Examination of witness (Questions 80 -
99)
WEDNESDAY 9 FEBRUARY 2000
MR MARTIN
WOLF
Mr Marsden
80. You obviously enjoy belittling the efforts
of the European Union to try and drive up animal welfare standards.
You do not seem to agree with the sentiments that we should be
helping to drive up standards across the world and, similarly,
with the environmental standards again we should be helping to
push them on. You appreciate that the WTO is just about freer
trade. Do you not think we have got a moral obligation to try
and get these things on the agenda and the WTO is clearly one
way of doing that?
(Mr Wolf) I did not think I was belittling anything.
I do apologise if I gave that impression. I thought I said that
some of these concerns were genuinely morally driven and some
of them were not and it is sometimes difficult to separate the
two. The question, I suppose, can be rephrased in a different
way which is what are the proper limits within the world we have
at the moment of national sovereignty? That really is a very difficult
question. This is the big debate in this country. We have in the
European Union certain standards, or some of us do, and of course
we take it for granted that they are universal norms; they must
be because we hold them, but not everybody shares that view. They
do not share that view for a number of reasons. One of them is
that they consider them genuinely too expensive and they consider
them luxuries, things you can afford when you are very wealthy.
We are, as I constantly remind people, immeasurably wealthier
than most of the other players in this game. They would probably
point out that the food standards we have for pigs are higher
than the standards in which 70 per cent of their people live so
they would not consider them very sensible. I will give you an
example which I know a lot about. I am not an expert in animal
welfare, and I would not claim to be, but I have been a development
economist for some time. All the labour standards you want are
on the books in India. All sorts of other rules are on the books
in India but they are unenforceable because India does not have
the administrative machine to make them work and because, in addition,
a considerable part of it is not entirely honest. The question
in such a world is how do we legitimately go about imposing, I
think we have to use that word, our standards? I think the answer
to that I would give is we can do so if, one, we genuinely give
in return something that is important to these people. If the
EU were to come along and say, "Okay, we do care about those
standards, but we are going to have free trade in agriculture
provided you meet our standards and you will have complete freedom
of access for clothing and textiles providing you meet our standards",
that would be quite an impressive offer, and I think people would
take that seriously, but that is clearly not what has happened.
Then we also have to say, "We also recognise that a lot of
these standards which we want really do not make sense as universal
norms given the vastly different situations, but we do want to
work with you on a development programme which makes possible
the achievement of such standards", and that would not only
involve, in my view, liberal trade but a substantially more generous
approach to international assistance more broadly. I think in
such a context on aid and trade then the EU would have a moral
right to raise some of these concerns, but even then I believe
we live in a world of many sovereignties and we do have to get
the agreement of other states and we cannot simply impose diktats.
Mr Borrow
81. To move back to the EU and a very quick
question because I think you have touched on a number of the issues.
How effective do you think the EU is as an organisation within
the WTO in terms of its negotiations given that it is probably—
(Mr Wolf) The EU is remarkably effective given its
structure, given that it is an entity. I would say that the area
of trade is incomparably the greatest global success of the EU.
It has negotiated as an entity since its creation. It has done
so despite the multiplicity of states. The Commission, even when
it has not been the monopoly, I am sure know you know the history
of that, has always been the negotiator and on the whole the EU
has a long record of putting in place very very very effective
trade negotiators. I would regard the EU as an extremely effective
player. It is one of the two main players with the US. The structure
of the modern trading system has been made by the EU.
82. To what extent is that position weakened
by the EU position on agricultural protection?
(Mr Wolf) It is the major area in which the EU finds
itself naturally portrayed as an immensely powerful pillar of
protectionism and that does create a lot of enemies. It has some
powerful allies, Japan first and foremost, and a number of other
countries, advanced and developing countries like Korea.
83. Irrespective of whether we get a further
Millennium Round or not, there are going to be further discussions
about agriculture following the Uruguay Round. What advantages
and disadvantages do you think that will bring to the EU and the
United Kingdom in terms of agriculture?
(Mr Wolf) My view is this: if you look back to the
last set of negotiations the EU used the Uruguay Round in the
end quite effectively as part of a reform strategy which was principally
directed at dealing with internal problems. The MacSharry Reforms
were principally directed at dealing with internal problems but
the important thing at that stage in the early 1990s was that
for the first the EU came to realise that the price regime was
unsustainable. That led to reforms which included some reduction
of prices and in that context the international negotiations could
be presented to the EU public as one of the reasons for proceeding
with the liberalisation process. If seems to me that we have the
same opportunity if we perceive it. That is to say in the context
of enlargement and in the context of the development of the EU
as a whole it should be seen, it seems to me, by sensible people—obviously
I would get rid of the whole thing—that at least further
liberalisation and reform of the CAP is needed including price
reductions and reductions in the budgetary expenditure on the
system. I think it is completely incredible that we continue to
spend so high a proportion of the EU budget on a sector which
is so economically insignificant, if I may say so. It also creates
a problem for enlargement and far from having stabilised farm
incomes, we know the disaster it has inflicted on farming. So
if we look at this as an opportunity to add international pressure
to the already quite strong domestic reasons for reform, by domestic
I mean EU domestic, then the round can be quite productively used
as it was in the early 1990s. Whether the EU leaders have seen
it that way is at present not at all clear to me but that is the
way to proceed. I do not believe the EU will liberalise merely
because the world asks for it but it may use that as an excuse
to liberalise which it wants to do for domestic reasons. I am
not talking about going to free trade; clearly that will not happen.
If that were to happen I think that would be in the long-term
benefit of farmers everywhere. I think in a situation where farmers'
incomes are largely determined by political decisions rather than
largely determined by the market although it proved immensely
attractive up to the end of the 1980s it has in the current regime
become destabilising and unproductive for the farming communities
and they ought to want to be freed of it. That is the context
it seems to me in which we should view this thing.
84. You portrayed in a very positive light the
EU as a collection of states in terms of its negotiating position
within the WTO. Have you any comments on the European Commission
as an institution rather than the EU as a collection of the states
and the extent to which it does a good job.
(Mr Wolf) Within the WTO system it is extremely effective.
Unlike the US its officials tend to be very long time servants
of the trading system. Many of them have worked in the trading
system much of their professional lives so their expertise is
extra-ordinary, vastly greater than their American equivalents.
The Commissioners have on the whole been pretty able people. I
think they do the best of what is often a fairly difficult job.
If I had a criticism, a fundamental criticism, which I am not
clear I would address to the Commission or to the states, it is
that unfortunately in some areas (of which agriculture is the
most important by far) their fundamental strategic objective,
in my view, has been so perverse. That is not because it is ineffective;
it is very effective, they preserve the system incredibly well.
I regard the Common Agricultural Policy as far from a very intelligent
policy system. I have written this several times. Given that,
they have developed, preserved, protected, nurtured and operated
it within the global system remarkably well and they continue
to be the most professional body of negotiators dealing within
the system.
Mr Mitchell
85. More effective for their purposes than ours,
British as opposed—
(Mr Wolf) Are you assuming that the United Kingdom
is not part of the EU and therefore they are them.
86. No, I am assuming there are divergent interests.
(Mr Wolf) The Common Agricultural Policy was not designed
with our interests in mind and it does not, on the whole, serve
the national interest well, though it clearly for a while, for
about 20 years, served the interests of important segments of
our farming community extra-ordinarily well. The great pity of
the system was that it was never designed and of course never
did serve the interests of the sorts of farmers that any intelligent
person might want to support. It made very big farmers very very
rich. That seems to me a deeply perverse system.
Mr Drew
87. "Hear, hear", a lot of us would
say to that. Can I look at the relationship between the EU and
the other power blocs, the United States of America and its allies,
and also the Cairns group. What should the EU expect of those
two groupings if they expect liberalisation of the EU.
(Mr Wolf) It is a very interesting question where
the US is going to come out. The US talks with forked tongue on
agriculture, as I am sure you know. It runs some of the most protectionist
agricultural systems in important sectors, sugar, dairy, you probably
know more about that than I do, and yet in other areas where it
has a strong comparative advantage, cereals, and meat, it follows
a strongly liberal position. At the moment since the farming community
is presently very potent in the United States and the strong dollar
is not helpful to them, there is clearly a lot of pressure within
Congress to raise support for American farmers. In that context
the United States will not be in a particularly good position
to push the EU into a liberalising direction. I do not know where
the US is going to come out on this. It is a bit unpredictable.
At the beginning of the Uruguay Round the US started off with
an absolute liberalisation goal. It became obvious pretty early
that not only could they never get the EU to agree to this, they
could never get their own farm lobby to agree to this. The US
is a bit of an uncertain player. The major players in the Cairns
group will continue to push for liberalisation in the areas that
concern them but the honest truth is they are not particularly
potent countries. If the EU decides to ignore them, they can be
ignored. So the US role is the decisive one and I suspect in the
end to come, to the bottom line, the US would be content with
a negotiation that essentially eliminated export subsidies. That
is the thing that historically the US has most wanted to achieve
because they believe they can do better in a non-export subsidy
world than the EU and they resent the EU dumping on what they
see as their markets. That would amount to a fairly minimal reform.
That is because the politics of farm protection and farm assistance
in the US are different in nature because the farming community
is different in its composition of course from the EU's, but they
are just as fierce.
88. Can I just ask one further question. I hear
what you say on that. The retort could be that they are much better
at protectionist measures than even the EU in some respects but
they do it at a different level.
(Mr Wolf) It depends on how you measure it. There
are many different ways of measuring protection and you probably
do not want to discuss that now. In some ways, yes; in others,
clearly no.
89. My second question is where does the developing
world fit with regard to this policy?
(Mr Wolf) It is very important to understand that
in agriculture there is no such thing as close to a single developing
country interest. There are a number of very different interests
of the developing world depending on the nature of their comparative
advantage, if they have any in agriculture at all, many have no
comparative advantages in agriculture, and whether they are significant
net importers, ie, they go beyond not merely self-sufficient but
are very large net importers. The big net importers have on the
whole done quite well out of the present system. They would tend
to suffer from a change because it would tend to raise world prices.
A system in which dumping is common tends to create exceptionally
low world prices. The principal question for the net exporters
is whether their net export is a temperate product. If it is,
it competes with the main protected products and clearly the worst
hit southern coast of Latin American is the most important example
there, Argentina and so forth. There are a fair number of developing
countries to which agriculture is very important but if you look
at the whole range of them, and particularly the ones with the
largest populations, I think you would have to say agriculture
is not central to their concerns. Most of the biggest developing
countries are close to self-sufficient in most products or small
net importers, and they would not gain vastly from the liberalisation
process.
Mr Marsden
90. Can I just clarify something. Do you agree
that it is inherent in industrial production, agriculture, food
production, that all the way along that process there is an impact
on social, environmental and animal welfare standards. If we set
our own standards, which we do, which are higher than developing
countries, we then start to have a price disadvantage. You accept
that and therefore you accept that we are at a disadvantage and
farmers for instance will go out of business because of that?
(Mr Wolf) I have been thinking about this question.
I genuinely do not know enough about this so in a way I am throwing
it back. Here we must be talking about livestock, we are not talking
about cereals and I had always assumed that the main impact on
liberalisation of imports would be on cereals, sugar, items of
this kind. I am thinking about livestock, and the main livestock
exporters of the world are, or were historically at least, on
the beef side—beef, lamb and so forth—and they supplied
grass-fed free-range livestock, as it were. My assumption had
always been that the intensive feed lot system that the EU developed
under the Agricultural Policy was an enormous reduction in animal
welfare compared with taking beef from the pampas or from the
United States, the US also uses some intensive feeding at the
end of the process. I could not really see the sense, in the case
of livestock or in the case of lambs. New Zealand as opposed to
Welsh lamb, is there really an animal welfare issue here. What
are the livestock that it is going to come from developing countries
in general. Actually when I thought about it I could not think
of any, perhaps pigs?
Mr Mitchell
91. Chickens?
(Mr Wolf) Chickens from?
92. Chickens from Thailand.
(Mr Wolf) Would the chickens be vastly worse treated
than our battery chickens? Well, if that is so, then maybe chickens
are an issue. It is a genuine question, I do not know enough about
it, but when I thought about it it was not clear to me that in
the question of import of livestock—completely different
issues arise in the fur trade which I can understand—I just
was not convinced that there was some enormous animal welfare
issue at all because most of the countries from which we were
going to import were rather similar to us and would probably have
or tended to have very similar standards to our's like New Zealand,
America or even Argentina. Maybe I am wrong, maybe there are developing
countries which are going to flood us with some livestock in which
case the issue does arise.
Mr Marsden
93. Can I put the same question I put to Professor
Swinbank, do you think there is a necessity for organisational
changes in the WTO to make it run more smoothly where you are
trying to do it on a consensus basis between 130 countries and
so on? Do you think, for whatever reason, whether it is in the
interests of freer trade or actually trying to get agreement on
all these social factors and so on, that organisation needs to
be reshaped?
(Mr Wolf) I really think that is a red herring actually.
If I may I will try and explain why because I think it is a very
important issue. The first point, which is obvious, is that considering
this is a body which has, if you like, rule making rules which
are enforced on everyone in the world, including the most powerful
countries, of which there is no other example, it is staggeringly
successful, unbelievable actually.
94. Only by the rules by which it plays, if
it does not have the rules it does not work.
(Mr Wolf) Let me finish. The question arises what
sort of reform would you like? The reforms would apply I suggest
in the following four areas. The process of deciding the fundamental
rules, the process of negotiating liberalisation, the dispute
settlement procedure which follows to enforce the first three
and the administration of the institution itself, those are the
four areas. Okay? First, fundamental rules and principles, the
basic rules. I have to go with Alan. To put it very crudely, an
institution which could impose rules at the fiat of a subset of
countries would be imperialist, period. A friend of mine said
"Well one of the things people said is it should be more
democratic". Okay, I am prepared to live with the principle
of one person one vote if you are prepared to accept India and
China with two and a half billion votes. I do not see how we could
have an international body which could impose rules on countries
which are sovereign, which those countries absolutely and utterly
reject. In practice it goes quite close to that, by the way, because
in practice the US and EU have such clout within the world in
the system that if they do decide on a set of rules others do
have to concur. I think in practice to a large degree that was
what happened in the Uruguay Round. One of the problems we now
have in the system is that some of the things they impose the
developing countries really loath and rightly so. Intellectual
property, I was always against intellectual property in the system,
that is a good example. You could argue that to some extent it
is not really an issue but should be a bigger one. At the very
least, on the fundamental rules, there is a question of whether
you can bind the states to things they do not accept; I think
one of the results of decolonisation is we cannot. The second
question is liberalisation. Well, actually, in the case of liberalisation
there is no constraint. Very few liberalisation agreements have
ever included everybody, most of them have included a relatively
small set. The only constraint on states who wish to liberalise
either unilaterally or multilaterally or plural-laterally with
one other, leaving aside Article 24, customs unions in free trade
areas, is the NFM principle that they must extend the benefits
of that liberalisation to everybody. As far as liberalisation
is concerned, the only obstacles are to the agreement among major
players. I would like at this point to make the point that what
really broke down Seattle and the real obstacle to any agreement
ever in the system at any stage has always been between the US
and the EU. It is nothing to do with the 133 other players, that
is camouflage. It is the fact the US and the EU fundamentally
disagreed as they did in 1990 and as they did in 1982, and I can
go back through history. That is the second point, the process
of liberalisation. The third one is the dispute settlement. The
dispute settlement process could be improved, unfortunately the
suggestions for improvement go, as I suggested earlier, in opposite
directions. I am sorry this is a little complicated answer but
it is very important. One suggestion is it should all be more
open, more judicial and that outside institutions, NGOs, whatever,
should be entitled to proper legal representation in an amicus
curiae way. I think there are about 1,500 NGOs at least who
are interested in trade, actually there are more, and certainly
100 or so with the capacity to intervene. There are many states
which have interest beyond. Clearly you could end up with an unbelievably
ponderous system if you threw it open. In addition there is the
problem that if you make it more judicial, even more judicial
than it is, the fundamental rules and principles of the institution
and the liberalisation agreements are to some significant extent
ambiguous because that is all they can agree on and because they
are ambiguous if you make it even more judicial you will force
people to create law even more than they already have, which I
think is very, very problematic. Transparency, yes, but fundamental
changes to disputes in the settlement procedure, which will make
it more effective at least is difficult and making it more effective
and more open will be very difficult. Finally, on the administration
of the system, yes, I think improvements could be made there.
Contrary to your earlier suggestion to Professor Swinbank I should
note that the WTO has an unbelievably tiny secretariat. The budget
of the WTO is smaller than the US contribution to the ILO, famous
statistic. The biggest problem they have in running the system
is that it is far too small and they need a bigger secretariat,
which has hardly grown. It would make sense to create an executive
committee to run the institution in which the principal players
were somewhat better represented. I think that actually is a second
order or third order issue. What I am coming to, the conclusion
to the extent it is difficult, it is difficult for reasons which
are inherent in the world we live in. The difficulties are in
any case hugely exaggerated and they are largely a camouflage
for failure of the US/EU to agree or the failure of interests
within our country to get their way. Neither of these seem to
me to be compelling reasons for total overhaul.
95. Just a last one because I know the Chairman
wants to finish this. You are basically then saying that we have
a wonderful, successful World Trade Organisation that is not delivering
any environmental benefits, is not delivering any animal welfare
increase in standards, has very little benefit to the consumer,
we have gone through the debacle of Seattle—
(Mr Wolf) You are joking.
96. It is my turn. There is clearly a fundamental
up-rising of consciousness of people and we will not stand for
this. We want to have an input into this, we want greater transparency,
we want more accountability, we want developed nations to have
an input into all this, and you are saying that is a terrific
success?
(Mr Wolf) May I answer that? Was that a speech? Clearly
it has generated staggering benefits to consumers everywhere.
Mr Mitchell
97. The answer can be briefer than the question.
(Mr Wolf) The environment in every country which has
experienced higher growth because of the system, and I have worked
on lots of them, has immeasurably improved. Go to Japan now and
compare it with 25 years ago. That is nonsense. Ditto, animal
welfare has improved everywhere where there have been significant
improvements in living standards. No, the WTO is not a world government,
I am afraid. It cannot achieve everything you want. If what you
mean by "we" is a small segment of western affluent
opinion telling everybody in the world, the Chinese, the Indians,
how they should run themselves, they do not have the right and
they will fail.
Mr Todd
98. From a completely different angle, one of
the things that you might well agree with is surely we should
invest in capacity building in the developing world so that they
can properly participate in the WTO rounds with adequate resources
because one of the difficulties, as you have set out—and
I happen to agree with you that it is a success story—is
you have set out the huge scope of the WTO and the greater degree
of participation there is but resource constraints are still there
for a developing country to properly—
(Mr Wolf) I agree completely. My own suggestion, which
is perhaps really controversial, here but the suggestion I made
ten years ago is that UNCTAD should be closed and its entire resources
should be given to developing countries for operating in and participating
within the WTO system. UNCTAD has a vastly bigger budget than
WTO so you would completely transform the situation. UNCTAD has
no serious role since the end of the Prebisch era, but you are
absolutely right, one of the biggest single problems in the system
is that developing countries are under-representative and ineffective
and many western NGOs are vastly better resourced and more influential
than two-thirds of the membership of the WTO.
Mr Mitchell
99. Thank you very much. We took the view that
we would like the kind of picture you have given us from people
eminently qualified to give that kind of overview and you have
more than satisfied our expectations.
(Mr Wolf) If not reached a complete consensus. I look
forward to your report, Mr Chairman.
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