Examination of Witnesses (Questions 320
- 327)
WEDNESDAY 7 MAY 2003
MR RICHARD
EGLIN
Q320 Mr Walter: I want to bring you
on to Special and Differential Treatment and to pose the question
as to whether you see Special and Differential Treatment as giving
developing countries time to catch up, to harmonise, to liberalise?
Or whether you see it more in a structural way, as simply an increased
policy flexibility?
Mr Eglin: I think that I see it
as both. Views are changing here, partly in reaction to the development
community. In the past, at the end of the Uruguay Round most particularly,
trade negotiators approached the issue of development in a very
crude fashion and, at the end of the day, simply gave five years
or 10 years of transition to developing or least developed countries
and assumed that everything was going to be all right, that somehow
this would all be implemented. What has come through loud and
clear now from development organisations such as the World Bank,
or development NGOs such as Oxfam, or from Clare Short MP, from
DFID is that that is the wrong paradigm with which to address
this. Market access is crucially important for developing countries
but, in order to be able to take advantage of better market access,
they need the capacity at home to trade more or better. Those
resources need to come out of limited development budgets if official
foreign financing is required. We cannot start making the case
that such-and-such a country has an obligation to implement the
TRIPS agreement within the next five years and, come hell or high
water, that is what it must do, if that country has a shortage
of health clinics, schools, and so on. So we have to factor into
the system here the issue of poverty reduction. In that sense,
the trade agenda and the development agenda converge to a very
great degree, but they are not the same thing. We need to listen
to each other a great deal more about how those two agenda can
be put together. To a large extent, I think that the solution
is Special and Differential Treatment; how do we frame or design
Special and Differential Treatment provisions in the context of
this round? There needs to be policy flexibility—there is
no question whatsoever. Developing countries' economies do not
react as quickly or as well to policy changes; therefore there
needs to be flexibility in that area to take account of how their
economies react. An example for many developing countries is that
reducing tariffs will mean a loss of tax revenue—for which
the academic economic argument is, "Reform your tax system;
replace trade taxes by VAT". In many developing countries,
however, who will collect VAT from people selling off barrows
in the street, or very small scale business? It just does not
operate in that way. Yes, you need a lot more flexibility if indeed
it implies that there are to be changes in policy in developing
countries. You have to take that into account and give them time
to do it. But the second thing that needs to be part of it is
technical and financial support that goes hand in hand with proper
transition periods. We need to start looking at countries not
as blocs of developing countries or least developed countries
but, rather, case by case. Where might this lead? This might lead
to the Committee on Trade and Development being given a monitoring
role for the implementation of the results of the Doha Round,
where countries every two or three years—whatever is necessary—come
and discuss with other members how they are getting on with implementation.
Say they have a target date of 10, 15, or whatever, years to do
it; but in the process they come along and say, "There has
been some slippage", and they have the development community
there also giving their view on why has there been slippage—there
has been an AIDS outbreak, there have been floods, schools have
been more important, whatever it might be—and that that
needs to be factored in in a much more dynamic sense to the extension
of the transition period. If the developing country comes along
and says, "We would have done it but we don't have the resources",
then somebody has to find the resources to help them do it. If
they come along and say, "We would have done it but we have
had other priorities for poverty reduction", that also needs
to be factored in. An additional two or three years for developing
countries to implement such-and-such an agreement is nothing in
comparison to 10 million fewer people in poverty. That is a process
which is being discussed here, and which I think is very fruitful.
It is starting to take shape, and I think that is the way we should
go about this. We need a great deal of assistance from development
ministries, however, because trade negotiators will never be development
experts—and I do not think that we particularly want them
to be — but they do need to work very co-operatively and
closely with their colleagues from development ministries.
Q321 Mr Walter: You talked about
those time frames there. This may be a matter of opinion but what
do you see as the likely prospects for progress on these sorts
of negotiations, particularly looking at it from the developing
countries' perspective, of their accepting what is possible within
the concept of Special and Differential Treatment?
Mr Eglin: I am not sure that I
can answer that. I suspect they each have rather different perspectives
on this. You will find that you have the fast liberalisers and
integrators, who seem ready to take on everything and anything,
all in the same time span. I think that it depends entirely upon
a country's development priorities. Does it see economic reform
as being the number one priority, or does it see a more equitable
society as being the number one priority? The answer to that,
I think, is politics and it is case by case — and that is
how it should be. You still have to have some kind of multilateral
framework. Otherwise, everybody is all over the place. That framework,
however, needs to be sufficiently flexible to accommodate countries
which want to do things at a different speed, at a different pace.
What China has done in the past 20 years some other developing
countries have not achieved in the past 50 years. The system has
to accommodate that. Not everybody will be the same.
Q322 Mr Walter: Perhaps I may move
you on to another subject now, which is GATS. How important do
you think services and the liberalisation of the trade in services
are to developing countries? Perhaps we could specifically look
at Mode 4 of GATS. We heard over lunch from the Bangladesh ambassador,
who was suggesting that if we permitted 4% of the workforce of
OECD, the equivalent in terms of that, it would be worth $200
billion, or whatever the figure was—big, telephone number
figures—in terms of benefit to the developing world. Could
you give us a take on that?
Mr Eglin: I will give you another
figure—financial resource flows into developing countries.
In 2002, migrant remittances was number two, worth $80 billion.
It was number two after direct foreign investment. By and large,
for the time being migrant remittances are South-South. They are
therefore based on low levels of wages; it is manual labour, and
so on. I think that it is hugely important and, to my mind —
it sounds a bit academic—it is a logical part of a bargain
on free movement of capital. If you are going to do it on investment,
why should you not do it on labour too? This raises horrendous
problems of migration and so on. This is not something where I
think that we will move quickly. I do not doubt that the developing
countries will make this one of their primary areas of demand—but
I think in a reasonable sense. They are not going to have thousands
of manual workers come in and build our autoroutes and then go
out again afterwards. At what level of professional labour downwards
can one draw a line, however, and say, "Within those categories
it is welcome"? It is hugely important. One of the things
that throws a real spanner in that works at the moment is the
security problem. It is hard to know where that is going to go,
but this subject is very important indeed.
Q323 Mr Walter: Perhaps I could move
on finally to the capacity of developing countries. How well equipped
are they, here in WTO negotiations, with both the information
and the capacity to make decisions about GATS? There is a lot
of misinformation about GATS. We hear it particularly in the UK
from NGOs, who think that it is all about water privatisation.
What assessment has been made of the development impact of GATS?
Mr Eglin: We are not good at doing
that sort of thing because we do not have the analytical capacity
to do it. The World Bank has produced quite a lot of very good
papers on the development impact of GATS. I think that it varies
from sector to sector. If we go too fast in the area of financial
services liberalisation, you could have a complete meltdown of
your banking system. That surely is a development issue, but it
is not normally taken into account here. I am no expert. The World
Bank has done some very good work on that, and I am sure the resources
of the Committee can find that.
Q324 John Barrett: We have talked
a lot of market access and making market access the core. Do you
think that there is too much discussion about North-South market
access and not enough emphasis on market access from, say, some
African countries to other African countries? Is this something
where there needs to be a shift in emphasis—to say that,
with some of the complications of accessing the EU markets, it
may well be that the more obvious local markets are the first
stage in increasing market access?
Mr Eglin: I think that you need
both. South-South trade is very important. If I remember correctly,
the figure is 75% of the taxes collected on developing countries'
exports—taxes being tariffs—are collected by other
developing countries. So, yes, South-South trade is enormously
important. It has not really been a focus of previous rounds;
we are hoping that it will be a focus of this round. But the EU
and the US markets are still so huge—leaving China out of
it—in comparison to the potential for increasing South-South
trade, that they matter hugely. The political blockage at the
moment, frankly, is not a South-South blockage.
Q325 John Barrett: Could you say
something about preferential and asymmetrical access?
Mr Eglin: I have partly said it,
I think, in terms of the erosion of preferences. Multilateral
liberalisation inevitably means eroded preferences. The problem
with preferences is who gets the preference. You have a cut-off
somewhere that says there are 49 least developed countries, but
there are another 10 just above them in income levels who are
not that much better-off. If you give 49 a preference, you discriminate
against those 10 whose income is not much different from that
of a least developed country: they just did not qualify with whatever
measure was being used. I think—I hope, anyway—that
the mood is shifting away from saying, "Preferences are the
way to go forward to improve market access for these countries".
We should just lock in zero tariffs, zero quotas—ideally
for all developing countries—but at least for a very large
share of them up to a much higher income level than just the least
developed. That would seem to me to be much more beneficial, certainly
than the line that says, "Don't reduce the MFN rates because,
if you do, you will squeeze the preferences". That is a catastrophic
way to go, because the MFN rates benefit the domestic producer.
There is a second area of preferences where the developing countries
lose out badly, and that is bilateral and regional trade agreements
and, for that matter, investment agreements. Why? Largely because
they are not included. The US does not run around and get a free
trade agreement with Guinea Bissau. It does with Singapore; it
does with Mexico; it does with Chile. For the developing countries,
therefore, preferences have a serious downside involved in them,
whether it is regional or special market access deals. One could
go on about preferences all afternoon, but one other important
factor is that the rules of origin applying to them frequently
make them impossible to implement. We have seen instances here
of least developed countries who have preferred to pay the MFN
rate to get into a market than to bother to go through the business
of trying to get the preferential rate. It is just too much bother.
Q326 Chairman: You give the impression
of being cautiously optimistic about progress, which I suppose
one would expect from someone who is so involved in the system.
Can I just test you on this? We have spent some time in Brussels
talking to Commissioners, and then some time in both New York
and Washington—in Washington talking to US officials. The
impression one gets, so far as the developing countries are concerned,
is that for them the litmus test of the Doha Round will be agriculture
and access to markets. Whether they might actually do better on
regional improvements and South-South trade, the fact is that
for them the totem will be what better access they are getting
to Northern markets.
Mr Eglin: That is right.
Q327 Chairman: So far as the European
Union is concerned, Commissioner Fischler says, "The EU has
done everything it needs to do. We"re the good guys. No need
for any further CAP reform". Effectively, that is what he
said to us in terms. The United States officials and the Secretary
of Agriculture says, "Rubbish! The EU has to move a lot further.
Until they do, we are certainly not going to start dismantling
farm subsidies or Farm Bills". UN officials we met in New
York said that both were pretty bad, but marginally they had some
sympathy for the US position, ie the EU had to move. One of the
reasons the EU is not going to move is because of Chirac and Shröder,
France and Germany—which then gets us back into some of
the European-US tensions that we have seen elsewhere in broader
foreign policy. If we do not get movement between now and the
autumn in the CAP, and therefore do not get movement in EU agricultural
policy—and therefore unlikely to get movement in US farm
support policy—what realistic progress will be made at Cancun?
Shall we not have a stand-off of these two large beasts in the
jungle, with the developing countries getting rather frustrated
that very little is happening on reducing agricultural support?
This could actually become a replay of some of the tensions we
have seen recently between Europe and the United States, particularly
so far as France and Germany are concerned. I am looking at the
broader politics of this, and I would be interested in your thoughts.
Mr Eglin: You have painted the
big picture. There are three or four complete imponderables. Next
year is a US election year. Will the EU make any progress on reform
of the Common Agricultural Policy this year in time for Cancun?
Is the real date the end of 2006, when the EU budget is set, or
2007 when US Fast Track expires? I do not know. I go back to what
I said at the beginning, which is that we need a political breakthrough.
If you are saying to me that it is not going to happen, I will
certainly not deny or contradict you. But without that, yes, indeed,
Cancun will be extremely difficult. Will it be catastrophic? No.
We will bounce back because I think that, in the end, everybody
attaches too much importance to what this is all about—the
developing countries too. I will give you another date which is
important—India's general election will be held next year.
Cancun therefore has all sorts of bells and whistles—dates
attached to it which make it difficult for everybody.
Chairman: Thank you very much.
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