Legal base	—
Document originated	5 May 2009
Deposited in Parliament	12 May 2009
Department	International Development
Basis of consideration	EM of 3 June 2009
Previous Committee Report	None; but see (23829) 12301/02: HC 63-vii (2002-03), chapter 10 (15 January 2003) and (28544) 8390/07: HC16-viii (2007-08) chapter 14 (16 January 2008)
To be discussed in Council	To be determined
Committee's assessment	Politically important
Committee's decision	Cleared

Background

9.1 In 2002, at the request of the then Presidency of the European Union, the Commission produce Communication 12301/02, which set out three specific areas in which the Commission intended to take action, with the objective of the EU fulfilling its commitments in support of the efforts of developing countries to benefit from trade and investment. Three major conferences had taken place over the preceding year at which there had been increasing recognition of the importance of the relationship between development, trade and the integration of the developing countries into the world economy; effort was now needed to transform into action the commitments made at these conferences:

—  a new and more direct approach to trade, centred on development and supported by capacity building, was launched in November 2001 with the Doha Development Agenda; a footnote in the Communication described the two Ministerial Declarations and a Ministerial Decision associated with this programme;

—  world leaders at the UN Conference in Monterrey in March 2002 had stressed the importance for development of support to remove supply side constraints to trade; and

—  the Johannesburg World Summit on Sustainable Development later in 2002 emphasised the need for further efforts in support of sustainable trade, beyond those made in Doha and Monterrey, stressing the need for mutually supportive trade, development and environment policies.

9.2 Some of the difficulties encountered by the least developed countries (LDCs) were spelt out, including the challenge they faced in implementing World Trade Organisation (WTO) agreements. The Commission spelt out at some length what the EU was already doing to try to assist the LDCs and placed importance on providing further assistance in this area in its proposals for action, which revolved around Intensifying the dialogue with partner countries, Enhancing the effectiveness of the EU's support and Contributing to international effectiveness.

9.3 The then Committee cleared this Communication with a Report to the House on 6 November 2002, and then reported further information from the then Secretary of State for International Development (Clare Short) on 15 January 2003.[25]

9.4 More recently, the Committee considered Commission Communication 8390/07 on Aid for Trade, i.e., "funding or advice provided to support the trade capacity building efforts of developing countries". The objective of TRA, or Aid for Trade, is to support all developing countries, in particular the LDCs, in their efforts to reform and to adjust to the world trading system. Aid for Trade recognises that, for countries to benefit from trade liberalisation, they need to improve their capacity to trade. Aid for Trade includes support for capacity to plan and implement trade-related polices and build up competitive capacity in productive sectors, enhance the investment and business climate and develop markets. Projects can target assistance with the World Trade Organisation (WTO) negotiations, customs reforms, transport, communications, and energy infrastructure improvements, product safety schemes, clearer rules and support to private companies in export markets.

9.5 The WTO General Council adopted Aid for Trade recommendations in October 2006. The Communication, which we considered (and cleared) on 25 April 2007 and upon which we finally reported on 16 January 2008, is the Commission's contribution to further expanding EU support for Aid for Trade, with a view to adoption of a joint Commission and Member State strategy by the Council in the second half of 2007, as agreed by the Council in October 2006. The EU Aid for Trade strategy aims to set out a road map for implementing them and fulfilling specific Commission and Member State commitments, made in 2005, that they would strive to increase their "trade related assistance" to €2 billion (£1.36 billion) per annum by 2010 — €1 billion (£0.68 billion) annually from the Commission, and €1 billion annually from the Member States.[26]

The Commission Communication

9.6 Against this wider background, this Communication provides an up-date on developments arising since the 1999 Commission Communication on fair trade and suggests preliminary considerations on the role of public authorities and stakeholders in the field of Fair Trade and other private sustainability assurance schemes.

9.7 The Commission says that the term "Fair Trade" is used "in conformity with standards established by the international standard setting and conformity assessment organisations, that are members of the ISEAL,[27] and as applied by the Fair Trade organisations", and that the term "other private sustainability assurance schemes" is used "to describe other labelling schemes that aim to inform consumers about the sustainability of the production of the product."

9.8 The 1999 Communication pointed out three key issues; (i) the development of Fair Trade and "ethical trade" need to be dealt with in a coherent manner; (ii) Fair Trade should contribute to sustainable development through voluntary participation, and EC involvement should take WTO obligations into account; and (iii) schemes must satisfy the needs of producers from developing countries and allow consumers to make properly informed choices. The Commission notes that these issues have been addressed in different instances — in particular, at European level, the 2006 report of the European Parliament (the "Schmidt Report") and the 2005 exploratory opinion of the European Economic and Social Committee. The European Parliament report pointed out "the need for raising awareness among consumers, and the risk of abuse by companies that enter the Fair Trade market without complying with certification criteria", and "additionally… recognises that Fair Trade is an essentially voluntary, private sector phenomenon, and that too heavy regulatory embrace could prove damaging rather than beneficial."; while the key findings of the EESC opinion were "to identify the need for authoritative quality assessment of consumer assurance schemes and to fix central definitions."

9.9 The Commission further notes that in June 2006 the European Council adopted its renewed sustainable development strategy and included fair trade in the call to Member States to promote sustainable products,[28] and that "issues of relevance to sustainability labelling" have also been referred to in many EC policy documents; the Communication on Agricultural Commodity chains, poverty and dependence; the EU Policy for Africa; the Action Plan on Cotton; the Aid for Trade Strategy adopted by the council in October 2007 and the Commission's October 2008 Green Paper on agriculture product quality.

9.10 The Commission says that the most striking developments since 1999 have taken place in national markets where certified Fair Trade products were already present. Answering the 1999 Communication's call for a single label and the need for independent verification and control, the "Fairtrade Certification Mark" has been successfully implemented. Consumer recognition of the Fair Trade mark in the UK was above 70% in 2008 (compared to 12% in 2000) and in France 74% in 2005 (compared to 9% in 2000). Worldwide sales of certified Fair Trade goods exceeded €2.3 billion by the end of 2007, and EU consumers each year purchase Fair Trade certified products for approximately €1.5 billion, which is 70 times more than in 1999: but were "still an order of magnitude behind organic food sales and still less than 1% of total trade".

9.11 The Commission divides labelling markets between:

—  Fair Trade proper;

—  other "niche" certified products not participating formally in Fair Trade but targeting consumers aware of sustainability issues (Rainforest Alliance, Utz Certified);

—  products covered by baseline standards that aspire to be "industry-wide" (e.g. Code for the Coffee Community (4C's); Ethical Tea Partnership); and

—  the rest ("no name" commodity supplies).

The Commission explains that a single producer may sell into all four of these categories, and says that "it can be tricky for the consumer to assess the significance of various sustainability schemes" and that "it is against this complex and evolving backdrop that political and institutional developments should be assessed."

9.12 Turning to Sustainability Criteria Applied, the Commission further explains that private trade-related private sustainability schemes use a set of criteria to assess and/or guarantee the sustainability of the products; which criteria "often build on one or more of the three pillars of sustainable development; economic, environmental and social development, sometimes linking into international standards and agreements." Some schemes "focus on a particular issue and objective (e.g. carbon footprint for climate change mitigation) whereas others rely on criteria in a wider sustainable development context." [29] "Fair Trade" is in the first category; significant levels of consumer recognition in those markets where it is operating "goes with a good measure of understanding of the issues that Fair Trade promotes", the criteria and standards applied by Fair Trade being "among the most comprehensive and ambitious in terms of addressing a broad set of issues and conditions that impact the producers in developing countries, including in particular a minimum price for the producer and a premium paid to the community of the producer.[30]

9.13 With regard to this latter consideration, the Commission notes that, in its 2007 Report on Fair Trade, the International Development Committee suggested a label to indicate the percentage of the price received by the producer.[31]

9.14 The Commission then examines Policy Considerations, under four headings, and elaborates several principles for maximising the impact of private trade-related private sustainability schemes:

—  Contributing to Sustainable Development:

• Maintaining the non-governmental nature of private schemes throughout the EU.
• Exploring the scope for possible synergies between schemes and enhancing clarity for the consumer and producers.
• Achieving a common understanding of reasonable basic process requirements.
• Establishing objective facts on the relative impacts of different private trade-related sustainability assurance schemes.

—  Private trade-related private sustainability schemes and the WTO:

• Ensuring transparent and non-discriminatory functioning of labelling schemes.

—  Public Procurement:

• Secure that appropriate guidelines are available on how to implement sustainable public procurement

—  EU Support:

• Identifying target areas under existing budget provisions such as studies clarifying the impacts of different schemes, supporting market transparency efforts and cost-benefit analyses of support given.

9.15 By way of supporting argumentation, the Commission notes that:

—   public authorities spend 16% of EU GDP, and recalls the adoption of Commission Communication COM(08) 400 of 16 July 2008 on "Public procurement for a better environment";

—  the Commission has provided financial support for Fair Trade and other sustainable trade related activities essentially via its development cooperation instruments (budget chapter 19), through co-financing actions with NGO's, with € 19.466 million allocated for various NGO implemented and co-financed actions between 2007 and 2008, the majority of which were in the field of awareness raising within the EU;

—  for the budget years 2008 and 2009, additional credits of €1 million each year have been included specifically for actions related to Fair Trade in the credits for trade budget (chapter 20), which will be used to top up the financing under the development instruments.[32]

9.16 The Commission concludes by saying that, given the potential contribution of Fair Trade and other trade-related sustainability assurance schemes to sustainable development, it "intends to stay engaged and further support such schemes", and that "where appropriate, this Communication may be followed by additional initiatives in one or more policy fields."

The Government's view

9.17 In his Explanatory Memorandum of 3 June 2009, the Minister of State at the Department for International Development (Mr Gareth Thomas) says that the Government agrees with the Commission's conclusions. In particular:

"We agree that there is no regulatory role for governments in the EU on Fair Trade and that consumers should have access to reliable information to enable informed choices. Further impact assessment, as well as dialogue between different labelling schemes to promote possible synergies, will provide greater clarity for the consumer. DFID is funding new impact assessments to add to previous studies. Our focus includes repeated surveys of affected producers and workers, looking at a variety of schemes in low income countries.

"We agree that clear guidance on Fair Trade in public procurement is essential to ensure maximum availability of Fair Trade products. DFID has worked with the Office of Government Commerce (OGC) on guidance for Fair Trade in Public Procurement (published in 2008) in line with EU procurement rules, and will continue to consider new EU guidance in this area with the OGC.[33]

"We further concur with the conclusion that funding for Fair Trade and other sustainable trade activities should continue. DFID is providing financial support to Fairtrade labelling through the global apex body, the Fairtrade Labelling Organisations (FLO)"

9.18 Finally, the Minister says that

—  there are no additional costs to the UK, as issues raised in this Communication are of a policy nature and UK support to Fair Trade is already considered within DFID's overall support programme for this area;

—  no date has been set for this Communication to go to a Council

Conclusion

9.19 Although no questions arise, and notwithstanding the Communication's uncertain fate, we are reporting it to the House because of the interest in the issue that it covers.

9.20 Given its earlier report on the subject, we are also forwarding this chapter of our Report to the International Development Committee.

26   See headnote: (23829) 12301/02: HC 63-vii (2002-03), chapter 10 (15 January 2003) Back

27   International Social And Environment Accreditations and Labelling. Back

28   See http://register.consilium.europa.eu/pdf/en/06/st10/st10117.en06.pdf for further information. Back

29   Annex III of the Communication elaborates on the additional private sustainability schemes referred to in the main body of the Communication.  Back

30   A table from the Communication on the Fair Trade Criteria is at Annex 1 of this chapter of our Report. Back

31   Published as HC 356-I; available at http://www.publications.parliament.uk/pa/cm200607/cmselect/cmintdev/356/35602.htm.  Back

32   Annex V of the Communication gives examples of current financing. Back

33   The guidelines are available at http://www.ogc.gov.uk/documents/Guidance_on_Fair_and_Ethical_Trading.pdf. Back