Examination of Witnesses (Questions 103-119)
TUESDAY 11 MARCH 2003
RT HON
PATRICIA HEWITT,
MP AND DR
ELAINE DRAGE
Chairman
Secretary of State, may I just publicly thank Dr
Drage and your officials for the help they gave us in earlier
evidence sessions which has been very much appreciated. Secretary
of State, thank you very much for coming to help us in this inquiry
Mr Colman
103. Does the UK Government believe that a development
round can be beneficial for UK interests as well as those of developing
countries? In a recent speech to MEPs you talked about the pain
of restructuring for UK producers[1].
How do you believe this development round could be of benefit
for UK interests?
(Ms Hewitt) First of all, may I underline
the fact that we do believe that if we can fulfil the promises
we made at Doha this round will above all be beneficial for developing
countries. As far as our own and other developed countries go,
we only need to look at our experience in the European Union to
see the acceleration of growth and the increase in jobs which
has come as a direct result of pulling down the barriers to trade
across the members of the European Union. We saw the real acceleration
of growth which came with the new membership, when Greece, Portugal
and Spain entered the European Union. I believe we will see the
same thing with the enlargement of the European Union about to
take place next year. I have no doubt at all that as we liberalise
markets around the world, we in the developed countries will also
benefit. We also know that in our own country, in other developed
countries as well as in developing countries there can be real
short-term pain as a result of market opening. A very good example
of that is an industry I know very well in my own city and region,
which is the textiles and clothing sector, where we have seen
tens of thousands of job losses, in part because of foreign competition;
also, I would say, because of a failure on the part of much of
our own industry to adapt, to invest, to upskill, to move into
higher value added goods. That is the nature of the challenge
to us. The way we should respond to the challenge from new countries
as markets open, as our own markets open amongst others, is not
by reverting to protectionism, it is by investing in better products,
better businesses and better jobs at home.
104. So what would you say, for instance, to
the East Anglian sugar beet farmers who are going to have to compete
with Mozambican farmers?
(Ms Hewitt) One of the things we have
to do within the European Union is reduce our subsidised production
and that includes sugar beet production. At the moment we are
improving market access on sugar for the least developed countries,
but not fully until 2009. We certainly cannot complain about a
lack of warning or lack of a transitional period there. What we
have to do—and Margaret Beckett and her colleagues at DEFRA
are doing—is to help our own farming community to diversify
and to seek new markets for their products. In the particular
case of sugar beet, there is a very obvious new market, which
is the market for renewable fuels. The more we can either use
sugar beet itself, or alternative bio-energy crops as part of
our sustainable energy strategy, the more we shall be able to
achieve both our goals for our own farmers and the goals we have,
for instance, for Mozambique sugar producers and other sugar producers
in developing countries.
Hugh Bayley
105. If you think of the closing stages of the
Uruguay round, concessions were made by the EU and other agricultural
subsidising countries under pressure from industry because industry
and services in developed countries had a lot to gain from the
Uruguay round. What interests do developed countries have, what
will we gain from the Doha round which would be important enough
to us to make us make concessions on, for instance, reducing agriculture
subsidies in European markets?
(Ms Hewitt) I see the pressure for agriculture reform
within Europe coming from a number of different directions. First
of all, it is very clear that if we can reduce tariff and non-tariff
barriers both on industrial goods and on services, which are increasingly
important to our own economy, then there will be very considerable
gains for British business and the British workforce in terms
of increasing export opportunities, as markets in countries like
India or Japan are opened up to more of our exports and more of
our investment. There will be pressure from that source to make
concessions on agriculture in order to secure the benefits of
a round. That will be helpful. Secondly, there is the European
case for Common Agricultural Policy reform, which stands in a
sense separate from the additional pressures of the WTO. Those
pressures are very simple, they arise from the fact that consumers
are paying an average of £16 or so a week,
25 a week, per family in additional food costs as
a direct result of the Common Agricultural Policy. The more the
consumers are aware of that the more we can make the case for
the mid-term review and radical reform to the CAP and that case
is reinforced by the environmental damage, the distortion of the
nature of farm production that results from the CAP and it is
reinforced again by the pressures of enlargement. When we have
the farmers of 10 new Member States all seeking benefits, supposedly
from the Common Agricultural Policy, within an overall financial
ceiling which will decline in real terms and is set to decline
in real terms right through until 2013, that amounts to a strong
pressure for reform in any case. Thirdly, there is the enormous
imperative of enabling the developing countries to move out of
poverty and that case, which is made with great force, particularly
by the NGOs and the faith groups in Britain, needs to be made
with equal force by their sister organisations in other European
countries and indeed in the United States and that would help
to build a further pressure for the radical cuts in agricultural
subsidies which are needed on both sides of the Atlantic.
Alistair Burt
106. A couple of questions about the inequality
of bargaining power which is wrapped up in the negotiations and
the differences of approach that produces. How is the reality
of hard-bargaining between countries with massively unequal resources
and starting positions compatible with the notion of a development
round? Assuming that multilateral trade negotiations will always
be about hard-bargaining, what can be done to ensure that such
processes are harnessed effectively for developmental goals and
that the different and competing interests of the countries with
great power simply do not swamp those whose other interests we
should like to see protected, but life has taught us may not be
as high up the agenda as they really should be?
(Ms Hewitt) I absolutely share the concern which underlies
that question. Although I was not at Seattle, obviously I led
the UK delegation at Doha. I was very struck by the huge change
from Seattle to Doha and the real beginnings of trust between
developing and developed countries. There were several reasons
for that. One was the fact that the developing countries themselves
had been coming together in the months running up to Doha, to
concert their negotiating agenda, if you look at the work the
African countries, including South Africa, had done together.
In the closing session of Doha, I heard one trade minister after
another from developing countries stand up and say they came along
with their list of what they wanted. Of course they did not get
everything, because you never do in a negotiation, but they certainly
had enough to go back to their country and say they were right
to sign up to this. I think that made a huge difference. The investment
in capacity building, where Clare Short and DFID led the way,
hugely helped that process and is continuing to do so. The third
point which is very important here is that although of course
there is this huge disparity between the size of my official team
and the size of Mozambique's official team, in the WTO the developing
countries are in the majority; there is no qualified majority
voting in the WTO and everybody has to agree. At Doha, for instance,
when the Philippines and Thailand were not happy, not prepared
to sign the waiver for Cotonou unless they received an assurance
of more attention paid to their particular issues, you could see
the real force that developing countries could exert on the issues
which were of most concern to them. The truth of the matter is
that if the developed countries do not listen and respond to that,
we do not get a round.
107. I should like to raise a practical issue
which comes from a question a constituent sent me, having looked
at the Committee meeting of 4 February, where Elaine was speaking.
You referred to the difficulty of poor countries in accessing
WTO papers and you cited the limited computer equipment available
to the trade ministry of Ghana—they had two computers—and
their total lack of internet access. You said, "There are
some practical things we could be doing to help countries link
up". The question was: what are those practical things and
what has been preventing them being done without delay?
(Dr Drage) What I do know is that DFID have a number
of capacity-building projects with different developing countries;
but not all countries, clearly. They are doing things like developing
the ability of officials to understand the various dossiers and
to negotiate. They have provided computers in a number of countries
as well. Clearly that is an area DFID continues to press forward
with. The need is so great that it is not going to be solved in
a couple of years, but it is a case that DFID are on to. Getting
the modern technology which enables them to access documents from
Geneva rapidly is clearly an important part of enabling them to
take a more proactive role in the negotiations.
Mr Battle
108. It may be the first time—I cannot
recall—that a Secretary of State for Trade and Industry
has given evidence at the International Development Select Committee
and I think that is very, very encouraging. For those who imagine
that development is just about aid: it is going to be massively
about trade in the future. I think your presence here acknowledges
and recognises that, so we hope we may see more of you.
(Ms Hewitt) Thank you.
109. In that wider frame, how will the government
assess whether Doha becomes a true development round? Should the
Doha round, and perhaps the WTO in general, be assessed more explicitly,
measured in terms of the contribution towards meeting the millennium
development goals which we are all set to sign up to, so that
we do not have trade in one box and development in another?
(Ms Hewitt) May I say how much I welcome the fact
that I am the first Secretary of State for Trade and Industry
to appear before your Committee. It underlines the fact that this
is not a trade-in-one-box agenda; this is a whole-of-government
agenda. Just last week, Margaret Beckett, Clare Short and I met
with senior officials from across government to make sure that
the work we are doing on agriculture reform will achieve not only
the agriculture objectives but the trade objectives so that those
in turn can meet the development objectives. It is absolutely
joined up across government. How do we judge success in terms
of the development round? First of all, we have to resolve the
issue of TRIPS and access to medicines. It matters in its own
right, although there are many other things which need to be done
to ensure that developing countries do have access to medicines,
even if TRIPS were resolved, but it also matters as a confidence
builder, to open the way to other progress. Secondly, do we achieve
radical cuts in agricultural subsidies and import quotas and tariffs
which are creating this double whammy for developing country farmers
by locking them out of our markets and simultaneously undercutting
them in their own markets? That is an absolutely key measure of
success and if we do not get progress on agricultural market access
and agricultural export subsidies, we will not get a round. That
is a crucial measure of success. Thirdly, we have to deal with
the industrial tariffs and non-tariff barriers which particularly
damage developing countries, tariff escalation for instance which
leaves so many developing countries dependent upon commodity production,
but unable to move into the value added production where European
or other developed countries have cornered the market and protected
it with tariff escalation. Those are three key tests and I would
add a fourth. The highest tariffs in the world are not those put
up by the developed countries, they are those put up by developing
countries against each other. Therefore part of the benchmark
of progress we should expect to see in a true development round
is commitment from the developing countries to reduce the barriers
to each other, so that they start to benefit from the regional
trade which, as we have seen in Europe, is such a great potential
engine for growth.
110. In the meetings you have with your colleagues
in agriculture and development, do the millennium goals themselves,
in terms of that reduction in poverty, the number of people getting
primary education, healthcare, feature in that? Is it target driven
in the way that we want to measure other things that we do?
(Ms Hewitt) What we can deliver in the WTO negotiations
depends upon the negotiations themselves. They are not solely
within our control. The millennium development goals very much
feature because one of the reasons we are so passionate about
the WTO negotiations is that if we could halve the protectionist
measures all around the world, we could generate an increase in
developing countries' income roughly triple the size of the current
aid flows. So trade is going to be even more important than aid
and aid will increasingly need to be trade-related aid if we are
indeed to achieve the millennium development goals and enable
hundreds of millions of people living in abject poverty to move
out of that poverty and get on the ladder towards a decent standard
of living.
Alistair Burt
111. We had a fascinating presentation a couple
of weeks ago from Kamal Malhotra of UNDP. He was presenting us
with the main messages from a book which had just been written
by him as lead author and a number of others, the presentation
of which has been boycotted by the WTO because they fundamentally
disagreed with its message. One of its main messages was that
empirical evidence shows that trade liberalisation is not a reliable
mechanism for generating self-sustaining growth and poverty reduction,
let alone human development. Are you comfortable that we have
not run away with the idea that trade liberalisation is the answer
to everything, so much so that we are missing a point that those
concerned with development are making, which is that speed and
appropriateness may really have to come higher up our consideration
than they have previously. Is the government going to offer a
critique or a response to this particular book produced by UNDP?
(Ms Hewitt) Since this is the first time I have heard
about the book, obviously I have not had a chance to look at it
and do not know whether we shall prepare a response. I will certainly
have a look at it. It is very important that we do look at this
kind of critique. There is a huge amount of economic analysis
and study around this and some of that is contested. That is the
way of economists. I also think that there is very substantial
evidence that trade, coupled with better standards of government,
investment in primary education, investment in primary health
care, investment in basic clean water facilities and so on, together
can give you the path to development. It is very striking to look
at the experience of many of the eastern Asian and south-eastern
Asian economies compared with countries in Africa. We all know
that 30 years ago Ghana and South Korea, for instance, were equally
poor. You now look at the position: there is South Korea richer
than Portugal and Greece. I am not suggesting that trade was the
only factor in South Korea's development, but it was a very, very
important one. All of us have observed that in many developing
countries the people working in factories which are exporting,
although their conditions may not be anywhere near good enough,
are on higher wages and working in better conditions than those
who are stuck on the rice farms and various other forms of subsistence
farming. I do believe that trade is a crucial element, but it
is not the only element of a development strategy. Secondly, the
author's point about sequencing is very important. Particularly
if one looks at liberalisation of capital markets, that is a lesson
which has now been taken on board, but which was not taken on
board in the past. The sequencing of market opening and making
sure that there are appropriate regulatory structures in place
is hugely important.
Tony Worthington
112. I would encourage you to read the book
Alistair referred to because it is very stimulating. Using your
examples of the countries which have grown and the countries which
have not, the case which is made is that the countries which have
grown have been ones which have had the ability to protect themselves
before opening the market. Certainly my experience in Africa is
that they are not ready for the market by any long stretch of
the imagination. A one-size-fits-all approach is not working.
(Ms Hewitt) I do not think it should be a one-size-fits-all
approach. That is why special and differential treatment is so
important and why it is so frustrating that, along with other
issues, we have not made adequate progress on SDT, where we got
stuck before Christmas. Certainly the European Union, with our
strong support, would have signed up to all 22 SDT measures which
were being recommended by the chair of the WTO Committee; in the
end we got agreement on four of them, which was just pathetic
in terms of the progress we needed to make. As I was saying, it
is important that countries can sequence their market opening,
but I do not think that should reduce the importance of committing
to market opening. The work South Africa is doing with its neighbours,
creating a customs union and the demand we are getting, particularly
from the African countries, for market opening here in Europe,
needs to be acted upon. The final point I would make is that I
grew up in Australia at a time when both Australia and New Zealand
were protecting their industries behind enormous tariff and quota
walls and the result was disastrous frankly for the development
of those industries, protected from competition and producing
extremely poor quality goods. It was only when those markets,
admittedly in developed countries, opened up to foreign investment
and competition that they began to develop really world class
competitive industries, particularly in the motorcar sector.
Mr Khabra
113. In a recent speech you made at the European
Parliament you made an explicit link between poverty and terrorism
and between poverty and asylum and migration. I can agree on the
second one, the link between poverty and migration, but cannot
fully agree with your analysis of the link between poverty and
terrorism. There are certain movements in the world which you
should look at, South American countries, Nepal, which are based
on a political philosophy that they would like to have a system
in society where people can share wealth and that is very much
based on poverty. Then a large number of terrorist movements which
we see in the modern world are based on religious fundamentalism.
There is no linkage whatsoever between poverty and terrorism.
To what extent does the linkage between poverty and terrorism
and poverty and migration inform the UK and EU's position in trade
policy formulation and negotiation? To what extent should it?
(Ms Hewitt) On the issue of terrorism, I was making
a more general point. Of course terrorism is an expression in
some cases of religious fundamentalism, of a particular political
position expressing itself in this utterly unacceptable and violent
fashion. I think we saw for ourselves in Northern Ireland how
the enormous sense of injustice and economic exclusion in the
minority community in Norther Ireland helped to create the recruiting
ground for terrorism. In no sense am I saying that poverty or
injustice is an excuse for terrorism. I am certainly not saying
that Osama bin Laden has any thought at all for poverty in the
world. I do not believe that is his motivation for one minute.
I also believe that extremist terrorist groups will continue to
find it much easier to recruit people to their cause where there
is injustice and poverty in the world, including of course in
some of the refugee camps. That was the argument I was making.
As far as poverty and migration goes, this is an issue for the
WTO talks in relation to mode four, the jargon under the GATS
discussions, where India, for instance—and I was recently
discussing this with colleagues in the Indian Government—is
very concerned to see market opening for professional services
in the form of people being able to enter developed country markets
for computing services and so on. They see that as a very important
part of their own path to development.
114. Would you agree with me that the fight
against poverty is at two different levels? It is not just flat.
Poverty causes all sorts of problems which you are mentioning.
So it does have to be a fight at two different levels. One is
purely political and the other is purely economic. Will you agree
that this country, in order to address the question of poverty
in poor countries should put in more investment rather than more
migration?
(Ms Hewitt) First of all, I agree with you entirely,
that we have to fight poverty on a global scale, both politically
and economically. Indeed I think it is particularly important
that we redouble our efforts to make progress before Cancun on
the WTO negotiations precisely because it is a time of such international
political and economic uncertainty. As far as migration goes,
we have over the last few years opened up a very constructive
debate about the role of economic migration and the enormous contribution
that economic migrants have made and can make to the United Kingdom
and to our prosperity as a country. As you know, David Blunkett,
the Home Secretary, has been looking at ways of opening up the
work permit system and so on. I do not believe in, and I do not
think you are arguing for, completely uncontrolled migration because
clearly we also have to think about the capacity of our social
as well as our economic structures to absorb migration. We are
clearly much better at absorbing economic migrants who have come
as economic migrants than we are at the moment at dealing with
asylum seekers. The system is under enormous strain as you and
I both know from our constituencies.
John Barrett
115. I think you are right. Some terrorists
are very wealthy and very well-funded. At the other end of that
balance is the fact that very poor people who have nothing to
lose may find they are attracted by terrorism and more extreme
measures. How do you strike a balance in the DTI in trying to
protect our own industries, when formulating policies may in fact
be destroying industries elsewhere, which could lead to poverty
abroad, which then could fan the flames of terrorism?
(Ms Hewitt) I do not believe that it is our job in
the DTI or in government to protect our industries against foreign
competition and particularly I do not believe it is our job to
be arguing for import tariffs and quotas and so on. Indeed I have
helped to lead the way in opposing America's resort to import
tariffs on our steel exports to the United States, which I strongly
believe are unlawful under the WTO and we shall have the determination
of that at the WTO next month. The way that we ensure that we
continue to have successful manufacturing companies and manufacturing
jobs and so on, is to invest in the science and the innovation
which will ensure that we go on producing high value added products
and we are using the best possible production processes and thereby
keeping ourselves competitive. In my own constituency I have textile
companies who urge me all the time to lock out clothing imports,
textile imports from developing countries. I make to them exactly
the same argument that I would make to this Committee. I believe
that is the right thing to do. We should help them adjust to more
open markets, not close our markets in what is ultimately a vain
attempt to protect them.
Hugh Bayley
116. We have received a fair amount of hostile
evidence and comment about the new issues on the agenda, both
from NGOs and from developing countries" representatives.
If I were to summarise, two comments are made: the first is that
Doha was promised as a development agenda, developing countries
want movement on agriculture and on medicines, TRIPS agreements,
and so far nothing has been delivered. Now the developed world
wants to sign a whole series of new agreements which are not particularly
in developing countries" interests, they are simply diverting
attention from what is really needed. That is the first criticism.
The second, in my view perhaps stronger criticism, is that even
though many developing countries have the capacity to examine
these agreements and to agree them, they do not have the capacity
in any shape or form to implement them. My questions are these:
what does the UK and the EU hope to gain from agreements on public
contracting and investment and the other new issues? What does
our government believe developing countries would gain if we were
to have such agreements?
(Ms Hewitt) We would not have put these issues on
the agenda if we did not believe that developing countries stood
to gain. It is important to distinguish here. In the discussions
around trade facilitation and government procurement there is
actually quite considerable willingness, we find, on the part
of developing countries, to sign up to a fairly basic set of standards
on both issues. Both issues of course are directly connected with
better governance and greater transparency and dealing with the
problem of corruption, which of course is disastrous for development
in many of the poorest countries. I do not think that there is
the opposition; there is opposition from some, but there is not
the scale of opposition on those two issues that you are in fact
suggesting. On the issue of transparency and government procurement,
there is a particular problem that the WTO government procurement
agreement which already exists is simply not suitable for developing
countries because it requires such a high level of transparency
and commitments to market access. It is not suitable, particularly
in the light of what we were just saying about special and differential
treatment. On the other two issues, as far as investment is concerned,
we are very clear that developing countries are in desperate need
of investment. I am not talking about speculative capital flows
here, I am talking about foreign direct investment, particularly
in infrastructure. At the moment developing countries are getting
2%, a tiny fraction, of the world's FDI flows. If developing countries
can opt in—and this is an opt-in not a compulsory procedure—to
a basic set of standards for the treatment of foreign investment,
that will encourage foreign investment. Of course that creates
opportunities for investors based here, but fundamentally we are
talking about opportunities to enable developing countries to
develop the infrastructure they need. As far as competition is
concerned, sometimes there are misunderstandings here. We are
certainly not proposing that every country should have an Enterprise
Act, a full-scale, fully-fledged competition regime. We are not
proposing that the WTO should be the disputes resolution mechanism
for competition disputes, but we are saying that poor consumers
in developing countries lose out because of the prevalence of
cartels in many of those developing country markets, which can
operate with particular ease because there is so little in many
cases in the way of independent competition authorities or non-corrupt
criminal investigators and courts and so on. Again it ties up
with the issue of good governance and transparency and again it
is the question of saying, "Let us see whether we can agree
a basic framework of basic rules, basic standards on competition
and dealing with cartels into which developing countries can opt
if they want to do so. It was very interesting, when I discussed
this for instance with Egypt's trade minister at Doha, an extremely
impressive minister, who was saying that three years" earlier
he had been wholly hostile to any discussion about competition
law, but the more he had looked at it and learned about it, the
more he could see the very real benefits which a suitably scaled
competition regime could offer.
117. When Dr Drage was giving evidence to us
before, in answer to a similar question she said that the EU's
goal was to get simple and transparent agreements on investment
and competition at this stage. I wonder what that phrase "at
this stage" meant. Is it that you go for a short and simple
procedure at this stage and then go at some future date for a
fuller agreement like the multilateral agreement on investment?
(Ms Hewitt) We are certainly not discussing a MAI
proposal now.
(Dr Drage) What I was implying was that in the context
of this round what we wanted was a starting level of agreement.
Whether the WTO goes on to build anything more would be dependent
upon the consensus of Member States within the WTO at whatever
future date we get to a round beyond this one. That is what I
meant by that.
118. There appears to be a trade off here between
an agenda on the new issues which the developed world wants, in
part because it thinks it is right for the developing world and
in part because it would make things easier for businesses from
developed countries. That is something we want. The developing
world wants market access on the sorts of products they produce,
textiles, food and movement on medicines specifically. Do you
think there is any chance whatsoever that the developing world
at Cancun will agree to broaden the agenda to include the new
issues if we do not deliver something tangible and substantial
on TRIPS and on agricultural subsidies as a staging point?
(Ms Hewitt) No; of course not. We have to deliver
on TRIPS. Before Christmas we were very, very close to agreeing
the compromise text on the implementation of the Doha principles
on TRIPS. The European Union and the developing countries were
in agreement on that text. The United States was not able to agree.
I shall be in Washington next week for talks on trade and I shall
continue to urge them to sign up to that compromise agreement.
It is also true on agriculture. I was saying earlier that if we
do not deliver significant market opening on agriculture and significant
cuts in export subsidies, including the food aid and the American
version of export subsidies, then we will not get a round. It
is as simple as that and that is why we are redoubling our efforts
to link these issues together and get the progress on the medium-term
review on agriculture that we need in Europe in order to be able
to make a further offer on agricultural access and export subsidies
before we get to Cancun.
Chairman
119. Is there a danger that we are all really
rather expecting too much from WTO? For example, there seem to
be quite a lot of desires to ensure a degree of environmental
protection through the WTO. Just how far can the WTO go in creating
a treaty, trading relationships on a whole matter? For those of
us who are not involved in the day to day negotiations it is quite
difficult to get a sense of the capacity, but there must come
a stage for officials and ministers of even the most developed
countries when trying to cope with this three-dimensional chess
must get a bit difficult, does it not?
(Ms Hewitt) It is a very, very fair point. This is
an enormous organisation, over 142 members and others queuing
up to join. It is one which depends on the consent of every country,
so it is inevitably hugely complicated because each country will
have issues which are absolutely vital to its own interests and
its own political ability to sell the agreement back home. Of
course it is going to put those issues on the agenda and then
they have to be traded off against everybody else's issues. We
just have to understand that and build capacity, not only within
individual governments, but to build the institution as a whole
as part of trying to strengthen international institutions which
we have to do if we are to make globalisation work in the interests
of the whole world. It is very, very tough, but on the issue of
environmental protection specifically, this is a matter of enormous
concern to European consumers. I know in many other countries
that this is regarded with great puzzlement, but it is a fact,
our consumers are hugely worried and for very obvious and good
reasons about food safety and environmental issues. We do pursue
those issues. We did not frankly make very much progress at Doha
apart from an agreement to have further discussion about the relationship
between the WTO rules and the MEAs and we shall pursue those.
That is not overloading the WTO agenda per se.
1 Speech by the Rt. Hon. Patricia Hewitt MP, Secretary
of State for Trade and Industry, given to the European Parliament
on 21 January 2003, "Trade and Development: Europe's Role
in Spreading Prosperity"
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