Examination of Witnesses(Questions 40-47)
RT HON
CLARE SHORT,
MP, MR TONY
FAINT, CBE AND
MS PENNY
MCMILLIN
TUESDAY 5 NOVEMBER 2002
40. There is an interesting point, Secretary
of State, it makes in its conclusions, which is that there should
be a public sector option in the evaluation of reform options,
and rather than simply having one choice, which is privatisation,
that there should be more research into incentive structures and
why good public sector models work when they do. Is this something
DFID would agree—that there should be choice available for
developing countries and there should be research where in fact
there are good examples of where the public sector works well?
(Clare Short) I do not know who this organisation
is, I had not heard of them before I read the briefing this morning
for this meeting, but what they are claiming about the World Bank
is false. The position of DFID and the position we advocate with
the Bank, which is agreed—because of course the Bank used
to be under the pressure of different governments with different
values and it is a public sector institution and when parties
take control across the world with different values, the Bank
will be influenced by that. We are in a consolidating period now
and where we stand and where I personally stand very firmly is
to be pragmatic about this and to look at where the best interests
of good investment for poor people are. If you look at electricity
in India; it is massively subsidised, grossly inefficient, there
are constant power cuts so every business has to have its own
generator, and there is virtually free electricity for rich farmers
for irrigation, and all the public sector money that should be
going into health and education for poor people is sucked into
inefficient electricity generation. So in India we are working
with others to try and help responsible privatisation of electricity
so that some of those funds can go into health and education for
poor people and, indeed, there can be more responsible distribution
of the costs of electricity and so on. As I said earlier, we believe
that case-by-case you should look at the interests of the poor
and the best way forward for a country and use the tools, and
that is the position of the Bank too, and that is the right position.
41. If I may press you one last time. Clearly
we are talking about choices and therefore you may wish, if you
have only seen this evidence this morning, to consider what is
suggested. Other areas —
(Clare Short) No, I am sorry.
Mr Colman: —There do need to be
choices.
Chairman
42. Order, order.
(Clare Short) The organisation is making absolutely
false and untrue claims about Bank policy. I do not respect false
claims. There is a lot of campaigning that goes on in development
that seeks headlines by making false claims. I profoundly disrespect
that so when that is happening I will say it is a false claim.
On choice, it is our view that there should be choice. We do not
prefer a private model; we prefer a model that will serve the
poor and get better services. I have made that clear. Sorry, Chairman.
Chairman: I think we are all clear where
everyone stands on that issue. Let's move on to trade. Bob?
Mr Walter
43. Secretary of State, if we can look at trade
and trade-related capacity building, which is a relatively new
area for the World Bank, and perhaps look at the question of what
the appropriate role is for the World Bank in international trade
policy and in trade-related capacity building. Uri Dadush, the
World Bank's new Head of Trade has said that "unilateral
trade liberalisation is good for all countries". How confident
do you think we can be that the World Bank's trade-related capacity
building will not simply become a sort of aggressive form of trade
liberalisation, possibly at the expense of nationally owned strategies
for poverty reduction, and at the expense of reciprocity, which
is in the WTO regime?
(Clare Short) The Bank was really slow to take up
the trade question and the Integrated Framework—which is
the six big international organisations building up capacity in
countries to negotiate their trade interests in Geneva and to
take up trade rights that they have (because this is a fantastically
complex area of policy)—was slow to get going but is now
moving. We were pushing the Bank for a long time to take the WTO
round more seriously and some of the studies they have done on
the potential impact of widening trade access for developing countries
were belated, but are good and are very important. I have not
seen that quote that you have just read out. It is not our policy
and it is not the policy of many developing countries, or any
that I can think of, to just open unilaterally. In fact, since
Seattle and up to Doha the move of developing countries to stand
together—and South Africa played a very constructive role
in helping create an alliance of developing countries and demand
gains for developing countries out of the next trade round—is
an unprecedented sense of clarity about what they want for developing
countries and their capacity if they stand together to make gains.
It does flow from the formation of the World Trade Organisation
being a membership-based rules-based organisation. So I think
most developing countries are very focused on making gains out
of the next WTO round and would rarely be tempted to open their
markets unilaterally. Our own view is that if you look at the
evidence, countries that are opened do better than countries that
are closed—and you have only got to look at North Korea—but
you can open too fast. You need to phase it and organise it and
create capacity in the country to take up the opportunities or
to adjust sectors that are flourishing behind protection that
are often very inefficient. I do not think there is any pressure
on the Bank in this day and age for countries to unilaterally
open. Do you, Tony?
(Mr Faint) I do not think so. On the contrary, the
Bank has probably been rather slow, as you say, to get on to the
trade agenda in the framework of the poverty reduction strategies.
It is a fact that in poor countries tariff barriers and other
barriers to trade do tend to be rather high and much higher on
average than in developed countries. So there is an agenda for
trade liberalisation in developing countries but much more important
is the international liberalisation agenda and opening the markets
of developed countries.
(Clare Short) Developing countries have high tariff
barriers between each other. Because of colonial patterns, countries
regionally often do not trade in their own region in ways that
would be beneficial, so there is an agenda to open up regional
trade and then you have got technology and cheaper transport costs
and so on. I do not think World Bank is advocating that. No doubt
it is a brief from another helpful campaigning organisation!
44. If I can use a different briefing to ask
a supplementary on that, which is your own submission that you
made to us prior to this meeting, and quote a couple of lines
from it. On page 9 when you talk about the Development Committee
and implementing the Monterrey consensus you say: "We welcome
in particular the acknowledgement of the key role that trade can
play in development and call on developed countries to do more
to open their markets and eliminate trade-distorting subsidies."
Then if I can come on to the joint statement that you and the
Chancellor made, in your joint statement you said: "Our policies
towards developing countries need to be coherent. For example,
promoting agricultural projects will not lead to development while
we maintain high tariff barriers against agricultural products
from developing countries." Given what happened at the last
European Summit and the fact that we seem to be stuck with a subsidy-based
CAP now at least until 2016 with exactly the same structure and
exactly the same spending, with a little bit of an increase each
year for inflation, do you see that we are going to have some
difficulties in implementing that particular statement that you
made in your Communique?
(Clare Short) There will be a ministerial
meeting in Cancun in Mexico of the WTO in September of next year.
That is going to be an absolutely crucial meeting as to whether
the world is keeping to the development agenda that was agreed
at Doha. I think if it goes sour and if we fail to deliver, there
will be a bitterness in the international system and this whole
momentum of the Millennium Development Goals, Monterrey, Doha
and so on will shatter and we will be in a lot of difficulty and
a lot of gains we have made will collapse. That is fantastically
important. I agree with you that that is of enormous significance.
What happened of course at the European Summit is that Germany—who
is a net contributor and having some difficulties in its own economy
and yet Germany wants the new countries to join because they are
in their backyard in Central and Eastern Europe—did not
want ever-growing costs of CAP, so, as I understand it, has made
an agreement with the French that there should be no growth in
spending. Now there is the mid-term review and the proposals from
the Commission are to de-link subsidy from production, which must
be the way forward for Europe and then you are not dumping food
on world markets and we can keep to our commitments that were
made at Doha. The French have difficulties with that because,
of course, their farmers are very big beneficiaries from the Common
Agricultural Policy. I understand part of the argument was about
adhering to the Doha promises and that that was reaffirmed in
the course of that spat which we heard about, although no one
here was present at the meeting. I agree with you that this is
a key issue for development. It is no good just improving aid
if we cannot improve trade access. If we do not deliver on Doha
the world will go backwards. Europe is key and Europe has to be
willing to reform the Common Agricultural Policy in order for
Europe to adhere to its Doha commitments. The American Farm Bill,
which moved in the opposite direction, caused a lot of bitterness
at the Bali meeting preparing for Johannesburg but since then
they have made proposals towards the Doha round that are quite
helpful. There is all to play for here. It is enormously important
politically. The United Kingdom has got to use its influence in
any way it can. France finds it particularly difficult. At Kananaskis,
again at Johannesburg and again, as I understand it, at the European
Summit a reaffirmation of the commitment to Doha was made. We
have got to deliver that—and it will not be easy—otherwise
Europe will be the barrier to Doha and that will be so shameful.
45. We could go on discussing this for a while,
but I know that we as a Committee are going to embark on another
inquiry looking at trade shortly so we can come back and re-visit
this particular question. One final question. You mentioned the
Integrated Framework which is an important initiative, but will
the United Kingdom as a major contributor to the Framework seek
to ensure that a range of organisations—not just the World
Bank but the UN, regional organisations, the private sector, academics
and NGOs—are all engaged in trade-related capacity building
to provide the necessary intellectual competition and variety
to that?
(Clare Short) My own view is that we need effective
trade-capacity building, not necessarily "Uncle Tom Cobbley
and all" doing it. We have worked very hard on the Integrated
Framework, and it took ages to get it going, and we think it is
going much better now and we have got the UNDP as the co-ordinating
UN development agency, the World Bank, the International Trade
Centre in Geneva, UNCTAD and so on. Certainly in the work we do
and fund we use expertise and academics and so on but I do not
think we need to spend all our time getting everybody in to offer
training to developing countries. We have to make sure that we
integrate those offers and help them take forward their capacity
building. We have been working hard on that and we think progress
is being made. As I say, it is a fantastically complex area of
policy. It is both the capacity to negotiate and look at PRSP
and think where is the possible growth in trade that would help
us grow our economy. Then it is businesses in developing countries
having enough knowledge to take up trading rights that might be
out there but are difficult to take up. There is a real danger
in the international trading system, especially in Europe where
higher and higher (supposedly) food health or sanitary standards
keep escalating and changing, which makes it very difficult for
countries to export. So it is building all that sort of capacity.
I am not drawn by your suggestion that every agency that feels
it wants to get on the band wagon should be drawn in. I think
we should take people as they add to effectiveness and for no
other reason.
Hugh Bayley
46. I agree, Secretary of State, that we should
not allow the appearance of an agreement between France and Germany
on the CAP make us reduce our sights about what is achievable
in the CAP mid-term review because if what is achieved is the
status quo at the present rate of subsidy, then that is, in my
view, entirely inconsistent with the Doha commitment. And so while
I agree with you, I would like to know what the Government generally,
and your Department particularly, will be doing over the next
few months with the Bank and with the Commission to ensure that
the question of the final outcome of the Mid-term review remains
an open question. The Bank is important because it was the Bank's
Can Africa Survive report which first of all publicised
that the amount of agricultural subsidy in the quad countries
is greater than the GDP of the whole of Sub-Saharan Africa. Can
we get the World Bank Board to put a bit of backbone behind the
EU members? It is also important, I would have thought, in the
Council of Development Ministers. Huge amounts of EU aid have
gone to Eastern Europe. When the accession countries come into
the EU, they will move, in part at least, from being aid recipients
to beneficiaries from other strands of EU funding, including the
CAP. Should we not be saying in the Development Council of Ministers
that France, as one of the richest countries in Europe, with a
higher GDP per capita than our country, should no longer be a
net recipient of aid from the EU and that that needs to be taken
into account in the CAP review? What arguments about the development
needs for CAP reform are being advanced in the Agricultural Council
of Ministers?
(Clare Short) I think my understanding is that France
and United Kingdom are very similar and the United Kingdom has
just gone ahead of France on GDP.
47. That reflects the Government's economic
policies.
(Clare Short) France has got very serious problems
because of the nature of its agriculture. We must not allow the
French problem to blow Doha away but we must not all gang up on
France. We must help to find a way through to seek something sensible
and realistic for France. They have got a different scale of farming.
It would be easy for everyone to get together and have a go at
France and we might get ourselves nowhere. I did not realise that
you did not know that the Council of Development Ministers has
been abolished, so we have got a not very effective EC development
effort. Whatever it is now—
(Mr Faint)—It is the General Affairs and External
Relations Council.
(Clare Short)—which might occasionally deal
with development, which is not good news for strengthening the
development agenda in the EC. Even more shocking is the fact that
every cow in Europe gets more than two dollars a day subsidy and
2.4 billion people in the world are surviving on less than we
subsidise the cows. That brings the whole thing down to its shocking
reality. The Commission's proposal for a mid-term review de-links
subsidy from production which would enable French farmers to continue
to be helped but not encourage surplus production, and then the
agreement between France and Germany means the budget cannot grow
with the accession countries coming in. If the EU will stick with
the Commission's proposals on the mid-term review the EU can adhere
to the Doha commitments. That is where the argument lies. My Department
has been doing work on this since 1997 when senior officials in
the DTI got apoplexy at the idea of anyone in my department doing
work on trade. We now have a very strong joint working relationship
and a very strong commitment amongst United Kingdom trade experts
to the development agenda. There really has been a big shift which
is very important. They are leading players now in the international
associations, of course, forwarding the UK's interest but looking
at all our interests in more than just the international system.
The Bank has moved from not talking much about trade to, with
some prodding by us amongst others, putting forward the trade
argument very strongly and then the Bank has to judge in what
detail it gets involved in arguments with the Commission. I agree
with the points that both of you are making. This is a crunch
issue for the world and for justice for the developing world.
We have got until Cancun in September and if the EU is not willing
to change the Common Agricultural Policy the EU would throw away
Doha and that would be a terrible responsibility. So there will
be lots more politics and lots more tension about this and we
must focus on it. The United Kingdom Government—from the
Prime Minister, the Chancellor, my Department and the DTI—is
very dedicated and has the same view as this Committee, that it
is in the United Kingdom's interest and developing countries'
interest—and there is no clash of interest here—that
we must reform the Common Agricultural Policy in order to fulfil
the Doha commitments.
Chairman: Thank you very much for answering
our questions. On this last exchange, we are going to be undertaking
an inquiry into trade policy in the New Year. I suspect it will
take quite a lot of next year. I hope that we will be able to
hear as many voices from developing countries as part of that
inquiry as possible via the Internet or via whatever other means
because I think these are crucial issues. It would be a tragedy
if all the work that had been done this year on Doha and Monterrey
gets thrown away. We look forward to seeing you on 10 December
when you are very kindly going to come and answer questions on
Afghanistan as part of our current Afghanistan inquiry. We are
staying here because we have to agree our report on DFID's Departmental
Report 2002 and do a few bits that we have to do to keep the Liaison
Committee happy and the world happy. Thank you very much.
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