be reviewed after three years.

There are four agreements covering matters which can broadly be described as involving fair trade. These are on subsidies, anti-dumping, technical barriers to trade, and counterfeit goods. The agreement on subsidies establishes the principle that countervailing duties may be imposed only if an investigation has first demonstrated that a domestic industry has been materially injured by subsidised imports and that the cause of the material injury lies in an identified subsidy. The United States of America has now passed legislation to this effect. It was the United States that was rather out of step with the rest of the developed countries, although it is fair to add that some ambiguities remain to be tested in the American courts. A committee of signatories is to be set up to help to settle disputes.

A new anti-dumping code has been negotiated and that is more or less in line with the agreement on subsidies. Again there is the requirement that before provisional duties are imposed there must be proof of the dumping and of the injury caused by the dumping. Retroactive dumping duties are not to be permitted. Instead of imposing duties, an importing country may accept price undertakings from the exporter. The agreement on counterfeit goods is still in draft. It is an interesting one and certainly breaks new ground. There again a committee of signatories is envisaged to supervise the working of agreements and to resolve disputes. It is also envisaged that signatory authorities will agree to seize counterfeit goods and detain them on importation when alerted by the owner of a trade mark.

I come now to the Agreement on Technical Barriers to Trade. The object of the agreement is to place signatory Governments under an obligation to ensure that, whether the standards are prescribed by the Governments or issued by standards institutes, there is no discrimination against foreign manufacturers or traders. The agreement aims at achieving as far as possible conformity with international standards. That agreement is to come into force on 1st January 1981.

Noble Lords will have noticed how often I have mentioned committees of signatories in connection with the agreements. It is hoped that these committees will not only help in resolving disputes but will play a large part in maintaining uniformity of interpretation and implementation of the agreements. So long as the membership of the signatories is small, as it is at the moment, the system should work well. It is not so clear how they will work once the membership has grown. It is hoped that it will grow, but it seems that individual representatives of the Nine will be able to attend meetings of the committees, although in general each of the Nine is represented by the Community. Perhaps my noble friend could say a little more about this when he comes to speak, because so much depends not only on the acceptance of the terms of the agreement but on their implementation.

I turn for a moment to developing countries. There is the question of the exemption of developing countries from the full rigors of the non-discrimination clauses of the General Agreement on Tariffs and Trade. One of the two objectives of the Tokyo Round was to secure additional benefits for the international trade of developing countries over and above those which they would automatically receive from the multilateral negotiations by way of reductions in tariff on a "most favoured nation" basis. The Tokyo Declaration made at the conclusion of the Tokyo Conference stated that developed countries would not expect the developing countries in the course of the trade negotiations to make contributions which were inconsistent with their individual development, finnancial and trade needs. Most developing countries interpreted that to mean that their offers need to be no more than minimal.

Tropical products were to be treated as a special priority section. That objective was fulfilled earlier in the negotiating period when the Community made an offer on tropical products. The offer covered reductions in the customs duties on 22 products, such as tea, green coffee, cocoa, and so on, as well as the addition of new items to the generalised system of preferences and other improvements in existing arrangements. Developed countries also undertook not to increase domestic taxes on coffee, tea, cocoa and spices. This unilateral offer was implemented on 1st January 1977; other developed countries did likewise, except that the United States sought contributions. Further, most agricultural imports from the least developed countries were granted duty-free admission last year.

Draft framework texts have been prepared formally recognising that, notwithstanding the GATT principle of nondiscrimination, contracting parties may accord differential and more favourable treatment to developing countries and territories, without according such treatment to contracting parties. The texts specifically legalise the generalised system of preference in tariffs for developing countries. They also legalise mutual concessions between less developed countries, and that is going to be of growing importance, forming regional groups such as the Andean and Asean groups and the Central American Common Market. That is always subject to the proviso that any differential or more favourable treatment is designed to facilitate and promote the trade of developing countries, and not to create undue difficulties for the trade of other contracting parties.

The text envisages that the capacity of less developed countries to make contributions or negotiated concessions will improve with the progressive development of their economies and trade situation. That is called the graduation clause. Unfortunately, not all developing countries are willing to commit themselves to this understanding at the present time.

There are really three classes of developing countries: the least developed, listed as such by the United Nations, the newly-industrialising countries, and the remainder which fall between. All claim developing status and expect privileges and exemptions accordingly. Each country selects itself for that status. The committee has felt that some way acceptable to both developing and developed countries has to be found to determine when a developing country has matured to the point when it is no longer appropriate or fair for it to be treated as such and to make appropriate adjustment.

In some cases the agreements specifically exempt developing countries wholly or partially from the provisions of the non-tariff agreement, for example, that on subsidy on countervailing duties: the Customs Valuation Agreement exempts them for five years from 1st January 1981 and there can be individual extensions. Under the Technical Barriers to Trade Agreement the committee of signatories can grant to any of them specific exemptions for a specified time.

Nevertheless, the developing countries have expressed disappointment, and one cannot disguise this, at the outcome of the Tokyo Round for them. Considering their demands, including duty-free entry and the removal of all quantitative restrictions on their exports, regardless of the effects, that is hardly surprising. In particular, they have opposed the kind of safeguards proposed by the developed countries. The object of safeguards has been to enable importing countries to take emergency action to restrict imports of particular goods when they increase to such an extent as to disrupt an industry or threaten its survival. At present, such action can be taken only on a nondiscriminatory basis.

The Community wanted action to be taken selectively when necessary—that is, against one, or more, particular country. It was also prepared to support the setting up of a safeguards committee to monitor and review such measures. But the developing countries, on the other hand, insisted that if there were to be safeguards they should be applied only after they were authorised by an international committee. The inability to agree on safeguards was the greatest single failure of the Tokyo Round.

Informal discussions are to continue, but without such an agreement the danger of a relapse into protection is greatly enhanced. No country can allow its industries one by one to be crippled or killed by sudden massive surges of imports, far in excess of expectations, from foreign countries. On the other hand, and equally, countries must beware of allowing their own industries to be ruined from within. If excessive wage demands or inefficiency lead to an industry ceasing to be competitive in world trade, resort to a policy of protection is no answer. All it does is to fuel inflation, to increase inefficiency and even to make it difficult to compete in foreign markets. Safeguard action is all very well for a limited time. That is one thing. Protectionism as such is quite another.

In conclusion, the committee considers that the Tokyo Round achieved a remarkable degree of success, although of course it has not solved all the problems. The report says in paragraph 40 that the conclusion of the agreements has at least preserved reasonably intact the essential institutional and legal structure of the world trade system, and has created new, and potentially stronger, mechanisms for international cooperation. It has, therefore, at least for the time being made it possible for governments to save themselves from the excesses of competitive protectionist action into which it is virtually certain that the world would have been plunged if agreement had not been achieved".

The outcome has also vindicated the EEC Commission as a powerful and skilful negotiating body. Most of its objectives were achieved. It remains to be seen whether it will be given sufficient resources and will show the necessary perseverance and determination to make the system work.

Much was accomplished. Much remains to be done. Above all, as the report says, in bringing developing countries more within the General Agreement on Tariffs and Trade framework, a major task of the Community's policy should be to work out a constructive policy towards developing countries which respects the needs of both sides. My Lords, I beg to move.

Moved, That this House takes note of the Report of the European Communities Committee on Trade Policy: the Tokyo Round (41st Report, H.L. 204).—(Lord Drumalbyn.)