SPEAKER 1: This is a production of Cornell University.
NICK VAN DE WALLE: OK. Thank you very much. And My name is Nick van de Walle. I'm the director of the Einaudi Center for International Studies, which is sponsoring today's talk.
The talk is part of a project entitled Getting to Know Europe, Ithaca, and the European Union that the Einaudi Center has been involved in. It's a project of the Institute of European Studies, which received support from the European Commission to do a number of activities to publicize and inform about European issues in and around Ithaca and Cornell.
I want to thank Sid van Morgan and David Greenwood of the Institute of European Studies for our partnership in this interesting project.
It's also part of our foreign policy initiative at the Einaudi Center. And since about 2006, the center has been engaged in a number of activities promoting foreign policy. And this is, I guess, the second in a series of distinguished speakers in our distinguished foreign policy speaker series for which we're very grateful.
And because of the U project, this fall has a distinctly European theme.
Let me mention an upcoming talk that is going to take place on November 12. Not in this room, but at the same time at 4:30 on November 12. We're organizing a debate on enlargement of the European Union, and, in particular, the EU relationship with Turkey.
At that time we'll have a debate between Professor [INAUDIBLE] of the Institute of Political Science in Paris, and Soner Cagaptay, director of the Turkish Research Program at the Washington Institute for Near East Policy.
And I think it should be quite interesting. It's our first debate in what we hope will be a series of debates on sort of foreign policy concerns.
Let me say that we're very grateful to the Einaudi family, and particularly to Luigi Einaudi for helping to support this foreign policy initiative, as well as to the Kessler family for their support as well.
OK. Let me say a word of introduction about our speaker today. Ambassador Carlo Trojan was the EU ambassador to the World Trade Organization until he retired in February of this year. He has over 30 years of experience with international organizations and with public policy in the Netherlands.
He began his professional career as an advisor in the Ministry of Agriculture in the Netherlands. He joined the European Commission in Brussels in 1973, and-- we were talking this morning at breakfast-- appears to have had virtually every senior job it is possible to have in the commission in a long and distinguished career.
From 2001 till 2007 ambassador Trojan was the permanent representative of the European Commission to the international organizations in Geneva. And as a result, he was the primary EU negotiator on the Doha Round of the WTO trade negotiations.
He is currently a member of the Dutch Advisory Council on International Affairs, and of the Dutch Energy Council. He's a professor at the Maastricht School of Management, and is associated with the International Trade Center at the University of Barcelona.
Please join me in extending a Cornell welcome to Ambassador Trojan.
CARLO TROJAN: Good afternoon.
Thank you, Nick. And thank you very much to the Einaudi Center for International Studies for inviting me. And I'm delighted to be here. And I'm delighted to be at Cornell University.
I've been asked to talk about EU-US trade relations, the WTO, and the Doha Round. But I'm quite happy later on to take questions which have a bit broader field than just trade policy.
The EU and the US are each other's main trading partner, and they count for the largest trade relationship in the world. Trade flows across the Atlantic are running at around $2.3 billion a day.
In 2005 EU exports of goods to the US amounted to well over $340 billion, while imports from the US were slightly lower.
EU exports of services amounted to close to $150 billion, and imports of US services close to $130 billion.
The total amount of the two way investment between the EU and the US was over $2 trillion. Together the EU and the US are responsible for 2/5 of world trade. That makes the EU and the US the two largest players in global trade.
The two economies are highly interdependent. Close to 1/4 of bilateral trade is intra-company trade. And they are also the largest trade and investment partners for almost all other countries.
So being the largest players in global trade implies that the EU and the US are committed to cooperate politically and economically, both on bilateral issues, and in the multilateral framework of the WTO.
On the bilateral front, the new Trans-Atlantic agenda and the Trans-Atlantic economic partnership form the main structure of our bilateral relations in our cooperative effort to reduce or eliminate barriers to trade and investment.
In 2005 the EU-US Summit enhanced this cooperation through a new EU-US economic integration and growth initiative, setting up, inter alia, the high level regulatory cooperation firm.
Thus, the EU-US bilateral cooperation covers a very large field of investment, public procurement services, regulatory cooperation, IP enforcement, trade and security, and improving innovation.
It's unavoidable that in such an intense and interdependent trade relations trade disputes occur. Quite a few of such disputes have made headline news over the past years. Bananas, steel, [INAUDIBLE] ETI were some of those high profile cases.
But in reality, these cases had only a very limited impact on overall EU-US trade. But more importantly, since the Uruguay Round, trade disputes are solidly embedded in the new WTO rules, on dispute settlement. And moreover, EU and US trade negotiators have done their utmost to confine trade disputes and to avoid escalation.
In a joint effort in this respect of the then USTR, Bob Zoellick and the then EU commissioner for trade, Pascal Lamy are a point and case.
The WTO dispute settlement agreement has now been enforced for well over 10 years, and has offered a unique contribution to the stability of the global economy. It has underscored the rule of law, and has made the world trading system more secure and more predictable.
Its priority remains to settle disputes through consultations. In fact, roughly 40% of all cases never reaches the full panel process. The very fact that remedies can be enforced constitutes a powerful pressure to seek diplomatic solutions.
Being the largest trading partner in the world entails as well a joint responsibility for the EU and US to work together in the multilateral field. They are committed to do so.
Without agreement between the two elephants of world trade, nothing will fly in the multilateral trade negotiations. The Uruguay Round, the largest trade negotiation ever, made this abundantly clear.
The famous, or, for some, infamous 1992 Blair House Accord on Agriculture constituted a breakthrough in the global negotiations and was ultimately imposed on the rest of the GATT membership.
While it is still very much true that nothing will fly without an EU-US understanding, the times have definitely gone that the EU and US can impose their will on the rest of the WTO membership.
Since Marrakesh, when the Uruguay Round was signed, some fundamental changes have taken place in the multilateral trade environment. Nowadays, 3/4 of the WTO membership are developing countries. Developing countries have become much better informed and organized.
Developing country groups, both geographic-- like the G90, the ACP, the African Group-- and thematic-- like the G20, the G33, the G12-- have become more assertive and exercise a lot of political clout.
Emerging economies, like Brazil, which is the leader of the G20 group, and India, have come to the forefront. While in the Uruguay Round the quads, EU, US, Canada, and Japan were considered to be the power brokers. Nowadays, the center has shifted to the G4, EU, US, Brazil, and India.
While China may not yet be a member of this club, as it is still digesting its WTO accession, its presence is very much felt in the WTO negotiations. I would say the fear of China is one of the few issues which unites developing countries, emerging, developing countries, and other developing countries alike.
The influence of NGOs in civil society is another phenomenon of change. We have seen it in Seattle, in '99, and again in Cancun in 2003.
That the Doha Round could be launched in 2001 was very much due to the 9/11 aftermath. Moreover, developing countries were quite successful in putting the development agenda up front.
Cancun constituted a turning point. While in the run-up of it, it was the Montreal mini ministerial, the EU and US were challenged to work out a common position on agriculture. The EU-US document resulting from it provoked a revolt amongst developing countries, and was the direct inducement for the creation of the G20 group.
Since then, the WTO negotiating landscape has definitely changed. But the need for the EU and US to come to terms has remained as indispensable as before.
However, agreeing with each other has become increasingly difficult. Getting the rest of the EU membership on board, even more.
The original GATT agreement contained so many loopholes in agriculture that for practical purposes it had hardly any impact on agricultural trade, which, as a consequence, became highly distortive.
At its conception, it was principally the US, with a highly protectionist agricultural sector-- I talked about the late '40s-- which dictated the terms of the special status of agriculture.
In the '60s we see a change of strategy in the US, discovering the comparative advantages of their agriculture and its potential for export. But about at the same time, the common agricultural policy is coming into place with a general system of market and price support, which turns the European community, over time, into self-sufficiency and a net exporter for the main commodities.
And the soy embargo in the mid '70s by the Americans constituted an additional incentive for the European community towards self sufficiency.
Since the '60s, agriculture became the single most divisive issue in EU-US trade. It took almost 10 years of tough negotiations in the Uruguay Round to bring agriculture somewhat more into the mainstream of the world trading system. And this was made possible by the CAP reforms of 1992, which we called the so-called MacSharry reforms, moving away from trade distorting subsidies through a policy of decoupling income support from the markets.
Nonetheless, the outcome of the agricultural negotiations was rather modest in terms of actual reduction of internal support, and of improved market access. No wonder that in the Doha Round, agriculture became the central issue of that new round of trade negotiations. And yet again, the EU was put into a defensive position under the pressure of both the US and other developing countries.
But the fundamentals in agriculture in the EU-US relationship are, however, very different in the Doha Round compared to the Uruguay Round. The subsequent CAP reforms of the '90s, Agenda 2000, the 2003 fishery reforms, and the 2004, 2005 reforms by commission official [INAUDIBLE], have put the EU in a far more comfortable situation than during the Uruguay Round.
We have moved away from trade distorting subsidies, decoupling some 90% of domestic support. A very substantial reduction of both amber and blue box support can now be envisaged. Amber is the most distorting support, and Blue Box, a little less distorting support. I'm sorry. That's the jargon.
Already in the Doha Round, in Doha itself, the EU accepted the principle of phasing out, with a view of elimination, of all export subsidies, and improved market access for all products.
At the same time, the US adopted the Farm Bill in 2002, which went exactly in the opposite direction, reinstating a price support system, the counter-cyclical payment programs, so-called CCP, and by enhancing the market loan program.
The 2002 US Farm Bill was a massive increase in expenditure for a specific commodity. It flew in the face of the US free trade commitments, and made the USTR, US Trade Representative, hostage of the commodity groups.
And the 2007 Farm Bill, which is now in the process of being finalized, essentially presents nothing more than an extension of these trade distorting policies. The Farm House Bill would increase the amount of money to support commodities eligible under the CCP and a marketing loan program, while also raising direct payment limits. And in doing so, the House of Representatives has limited the ability of US trade negotiators in the Doha Round. And most likely, the Farm Senate Bill will not be much different.
It also highlights a difference in approach between the EU and the US on the implementation of multilateral commitments within the WTO. While the EU policy consists in anticipating through reforms such commitments, and consolidate the tariff reductions, and new rules on internal supports in its schedules, the US approach is the other way around. It negotiates WTO commitments, and implements them through legislation to be passed under the Trade Promotion Authority, the TPA, which means that the Congress can only approve or not approve a bill. It cannot amend it. It cannot amend the result of international trade negotiations.
This TPA, which was under the Uruguay Round known as the fast track authority, but that trade promotion authority expired on July the 1st of 2007. And as it expired, protectionist elements in the Congress have a greater hold on US negotiators.
And the protected Doha negotiations in the US were compromised by the mid-term elections, and the change of USTR, and now risk to be compromised by the 2008 presidential election if negotiations are dragging on well into the new year.
In world trade the EU and US have far more interests that unites them than dividing interests. They are both committed to open trade and open economies. They have a lot to gain from reducing tariffs and non-tariff barriers for industrial products. They have even more to gain from opening markets in the service sector.
New rules, like those on trade facilitation, will be of great benefit to the exporters. Bringing economic development through trade liberalization to developing countries should be a common endeavor.
Agriculture is, by all means, a key to a successful outcome of the Doha Round. There's no way of denying that some catching up with the outcome of the Uruguay Round was essential.
Nonetheless, I do think that the focus on agriculture in the Doha Round has been excessive, and that over ambitious expectations in some quarters risk jeopardizing the round as a whole.
The structures of EU and US agriculture differ quite considerably. First and foremost, due to a totally different land-man ratio. The US has abundant land and relatively few farmers, while in the EU it is the other way around. As a consequence, interests differ as well.
The focus of EU trade is on final products, which account for over 2/3 of the value of their exports, and over 55% of their imports. Meanwhile, the US is still heavily dependent on export of commodities, which account for 37% of their total agricultural exports, compared to just 7% in the European Union, while 3/4 of its imports are final goods.
The US has, by now, a defensive position.
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Former European Commission Ambassador to the international organizations in Geneva Dr. Carlo Trojan gave a talk entitled "EU-US trade relations, WTO and the Doha Round" in which he explained that the "two biggest elephants" in international trade, the United States and the European Union, account for two-fifths of total world trade. Director of the Mario Einaudi Center Nic van de Walle introduced Dr. Trojan as a speaker in the Center's Foreign Policy Distinguished Speaker Series. The lecture was part of the Foreign Policy Initiative at Cornell led by the Einaudi Center and co-sponsored by the Institute for European Studies and the U.S. Delegation of the European Commission as part of the EU Speaker Series.