Examination of Witnesses (Questions 120-137)
TUESDAY 11 MARCH 2003
RT HON
PATRICIA HEWITT,
MP AND DR
ELAINE DRAGE
Tony Worthington
120. May I turn to the General Agreement on
Trade in Services. We are in the middle of a campaign at the moment
by the Trade Justice Movement and World Development Movement which
is certainly leading to a lot of postcards to me but it must be
thousands and thousands to you. It is very welcome that people
are interested in this area—they certainly were not in the
days of the General Agreement on Tariffs and Trade—but it
seems to me a very sterile situation at the moment in that statements
are being made about forced privatisation or statements are being
made about people having to open up particular sectors and so
on and those postcards go in and then the answer comes back, "No,
it's not true. No, it's not true. No, it's not true" and
there is no meeting of minds at all. This is going to go on until
at least 27-28 June when we are going to be lobbied en masse.
Have you thought about any way in which we edge forwards towards
the truth rather than one side saying this and the other side
saying that continually?
(Ms Hewitt) Perhaps this Committee could help and
it would be wonderful if you could. I absolutely share your frustration
on this and we do indeed receive thousands of postcards and letters—every
Member of Parliament does. I do find it very frustrating. We are
working very closely with the trade and trade justice NGOs in
particular. There is a broad measure of agreement between us but
on this issue of GATS we have one or two NGOs who have simply
decided that this is their cause and no amount of going through
the arguments seems to have any impact at all on what they like
to say about GATS. This is not a question of edging towards the
truth, it is totally a matter of legal fact that GATS does not
and cannot require any government, whether it is us or one of
the poorest countries in the world, to privatise public services
or indeed to open markets that a government does not want to open.
That is a matter of fact about the legal impact of GATS. The thing
I find even more puzzling is that when I talk to developing countries,
as I do all the time about these issues, they do not talk to me
about GATS. They talk to me about agriculture and TRIPS and tariff
escalation and special and differential treatment, and quite right
too, but GATS is actually seen by most developing country governments
as a model of a trade agreement precisely because it is bottom
up and it allows governments to determine the pace and the extent
of market opening for themselves. It is a frustrating dialogue
of the deaf and if your Committee, in a sense is seen as perhaps
more dispassionate on this issues, can pronounce on it then I
think that would be very helpful.
121. I am not sure we are seen as dispassionate.
There is still some flickering passion around.
(Ms Hewitt) Passionate but perhaps not parti pris
in the way that government is assumed to have some line to peddle
here.
122. Is there a bit of a difference between
ourselves, where the UK Government maintains that GATS is not
about promoting privatisation and the assertion that is made that
in the current negotiations the European Union has targeted sectors
in other countries where the state is currently the sole supplier
of the service? Does that mean there is a slight difference of
emphasis between what we seem to be saying and what the European
Union seems to be saying?
(Ms Hewitt) I do not think so. The whole GATS process
depends on governments making requests and then governments making
offers. Obviously nobody has to accept a request if they do not
want to. For instance, we will make requests. If you look at Japan
or India, we are constantly urging those governments to make it
easier for UK insurance services or legal and professional business
services to move into those markets because there is very clearly
business demand for those services and we are very good at providing
them. Of course we would expect to pursue that sort of discussion
with GATS. Where in different countries there are parts of education
or health services which are offered by a range of providers or
entirely by private providers, then of course we would expect
to be making some requests. A growing number of our universities
are in the business of educational exports and that is very much
in the interests of developing countries' students, as well as
in the interests of our own universities and other educational
establishments. That has nothing to do with forcing the privatisation
of the public state school sector.
123. What evidence does our government have
that making binding GATS commitments will bring greater benefits
to developing countries than liberalising services outside GATS
and signalling their intention to do so through traditional means
such as the World Bank? One of the things which is very, very
striking is that we tend to thing about the World Trade Organisation
as where trade agreements are made, but a huge amount is going
on bilaterally and through trading blocs and so on. What are the
benefits for the developing countries of doing this through WTO
and GATS rather than through any other means?
(Ms Hewitt) There are a couple of advantages. One
is that if this is done within the WTO framework, then there is
much greater certainty, there is greater transparency and there
is likely to be much wider coverage of the market opening. That
is really the most important point. If we take a scenario where
we do not succeed in the Doha development round and those negotiations
collapse—and we are doing everything possible to prevent
that from happening, but if that were to happen—the result
would be that the world would fall back into a system of regional
trade blocs, bilateral deals, a slow and messy process. I was
talking to Alec Irwin recently, the trade minister in South Africa,
and he is very clear about this. In order for the developing countries
to grow, they have to have access to the biggest, richest markets.
The way to get that access is through the multilateral framework
of the WTO. If they cannot get that, then they will make other
deals, they will reach agreements with China or with Brazil or
with Egypt or with India, wherever they can reach an agreement.
He said that it will be a 20-year detour to development. That
is why I would say, do not regard that patchwork of bilateral
and regional agreements as any kind of alternative to a proper
system which effectively covers the whole world, or very nearly
the whole world, a proper system of rules for free and fair trade.
Alistair Burt
124. Let us talk about water for a second, without
re-opening this whole particular issue of which you are aware,
that the World Development Movement and others take the privatisation
of water issue to be an extremely serious one. Would you accept
that there are some examples where the privatisation of the provision
of water has worked and others where it has worked less well?
If that is the case, what is the rationale for requesting that
developing countries make binding GATS commitments, which will
in practice be extremely difficult, if not impossible, to reverse,
in relation to their water supplies? Do you believe the EU will
be making binding GATS commitments in relation to water?
(Ms Hewitt) First of all, it is absolutely clear that
there are examples of water privatisation which have worked and
there are examples which have not worked. They do not have anything
to do with GATS. They have been a matter of decisions by individual
governments, or in some cases particular cities or regions, to
bring foreign direct investment via privatisation into their water
services. The advantage for governments of doing this within the
GATS framework, if they want to, is that it provides the certainty
that will encourage foreign investors to come in. Foreign investors,
for very obvious reasons, are going to be very reluctant to come
into a country to make what has to be by definition a very large
and long-term investment, if they think that a few years later
it might be reversed for political reasons. What that underlines
is the importance of getting the regulatory structure right. If
the problem of modernising water supplies in a developing country
is tackled through foreign direct investment and possibly privatisation,
competition and so on, it needs to be done in a way which ensures
that poor consumers are able to afford water supplies.
125. Article VI.4 of GATS requires countries
to develop rules aimed at restricting their domestic regulation
to measures which are not "more burdensome than necessary".
We understand that the government supports the development of
a "necessity test" and also proposed incorporating some
wording on the measure needing to be proportionate to the objective.
Who will ultimately decide how and in what forum, what is "least
burdensome", "necessary" and "proportionate"?
As a side issue, how can one try somehow to get away from the
sense that no matter what bargaining may be necessary and no matter
what rules may appear to lie in the hands of the least developed
nations, arm twisting from the most powerful can make even the
dependence on the letter of the rules count for nothing when deals
have to be done and money is needed by poorer countries and the
bargaining power is always with the rich.
(Dr Drage) On GATS VI.4 and proportionality, clearly
it would be for an individual government to decide initially on
what it thinks are the right measures to put in place. Because
the agreement is within the WTO, it is feasible that if another
government who is a member of the WTO feels that they have been
disadvantaged by that decision of government X, they could in
theory take them to the dispute settlement of the WTO. It would
need to be fairly clearly provable for them to want to risk doing
so and they would want to think about what the consequences of
any decision might be.
126. And that dispute process is a transparent
process.
(Dr Drage) That is a transparent process and therefore
gives greater protection to developing countries in that you are
in a multilateral forum, you are in a transparent process. You
have to think what the relative balance of power is between the
multilateral and the bilateral system.
(Ms Hewitt) The other point I would make on this is
that that is a government process, it is not one where a multinational
company can invoke the WTO against the government of a poor country.
That is important and quite a big difference, if I recall correctly,
with the MAI attempt some years ago. On the issue of imbalances
of power, it is a statement of fact about the current conditions
of the world. Ultimately what this comes back to is how we best
support the governments and the people of developing countries
to use trade as one of the levers to become wealthier and to get
greater power. As countries become better off, governments become
much stronger and much more confident in dealing with multinational
companies and one hopes in some cases in dealing with companies
within their own countries as well. We have seen that very clearly
with India as it has grown.
Tony Worthington
127. I understand the deadline for GATS offers
is the end of this month, but we have a situation where UNCTAD
is doing a report which DFID has part-sponsored on the effectiveness
of GATS or what we have found out about GATS so far. Do you know
when that report is likely to come out? It does seem on the surface,
if you have a UN body assessing something, you should not be moving
forward until you know what that report has been saying.
(Ms Hewitt) I do not know about that.
(Dr Drage) The thing to say is that the offer deadline
is not a deadline in the terms you might understand it. It is
an indicative date by which the countries are encouraged to put
their offers in. Everybody accepts, particularly for the developing
countries, it will take them longer; indeed some of them are still
submitting requests, which is the previous stage. We think the
DFID report is likely to be ready sometime in the summer and we
do not think that is any great problem in terms of assisting developing
countries to assess what sort of offers they want to put in.
128. I am struggling with the concept.
(Dr Drage) It is when is a deadline not a deadline?
(Ms Hewitt) This one will run and run.
Mr Battle
129. If the input is not keeping pace with the
discussions behind the scenes and it becomes a credibility gap
between what people are expecting from the process and what they
think politicians and people behind the scenes are doing, that
is where an area of communication is absolutely crucial frankly.
We need to be better at communicating and governing at the same
time.
(Ms Hewitt) Yes.
130. You mentioned SDT in passing. Would the
government support the idea of linking country classifications
and graduation to progress against the millennium development
goals? What is the government's approach to country classification
in general?
(Ms Hewitt) Let me just make a quick comment on your
preliminary point about needing to communicate as well as we govern.
I completely agree with that and it is one reason why we have
pushed very hard the case for being as transparent and open as
we possibly can in this whole negotiating process. We have probably
been in the lead within the European Union in urging openness
in requests and offers and all the rest of it. In some cases of
course developing countries themselves do not want to publish
requests and offers which they are making, but within those constraints
we put 86 pages of summary material on our website in relation
to GATS, we are constantly communicating with the NGOs, we try
to put out as much material as possible to interested Members
of Parliament and so on and we shall keep stepping up those efforts.
On the issue of how we align special and differential treatment
with the progress made in a particular country, I am not sure.
This is slightly more a matter for DFID.
(Dr Drage) It is a very long-term issue about how
you really reflect an individual country's state of development
and getting towards the millennium development goals. I know research
is going on which looks in the long term at building on the integrated
framework and PRSPs of countries and tying in therefore how they
should sequence their compliance with various aspects of the WTO
agreements. There is a real short-term problem in terms of this
round because to be fair to developing countries, we need a much
more variable geometry for country classification than the three
bands the WTO has at present. It is an issue which developing
countries understandably get very agitated about and they are
very reluctant to discuss it. That is one reason why we have not
made more progress on SDT, because they want to know what might
happen; they have various ideas in terms of country classification
and nobody likes to graduate off a beneficial system.
(Ms Hewitt) It is a bit like being an objective one
area in the United Kingdom. You do not really want to become objective
two; you have a perverse incentive.
Chairman
131. What are you hoping to achieve at Cancun?
What are your benchmarks for Cancun?
(Ms Hewitt) First of all agreement on TRIPS, preferably
before we get to Cancun, but certainly at Cancun if not before.
Progress on agriculture for all the reasons I spelled out earlier.
Progress on industrial tariffs, including tariff escalation. Real
progress on special and differential treatment, because without
that you simply will not be able to bring developing countries
along with us. I hope also agreement to launch negotiations on
the new issues.
132. It is a pretty substantial agenda.
(Ms Hewitt) It is a big agenda, but in the services
and industrial tariff discussions we are at least making some
progress. We need a breakthrough on agriculture and we need agreement
on TRIPS.
133. From the point of view of this Committee
and our work, one of the many litmus tests, this Committee having
just this morning published a report on humanitarian food aid
to southern Africa, is going to be agricultural reform. Going
back to your point about NGOs generally, one of the things we
have been trying to do and I am sure you are doing politically
as well, has been trying to engage NGOs and other countries in
the European Union, otherwise there is a danger that it all becomes
a sort of secret garden conversation just in the UK without engaging
NGOs in France, Germany and elsewhere, as to the realities of
all this and similarly with politicians. May I just ask you this,
as you are Secretary of State for Trade and Industry? We now have
a number of trade initiatives relating to Africa. We have the
Everything But Arms initiative, we have AGOA, the American initiative
and I now see that President Chirac has come up with another proposal
for Africa. Just at the margin, do you have any views on President
Chirac's proposals for this new trade initiative for sub-Saharan
Africa? What is your feel on how the Everything But Arms initiative
is working? Do you think it is doing well? Could we do more? A
lot of people we see seem to be singing the praises of AGOA, but
that may well be because it is particularly tailored to those
countries doing work with the United States. Outside of the WTO
agreement, what more do you think can be done to promote trade
with Africa in particular?
(Ms Hewitt) First of all, Everything But Arms was
a hugely important initiative. It still has to deliver its full
results because access for three agricultural products is being
phased in through to 2009. However, we are already seeing results
and imports into Europe from sub-Saharan Africa grew last year
at a time when world trade generally was shrinking. So that is
good. Australia has followed our example. We want to see all developed
countries sign up effectively to Everything But Arms as part of
the WTO Round's commitments. As far as President Chirac's proposals
for sub-Saharan Africa are concerned, obviously this is enormously
interesting and we have been looking at them very closely. There
are some welcome elements in what President Chirac said and in
the accompanying background paper, in particular the acceptance
that subsidised exports, whether from the European Union or elsewhere,
including American food aid, can be very damaging to agricultural
development in poorer countries. That is very, very important.
What we are not so happy about is the proposal to try to deal
with the problems in sub-Saharan Africa by way of preferences
to those countries alone, partly because of all the disadvantage
of relying on preference regimes rather than broader liberalisation,
but partly because although some of the world's poorest people
live in Africa, there are twice as many poor people outside Africa
as there are inside it. So what we should do is build on the French
proposals and particularly that acceptance that export subsidies
are damaging, in order to make reforms within the Common Agricultural
Policy and pursue the multilateral negotiations within WTO.
Hugh Bayley
134. May I pursue the point about EU export
subsidies a bit further? Clearly if the proposal becomes a WTO
deal, it must apply to everyone and deal with the American food
aid point as well. Looking specifically at the EU, if we are going
to reduce export subsidies for agricultural crops, the only way
we can achieve that in practice is by reducing quotas to bring
production of sugar, for instance, within the EU into line with
consumption of sugar within the EU and limit CAP subsidies to
that quantity of production. If you do not, you continue with
an export subsidy. That really has quite fundamental implications
for the CAP which our government would support, but certainly,
using sugar as an example, would have a fundamental impact on
France, because unlike Britain it has a quota for sugar production
which is greater than its consumption. To what extent do you think
the French Government has considered what the reduction of export
subsidies will mean for CAP support for French agriculture? Is
it really accepting that at least in this field, not in relation
to domestic subsidies but in relation to export subsidies, the
CAP regime must change and that France along with other EU countries
will lose some agricultural subsidy as a result?
(Ms Hewitt) That is absolutely the implication of
what President Chirac is saying, which is why it is a very welcome
recognition of the need for reform, as you say, at least in the
export subsidy area. I agree with you that if we are really to
tackle this problem, then we have to reduce, possibly very significantly,
production of sugar, for instance, within the European Union.
There are various ways of doing that, one of which is the way
you referred to, by simply bearing down on the internal production
quotas. The mid-term review proposals which we have had so far
from Commissioner Fischler, which are very, very welcome and which
we endorse as an absolutely and necessary and good first step,
do not of course deal with the sugar regime and we are still waiting
for proposals in that area. The basic principle of the MTR proposals
is absolutely right and that is to decouple support for farming
incomes from support for production. The further we can go down
that route the better.
Tony Worthington
135. A quick one about the way trade is occurring.
I know the Secretary of State for International Development and
the Treasury and the Prime Minister are involved in the really
corrupt practices which go on, particularly in the extractive
industries, oil and so on.
(Ms Hewitt) You mean they are involved in trying to
stop them.
136. Yes, involved in trying to stop them. I
have every confidence in that. The oil companies are not obliged
to declare what they pay into countries like Nigeria and Angola
and since they discovered oil those countries have become poorer
and poorer. Is your department involved in these discussions which
are going on within government and with the G7 to support much
greater transparency, initiatives like that?
(Ms Hewitt) Yes, we are and we absolutely support
that proposal. If we can get more and more governments of developing
countries signed up to that, and then get all the companies involved
in the extractive industries implementing it, it will make a very
real difference and bear down on corruption and bribery and the
rest of it.
Alistair Burt: As a non-controversial
end, do you want to offer any other general comments about President
Chirac while you are here?
Chairman
137. Secretary of State, thank you very much
for coming to give evidence. Both the session we had with your
officials and the session we have had with you today just highlight
the complexity of these particular trade negotiations and we wish
you every success. It must be one of the most complex sets of
negotiations any ministerial and official team has had to undertake.
Our final report on this will not come out until after Cancun,
so what we shall probably want you to do is to write, if we may
ask, just to make sure we fully understand what has happened at
Cancun so that our final report can reflect that. That would be
extremely helpful. Thank you very much, Secretary of State.
(Ms Hewitt) Thank you. We shall be delighted
to report back post Cancun.
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