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Eurostep Weekly 678

Eurostep Weekly

Regular News Update from Eurostep, N° 678

26 March 2012

Trade Ministers discuss EU-Trade Policy to Developing countries

On 16 March, European Trade Ministers came together at the Foreign Affairs Council to discuss EU Trade policies towards developing countries. Ministers approved a draft proposal for a comprehensive review of the EU’s general scheme of tariff preferences (GSP) that grants developing countries tariff reductions or duty-free access for identified products into the EU, under defined conditions. In its conclusions the Council re-affirmed that the EU would keep its markets open and continue to promote trade-liberalization, an approach criticised by many experts for resulting in adverse effects on trade in developing countries.

The meeting of trade ministers affirmed that for the future the GSP is to focus on “countries in greatest need”, namely Least-Developed Countries (LDCs) and lower income countries. Countries currently enjoying preferences under free trade agreements or autonomous arrangements will not be covered by the scheme. The selection of eligible countries would be largely income-based, taking stock of recent changes in the economic and trade patterns of emerging economies, such as China and Brazil.

Trade Ministers also emphasised the need to further liberalize trade at an international level and to support regional integration, such as the Economic Partnership Agreements (EPAs). The negotiations of the EPAs continue to be stalled, with only 10 out of 47 sub-Saharan African countries having signed or initialled the agreement, under which the EU seeks to further liberalize trade with developing countries’ regional trading blocs. Under the agreements, developing countries are to eliminate tariffs on at least 80% of imports from the EU, are to abolish all export duties and taxes as well as quantitative restrictions, and others.

Experts have warned that EPAs would be more likely to “enrich Europe at Africa’s dispense”. According to former Central Bank of Nigeria (CBN) Governor Charles Soludo these countries are asked to “meet all these and other intrusive and destructive conditionalities that literally tie the hands of African governments to deploy the same kinds of instruments that all countries that have industrialized applied to build competitive national economies”. African trade ministers have largely rejected the ratification of EPAs so far, as it is believed that the newly established industrial sectors and agriculture would be damaged by increased imports from the EU, thereby exacerbating unemployment and poverty.

Trade Ministers also took stock of recent developments in the negotiations of Free Trade Agreements (FTAs) with Singapore, as well as Columbia and Peru. Ministers further welcomed the recently published Commission Communication on ‘Trade, growth and development’ and to promote a multilateral agenda for trade and development by continuing its efforts to achieve a “balanced outcome of the negotiations on the Doha Development Agenda”. Discussions also saw proposals for a regulation to establish transitional agreements for bilateral investment agreements (BITs) between EU member states and third countries, with a final agreement expected to be reached soon.


Dominance of developed countries in trade and finance faces headwind from emerging economies

Growing discrepancies in the negotiations at the World Trade Organization (WTO) on trade liberalization have prompted some members to craft an exclusive, plurilateral agreement to liberalize trade in services. Such attempts have however been faced with opposition, especially from emerging economies, in their fight for a greater say at international level. As a counterweight to the Western dominated financial system, emerging countries have decided to set up a joint bank.

At WTO level, the group of real good friends (RGF) of liberalisation of trade in services, comprising the United States, EU countries, Japan, Canada, Norway, Switzerland, Australia, New Zealand, Singapore, South Korea, Taipei, Pakistan, Mexico, Colombia, and Chile, have initiated negotiations on an exclusive, plurilateral agreement to liberalize trade in services. Such an agreement is being negotiated behind closed doors and does not require the successful conclusion of the stalled negotiations on the Doha Round of Trade negotiations. Under the WTO’s General Agreement on Trade in Services (GATS), governing global trade in services, any group of countries can pursue economic integration by seeking higher and deeper services commitments between themselves.

Trade Ministers from India, Brazil and South Africa (IBSA) along with China and several other developing countries, have warned against the initiation of exclusive, plurilateral agreements at WTO level, as they are said to “go against the fundamental principles of transparency, inclusiveness, and multilateralism”. “Brazil doesn’t believe it is a building block for the resumption of multilateral negotiations and on the contrary it would make that even more difficult”, warned Brazil’s trade envoy to the WTO Ambassador Roberto Azevedo. RGF member have however pointed to the difficulty to reach consensus among 153 member countries, so that other means should be explored for reaching agreements. Although the EU is part of the RGF, EU Trade Minister De Gucht expressed caution regarding such steps, as the core principles of the WTO, including multilateralism and inclusiveness, should remain at the heart of any trade negotiations.

In light of changing power relations at international level, including the finance sector, the emerging economies Brazil, Russia, India, China and South Africa (BRICS) have suggested setting up a joint bank to be named the BRICS development bank. As their approaches to development are seen as a challenge to the established norms of Western development actors, the BRICS development bank could be testing other possibilities of co-operation and generate new ideas, experts believe. “Basically India, China and perhaps Russia are trying to show off their economic clout; they are trying to demonstrate to the west that they can do without them. Above all they need freedom from western financial influence”, emphasised Yuhua Xiao, assistant professor at the Institute for African Studies in the Zhejiang Normal University (ZNU) in China. However, due to different economic performances among the BRICS, with China dominating significantly, the setting up of such a bank could prove to be difficult, experts have warned. Such challenges will have to be addressed in future meetings.


UN Environmental Program (UNEP) calls for overhaul of current environmental governance system

According to the UNEP ranked list of “21 Issues for the 21st Century”, the world is in urgent need of a new global environmental governance system, if current challenges of global sustainability are to be met. Experts have further called for integrating sustainability concerns across the UN System, through the creation of a Sustainable Development Council and an upgrading of the UNEP to a fully-fledged UN agency.

The report was compiled by the UNEP Foresight Panel, consisting of 22 distinguished members of the scientific community from 16 developing and developed countries. According to the experts, the most pressing concern was the current system of environmental governance, generally believed as being ill-equipped and not representative enough to face current challenges of global sustainability. The second most pressing issue are attempts to move towards a Green Economy, the authors believe. In order to move towards such an economy, the education system would have to be adapted accordingly, in order to provide enough skilled people, they warn. Food Safety and Security was labelled as the 3rd most important challenge, with 9 billion people continuing to be at urgent risk of malnutrition and hunger deaths. The other top 10 issues include the lack of linkages between science and policy, changing human behaviour towards the environment, as well as new environmental technologies and their risks.

These panel findings precede the UNEP authoritative state of the environment report — Global Environment Outlook (GEO-5) to be launched just ahead of the UN Conference on Sustainable Development (Rio+20), to take place in June. As a prelude to the report, the GEO-5 Summary was published, setting out concrete recommendations for policy makers as how to tackle current environmental challenges. The summary for policy makers calls for a focus on underlying drivers of environmental change, including the negative aspects of population growth. Rather than only addressing environmental pressures and symptoms, experts further called upon policy actors to use timely and accurate data to inform decision-making and to meet internationally agreed goals. The authors also urge the international community to provide developing countries with more financial means, to meet current challenges. “More substantial financial resources could be made available through novel financial mechanisms, such as global emissions markets or air transportation levies for sustainability purposes”, they say.

With regards to the institutional set-up for such changes to be realised, experts have suggested the creation of a Sustainable Development Council, in order to better integrate sustainability concerns across the UN system. A leading role should be given to the 20 largest economies (G20) that would render such a system more effective, they believe. Experts have also called for an upgrade of the UNEP to a fully-fledged international organization, as a means to gain greater authority and more secure funding. In order to ensure greater accountability, civil society organisations should get stronger consultative rights for representatives, it is said.


European Commission launches Consultation Process on ‘Shadow Banking’

On 19 March, the European Commission (EC) announced plans to introduce new controls for shadow banking, believed to pose threats to long-term financial stability that could threaten the regular banking system as a whole. The EC therefore launched a consultation process that is to end on 1 June.

In face of the on-going economic and financial crisis, policy makers should actively address activities that could lead to a renewed financial-bubble that may burst and like in 2008 result in a renewed crisis in the future, the EC highlighted in its consultation document. Such potential risks are posed by so called ‘shadow banking’ activities for which no clear definition exists so far. Even the EU still has to define exactly what type of financial activities will be covered by this term."We have to define the term firstly. We want to act, but first we need to understand it and to see if our list is complete," financial markets commissioner Michel Barnier said. However, most often such activities are defined as including hedge funds, private equity, credit intermediary activity by insurance companies as well as investment funds.

“Many institutions such as hedge funds act similarly to banks when, for example, they buy corporate bonds or lend to companies using the funds of investors or savers. And they face similar risks, often borrowing on a short-term basis and lending over a longer term, making them vulnerable to short-term funding risks”, said Graham Bishop, an expert in EU regulatory policy. Bishop said. “We need to make sure that those who are involved in bank-like business but are not formally considered to be a bank should operate under the same rules as a bank” Andreas Dombret, the board member in charge of financial stability at Germany's Bundesbank, believes.

The regulation of shadow banking activities has not only sparked interest at EU level but has also been under discussion in the Group of the 20 largest economies (G20). The plans have however also sparked criticism, pointing to the lack of the EC to clearly state what activities are to be considered as ‘shadow banking’. Hedge funds are already regulated at EU level, and investment funds are already regulated by other legislation, experts have highlighted. The consultation process is to be open until June 2012, with a conference on shadow banking expected to take place on 27 April.


Ahead of the Rio+20 Summit — experts call for new institutional framework for sustainability and a greater focus on human rights

Ahead of the UN Conference on Sustainable Development (Rio+20) to be held in June this year, the European Parliament (EP) released a report addressing potential reform options and recommendations regarding the institutional framework for sustainable development. UN Human Rights experts have further called for a greater focus on human rights, if sustainable development is to benefit the poor.

According to the EP report, entitled “Institutional Framework for Sustainable Development in the Context of the Upcoming Rio+20 Summit”, there are six main challenges that should be addressed during the conference. Participants should accordingly focus on integrating the three pillars of sustainable development — economic, social and environmental — in global, national and local policies and tackle the absence of sustainable development precepts in current operational principles of International Financial Institutions. The report further points to the lack of sufficient stakeholder involvement in the current governance system, the continuing poor implementation of sustainable consumption and production principles by many governments, and the incompatibility of current environmental policies with the governance regimes.

The EP therefore calls for a strengthening of the UN Environmental Program (UNEP), the creation of an umbrella organisation for sustainable development, as well as the reform and streamlining of existing structures related to sustainable development. In order to strengthen accountability, participants should agree on common sustainable development indicators, a task that will however be faced with many challenges experts have warned in recent times.

At the same time, in an open letter, UN Human Rights Experts have urged international leaders to agree on common human rights standards to be included in the sustainable development goals, to be agreed during the conference. “Human rights have guided 60-plus years of progress by providing a legal baseline for political actions. Human rights must now be the glue in Rio: they must bind countries to the commitments they make”, reads the letter.

The letter was signed by 22 UN Special Rapporteurs, Independent Experts or Chair-Rapporteurs of Working Groups, positions established by the Human Rights Council of the United Nations to “examine, monitor, advise and publicly report” on human rights problems through “activities undertaken by special procedures, including responding to individual complaints, conducting studies, providing advice on technical cooperation at the country level, and engaging in general promotional activities.”

According to the experts, an international accountability mechanism similar to the UN Human Rights Council’s Universal Periodic Review should be established, subjecting each country’s human rights record to a State-led peer review on the basis of information submitted by the country concerned, UN entities, civil society and other stakeholders.

Read the letter here: OHCHR

Read the report here: European Parliament - DG for Internal Policies (pdf)


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