Examination of witnesses (Questions 20
- 39)
THURSDAY 3 FEBRUARY 2000
MR DAVID
BATT, MR
JOHN ROBERTS
and MR CHARLES
BRIDGE
20. He said it meant people sit in their triangular
groups. Basically I think it is a more effective Green Room. The
decision-making process is going to be critical as to whether
there is any agreement in the long term or not. What are we pushing
for? Do we have a view?
(Mr Bridge) We are quite keen not to nail our colours
to the mast too early on this because we feel that people's views
need to be heard, in particular the developing countries who felt
badly about how Seattle was managed. I think we are talking in
terms of the objectives rather than on the specific mechanism.
It has got to be some system which makes even small developing
countries, Nepal, say, feel that it has had a genuine chance to
get its view heard. A lot of people might talk about some kind
of representation system, some kind of grouping as happens in
many UN bodies, for example. There are all sorts of problems with
that, not least that there are some smallish countries in the
WTO at the moment who, nevertheless, for historic or other reasons,
have quite an effective and strong voice. New Zealand, for example,
would probably be rather anxious about a move towards a representative
grouping approach. It is difficult to find a blueprint and we
are waiting to see what others come up with. I am sorry to be
rather unforthcoming in terms of positive suggestions.
(Mr Batt) I think it is a difficult area and we need
to hear what others say and want. The examples that come to my
mind are the Caribbean, where there is an effective regional machinery
which those countries themselves have decided that they want and
we have decided we will then work with them to build the capacity
of, which is the CARICOM machinery. Jamaica was in the room. It
is not the whole part of the answer because the Caribbean countries
did still, nonetheless, feel excluded. I think one can see that
it could be part of the jigsaw. The African group of countries
worked extremely effectively in Geneva in the run up to the Ministerial
and were producing a number of papers, but a question for them,
if they want help from us, is "Is there anything that we
can do to try to strengthen that process?", if that is the
way that they feel, so that their voice will be better heard actually
at the Ministerials and in those key smaller sessions.
Chairman
21. A lot of compromise has to go on within
those groupings to establish their own negotiating stance and
that is an essential process, it seems to me, in order to build
consensus, is it not?
(Mr Batt) Yes.
Chairman: Oona King would like to lead
us on the impact of Uruguay.
Ms King
22. You will be aware that many NGOs say that
we do not know what the impact of Uruguay has been in practice.
The Secretary of State herself has said quite clearly that she
believes certain developing countries did benefit from Uruguay.
I just wondered what attempts you have made or have been made
to map out the impact and benefits of Uruguay instead of people
saying, "Oh, it was good for Bangladesh, not so good for
anyone else" and whether that is evidence-based, which is
what NGOs would like?
(Mr Batt) With your permission, Chair, I would like
to invite Mr Roberts to deal with that because it is something
that he has looked at very closely indeed.
Chairman
23. You know what CAFOD is saying, do you, Mr
Roberts?
(Mr Roberts) Yes. There is a problem with assessing
the empirical outcome of an agreement which is not yet fully implemented.
As we said earlier, there are parts of the Uruguay Round which
were due to come into effect for developing countries only at
the beginning of this year. Some countries have been able to meet
these deadlines, other countries have not been able to meet these
deadlines and so that is the reason why we need to show flexibility
henceforth on the question of implementation. Obviously in as
much as an agreement has not been implemented its empirical effects
cannot be fully assessed. Other parts of the Uruguay Round agreement,
particularly those affecting the obligations of developed countries,
are in effect but have only very recently fully come into effect.
There was even a transitional period after the 1994 agreement
of two, three, four years, depending on the case, for developed
countries to put these agreements into effect. The economic impacts
of these agreements really cannot at this stage be ascertained.
It takes several years of data to find statistical regularity
in the evidence to be able to measure empirically the outcome.
That is why the assessment of the Uruguay Round agreements has
always been looked at on the basis of economic representations
or models of the way the world trade system works. These models
have been developed partly in OECD, partly in the World Bank,
partly in WTO itself and in academic institutions, especially
in the United States and in Australia. These models are helpful,
though they are simplified representations in reality, they cannot
tell us everything which is going to happen and they may simplify
the way in which particular countries react to changes in the
world system. So we cannot rely on them wholly, but they are the
best instrument we have for assessing the Uruguay Round.
Ms King
24. Do the models which you have been working
on concur with the findings of the House of Commons' Library,
for instance, which showed that the biggest net gainer of the
Uruguay Round was the European Union with $56.5 billion followed
by Japan and then South East Asia? The biggest difference that
was brought out by these figures is that countries in Asia and
Latin America have been able to raise their share of world trade
as a result of Uruguay, but countries in Africa and the Middle
East, especially sub-Saharan Africa, have seen their shares fall
as a result of this. What would you say accounts for the unequal
distribution?
(Mr Roberts) That is very much the picture which these
models present. I would add one qualification and that is that
in relation to their GDP, to their national incomes, the developing
countries, according go these models, in aggregate have gained
probably more than the developed countries.
25. If, on balance, it is argued that free trade
will benefit or increase developing countries' GDP, how do we
then go on to see which groups within developing countries it
will benefit? Are we just relying on a trickle down approach?
(Mr Roberts) The benefits to developing countries
depend very much on their initial positions to begin with and
what we do see in the models is that in those countries where
there is a strong manufacturing capacity they unambiguously gain
from the wider opening of the markets to manufacturing trade.
These markets are not closed now. They have been opened progressively
over the years since 1948 when the original GATT was set up. Nevertheless
there are the barriers of tariff peaks, and when tariff escalation
takes place it is an obvious disadvantage to some of these countries.
Similar studies for the new Round show that there is a very high
share of potential benefits from manufacturing sector liberalisation,
if it is carried out across the board, evenly, which will accrue
to developing countries. Something like 75 per cent is one of
the figures which these studies have revealed.
26. Finally, just on that point can I press
you, what leads you to believe that the millennium Round would
or could benefit sub-Saharan Africa?
(Mr Roberts) Sub-Saharan Africa will have to participate
in the millennium Round through its own reforms as well as through
the reforms which the rest of the world will undertake for it.
In particular, sub-Saharan Africa should be looking at the benefits
of attracting into sub-Saharan Africa high levels of foreign direct
investment to strengthen the supply side, the capacity to produce
and to trade, of countries in sub-Saharan Africa.
27. Will not the average tariffs on imports
from less developed countries be 30 per cent higher following
the implementation of the Uruguay Round? That is the figure Oxfam
have indicated.
(Mr Batt) Can I add on that, and Mr Roberts may be
able to elaborate further. The average tariffs faced by developing
countries' manufactured imports into developed countries are 3.2
per cent, some four times higher than those faced by developed
countries at 0.8 per cent. That is where the picture is left at
the end of the Uruguay Round. The Uruguay Round did not create
that. That is the picture that is left following the reductions
achieved in the Uruguay Round. The tariffs applied by developing
countries are even higher. In that sense that is even more worrying
than being at 30 per cent. I would say that is one of the reasons
why the Government has consistently argued that we need a broader
Round which would allow the opportunity to take in industrial
tariffs and to take in the question of tariff peaks and escalations
because there are further gains there to be realised. You pointed
out the uneven distribution of those gains following the Uruguay
Round looking at the models and you asked for an explanation of
why Africa had not appeared to gain so much. If I could add a
couple of points and Mr Roberts has some information on that.
Part of the story is that they did not get extra market access
because Africa and the Middle East had market access there already
through oil and Lome. Something else that is going on as a result
of the Uruguay Round, if you look at this in terms of a static
analysis, is that the net food importing countries are paying
more for their food imports due to the reduction in export subsidies
and the effect that has on world prices. On the other hand, we
are also saying that those subsidised exports from developing
countries are a bad thing because they distort the development
of the domestic agriculture sector in developing countries. The
static analysis which says simply prices are higher because of
the end of export subsidies, does not give you the full picture
and you need to go beyond it. The final point I would make, again
amplifying Mr Roberts' explanation, accepting all the questions
that there are about modelling, also putting that into the context
of the difficulty of conducting empirical exercises, is that the
further modelling that I think the European Commission has done
has shown that there are gains from further liberalisation even
for Africa despite the fact that it has got access already to
its main markets. Those come mainly from the opening up of their
own markets and the increase in trade in the region. I think a
final point is that the position of sub-Saharan Africa is obviously
a matter of great concern to us but let us not ignore the fact
that the real gains, which as the models demonstrate are produced
for Asia, are hugely important to the eradication of world poverty
because that is, after all, where the great majority of poor people
in the world actually live.
Chairman
28. One of the reasons why at the end of Uruguay
Round sub-Saharan Africa has the benefit is, first of all, because
of the capacity you have just talked about, the absence of the
capacity to benefit in manufacturing but also because agriculture
was not part of that Uruguay Round hence the need for it to be
included in this Round. Would you agree?
(Mr Batt) Agriculture was brought into the system
for the first time in the Uruguay Round so we have an agreement
on agriculture. But I agree, Chairman, in the sense that those
were only the first steps and it is certainly the Government's
position that major further steps need to be taken in agriculture
liberalisation.
29. The protectionism demonstrated by the European
Union in relation to southern Africa is a point we should bear
in mind when they negotiate their trade agreements, which is why
it is so difficult to get proper reductions in agricultural tariffs
and so on, is it not?
(Mr Batt) One of the benefits of making further progress
at the multi-lateral level through a further agreement on agriculture
is that that will help create more pressures for the kind of reforms
that we want to see in Europe's policies and we believe that will
benefit developing countries.
Chairman: We have got to question 10
and we have got a lot more to go. Mr Andrew Robathan?
Mr Robathan
30. Could I apologise to you because I shall
have to leave shortly to go to the Chamber. I want to talk about
the issue of Uruguay. Mr Roberts, you said "a comprehensive
assessment of compliance with the Uruguay Round measures is not
readily available in WTO." Do you think such an assessment
should be available?
(Mr Batt) Can I make a first stab at that. Yes, it
should be. It is a complex area but it is clearly unsatisfactory
that we do not have that comprehensive assessment. With hindsight—I
think this may be in the memorandum as well—we would say
that some of the transition periods may have been too brief, given
the capacity constraints. I think one of the lessons that we would
draw from that is that future agreements should rely really rather
less on uniform deadlines and more on a staged approach to implementation
backed up by technical assistance and reflect the capacity of
the countries concerned. We need to do much better and I think
we all recognise that we need to do much better in the future.
31. Do you have any optimism that will happen?
(Mr Batt) Yes. I cannot come before the Committee
and say that all of the problems of the world will be resolved
tomorrow, but I think the fact that there is, in the period in
which I have been dealing with these issues, much more of a recognition
of implementation issues and the difficulties that those present
to developing countries is an essential first step along the road
to dealing with it. I think the way developing countries have
surfaced these so vigorously in these debates has been a very
important part of that story.
32. We have been told that the EU and the US
have not implemented a lot of their quota reductions particularly
with regard to textiles. Christian Aid said that, in 1998, the
EU had eliminated only 14 out of 219 quotas on textile imports
from developing customs. What is the current position in the UK
and EU on the implementation of agreements made at the Uruguay
Round in areas of importance to developed countries such as textiles?
(Mr Batt) I am glad to have an opportunity to deal
with the question. It is a complex area. The agreement on textiles
and clothing which was concluded in the Uruguay Round set up a
heavily backloaded process during which the volume of imports
which were to be liberalised were set at 16 per cent in 1995,
17 per cent in 1998, 18 per cent in 2002 and the remainder in
2005. So at the moment we have only gone through the first two
stages of that process which is determined through volume of imports.
How this has worked is through numbers of product lines which
have been brought in to WTO disciplines. My understanding of this
is certainly that the EU has kept to its obligations under the
terms of the agreement. I think what I would say is that this
is actually one of those cases where the developmental impact
is really not at all clear-cut. There are winners from the process
of removing quota restrictions and those winners are countries
such as India, Pakistan and potentially China, if China becomes
a WTO member, but I think it is important for us also to recognise
in looking at this issue that there are losers or those who will
face adjustment problems, such as those in the least developed
countries, such as Bangladesh, who have not been subject to quota
restrictions under the Multi-Fibre Arrangement (MFA). Bangladesh,
in particular, has benefited from the preferential access which
it has had under the MFA and as the process of dismantling quotas
goes forward, albeit in this heavily back loaded fashion, that
will present some quite significant adjustment challenges for
Bangladesh. I think the point that I would draw out of it is that
it is important that this process, stage 3 and stage 4 of implementing
the ATC, takes place in an orderly and managed fashion. Should
we accelerate the pace in phase 3 and go for more in phase 3 and
not leave as much to phase 4? I think in practical terms we would
need to be very cautious about re-opening and being drawn into
a re-negotiation of that agreement. What I think is important
is that at stage 3 we should be picking products which produce
tangible benefits for developing countries and also enable the
least developed countries, such as Bangladesh, to start on the
process of adjustment. We have been thinking quite a lot about
what goes into stage 3 and DFID have commissioned a study from
a leading international expert on this which is available and
if the Committee would find it helpful, either on the detail or
as an example of the sort of work which is being done, then we
can certainly make a copy of that available to the Committee.
We need to be very careful about stage 3 and about how we pick
the products in stage 3. The other thing that we can do is to
accelerate the growth in the remaining quotas before they are
taken out. We will be encouraging the EU to do that as a means
of increasing market access and encouraging the adjustment in
the existing preference countries.
33. So the EU is on track according to the agreements
made at Uruguay?
(Mr Batt) According to the agreements the EU is on
track, I am assured.
(Mr Bridge) It is important to remember that we are
not the back markers in Europe in all of this. Insofar as there
is flexibility under the agreement, the EU might have done things
faster and some members of the EU find more difficulty with that
than the UK. It is worth remembering that because one of the arguments
against trying to re-open the EU position on this is that we could
not be absolutely sure in which direction we might move.
Chairman
34. Mr Bridge, I am not surprised in the least
by what you are saying. Can you just remind me when the Multi-Fibre
Agreement is supposed to come to an end?
(Mr Bridge) 2005.
Chairman: I wonder if it will.
Mr Robathan
35. If I can move on to agriculture and again
in this memorandum the pros and cons of trade liberalisation in
agriculture are put forward, but there was not a view put forward.
What is the Government's and what is the EU's position on trade
liberalisation of agriculture?
(Mr Batt) Can I make a start on this by describing
the Government's position and within that the development perspective
which would be the Committee's particular interest. We are strong
supporters of further liberalisation which shall have three components,
acting on domestic support, export subsidies and import subsidies.
We believe this process offers not only the Government but, as
I think the last World Development Report pointed out, very very
major potential gains for developing countries. But of course
developing countries are not a homogeneous group and so within
that the picture is uneven. Some of the major gains are clearly
for the exporters of temperate agriculture products, cereals and
sugar and dairy into currently restricted and potentially profitable
developed country markets and we are talking here particularly
about the Cairns Group, which is a mixed group which does involve
developing countries such as South Africa and Brazil. The other
potential gainers are developing country exporters of fruit and
vegetables for which the EU market is currently restricted on
a seasonal basis. So there are important export gains there too.
Potential losers are on the other side of the scale because it
is an uneven picture. Obviously there is the position of the net
food importing countries who would, as a result of a process of
liberalisation leading to higher world prices, pay more for their
imports. The reduction of export subsidies would lead to higher
prices, they would pay more. In that context I would note the
point about the dynamic effects on the domestic agricultural sector
in those countries because I think there really is a very very
widespread view that the dumping of subsidised exports many people
see as harmful to the development of that sector. Another dimension
in all of this is the position of those who currently enjoy preferences
and a process of liberalisation will lead to the erosion of those
preferences. That is not an argument for maintaining protection
against some developed countries in order to preserve the relative
benefit to others, but it is an argument for saying that it is
a process which needs to be managed. I am trying to present some
of the development considerations within the broader context of
government policy, strong support for further agricultural liberalisation
across those areas and we do see this as a key potential area
again for developing countries.
36. You mentioned the effect it would have on
net food importing countries on the agricultural side. What do
you think the effect would be on our agriculture? I know it is
not particularly your Department, but this is joined up government
these days.
(Mr Batt) We believe that this will be good all round
for the UK consumer and taxpayer as well as for developing countries.
Joined up departments and joined up benefits.
Mr Rowe
37. It may be to the benefit of the consumer,
but I think there is very little doubt that in a country as close
to the top of the temperate zone as we are, the damage to our
farming industry will be very considerable.
(Mr Bridge) May I comment on that briefly, just to
say I am sure there is that possibility but the Government will
of course be trying to get an agreement which does not have that
effect and one has to look not only at the effect of EU liberalisation
of the kind we would hope to see but also the effects of the agreement
on other countries' agricultural and exporting behaviour, like
the United States for example.
Chairman: Changes are involved, are they
not?
Mr Robathan
38. It is not just the farmers but the country
as a whole if farming goes down the tube. However, we had better
not follow that too far even at the behest of farmers in my constituency.
You have not mentioned what the EU's position is, Mr Batt, you
have mentioned what Britain's position is and we negotiate as
a part of the EU. Perhaps Mr Bridge would like to answer.
(Mr Bridge) The EU position was rather carefully defined
in relation to the conclusions of a meeting of the heads of government
in Berlin in 1999 which mapped out the future for the Common Agricultural
Policy and mapped out the likely path of subsidies over that period
of time. The UK agreed to the conclusions that were reached at
that meeting but, nevertheless, hoped that it would be possible
to go a little bit further under the pressure of the WTO negotiations.
The EU position therefore, to summarise, is rather less liberal
than ours, as defined by that particular set of conclusions, which
I am sure we can give you a copy of. [4]
Mr Robathan: That would be helpful.
Chairman: I would hope that perhaps the
memo you give us would include the agricultural products or items
which you have in mind to negotiate. I think that would be of
major interest because, of course, of its relationship to countries
who might be able to export to us. Piara Khabra is going to continue
with agriculture.
Mr Khabra
39. India has been arguing for many years that
developing countries should be allowed to protect and support
their agricultural sector up to the point of self sufficiency.
Does the Government agree with the proposal of a so-called "food
security box"? It is not relevant to India but it is relevant
to the question of agricultural products and the banana trade.
(Mr Batt) Mr Bridge may want to comment on the banana
issue. Can I approach the general issue if I may. Three or four
points. The first is that we would distinguish very clearly between
food security and food self-sufficiency. We would see food security
as an issue of entitlement or access to food, not self-sufficiency.
The poor need incomes with which to buy food or the means to produce
it. Our experience tells us that the open economies are more effective
at delivering the incomes necessary to tackle food insecurity,
so we make that clear and sharp distinction. Again, this is another
area where because of its importance we commissioned some further
detailed analytical work, in this case by a team of people at
IDS. That has been published recently, and without wanting to
burden the Committee I can again offer to make a copy of this
study available to you, if that would be helpful.[5]
It is a study looking particularly at the linkages between the
Uruguay Round, the agreement on agriculture and food security
issues, and in brief what it concludes is that the Agreement on
Agriculture has not constrained the ability of developing countries
to pursue food security policies. We know that there have been
suggestions along the lines that Mr Khabra mentioned and along
the lines of a food security box and obviously these are issues
we need to think about carefully. We think about that in the context
of the conclusion of that independent study on the Uruguay Round
on the future of agriculture which suggests that the various mechanisms
which exist within the agreement are sufficient to enable countries
to support their agriculture sectors. There is something one needs
to be a little bit careful of in all of this which is if you go
into the area of the food security box in the agreement, it is
something that is potentially in favour of being hijacked by some
developed countries—it would be wrong for me to mention
names—who could claim food insecurity as a reason for continuing
protection of their own sectors in a way we would want to oppose.
I will ask Mr Bridge if he would like to add anything on bananas.
(Mr Bridge) Can I be reminded exactly what the question
was on bananas because it is a pretty complex issue.
4 Conclusions of the EU General Affairs Council on
October 1999 (12092/99) and WTO Millennium Round-Conclusions of
the Agriculture Council on 27 September 1999 (11334/99). Back
5 The Institute of Development Studies (1999), The WTO Agreement
on Agriculture and Food Security. Back
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