House of Commons - International Development

Select Committee on International Development Seventh Report

5 PRIORITISING DEVELOPMENT

128. Development-friendly agreements and progress on agriculture, non-agricultural market access, the Singapore Issues, TRIPS and public health, and GATS are essential components of a genuine development round. Satisfactory outcomes in these areas are more likely if the "Development Round" proceeds in a development-friendly manner. And in addition to issue-specific outcomes, for the round to amount to a genuine development round, new and revised rules must themselves be development-friendly.

Effective participation by developing countries

129. A development-friendly process is one which developing countries, including the LDCs, can participate in effectively. In its White Paper on "Eliminating world poverty: Making globalisation work for the poor", the Government commits itself to working towards an international trading system which "provides an effective voice for developing countries".[274] Voices are not provided by a system, but supporting and enabling the effective participation of developing countries is an important objective. To participate effectively: a country must be able to determine its national interest and what this entails for its negotiating positions; a country's representatives must be able to keep up with proceedings, and express their views and positions clearly; and, the country's representatives must be listened to. As Franz Fischler said, only when developing countries are able "to make their point, to defend themselves, to go on the offensive and to think about the economic impact of new WTO rules, will it be possible to have a more balanced negotiation."[275] If developing countries are to participate effectively, a range of issues must be addressed.

130. As regards the determination of national interests and negotiating positions the WTO's members must ensure that studies are undertaken by the WTO, the World Bank, UNTCAD, UNDP and other appropriate bodies, to assess and predict the impact of existing and potential agreements.[276] Developing countries have requested full and thorough assessments for many years. WTO members committed themselves to such assessments at various points in the Doha declaration (for instance on non-agricultural market access and GATS).[277] They must deliver on these commitments. We applaud the Government for the lead it has taken in supporting the assessment of particular agreements and the round as a whole.[278] The Government must ensure that developing countries are fully involved in designing and carrying out such assessments. Without appropriate assessments and predictions of impact, developing countries cannot participate effectively in the multilateral trading system. Neither can they follow DFID's example of predicting, pre-empting and protecting the vulnerable from the effects of trade liberalisation.

131. The WTO is committed to the objective of sustainable development. This was made clear in the preamble to the WTO's inaugural Marrakesh agreement and reiterated by the Doha Ministerial Declaration.[279] But is not formally signed up to the MDGs in the way in which the IMF, the United Nations and the World Bank are. It has been suggested to us that the WTO should be assessed in terms of its contribution to the MDGs.[280] Although the WTO is not primarily a development organisation its members have agreed that the current trade round should be a development round. We therefore believe that the WTO ought to be accountable for its contribution to the MDGs and should sign up to them in the same way as other international bodies. Development and poverty reduction goals should guide deliberations at the WTO, and should be an important yardstick by which the WTO is assessed. Development and poverty reduction should never be an afterthought; such issues must be to the fore. In particular, the "development round" must be assessed in terms of its contribution towards the international effort to meet the MDGs. We urge the Government to press for regular assessment of the current round in terms of its likely contribution to meeting the MDGs. Richard Eglin at the WTO raised the possibility of the WTO's Committee on Trade and Development being given the role of monitoring the implementation of the current round's agreements.[281] We strongly encourage the Government to push at this partially open door and ensure that such monitoring includes assessment of developmental impact as well as progress with implementation. With the involvement of organisations other than the WTO, this would go some way towards bringing together trade and development interests at both the international and the country level.

132. A second component of effective participation is the ability to keep up with proceedings, and express views and positions clearly. Developing countries are not helped by an over-loaded agenda and an over-ambitious timetable. There has been some increase in developing countries' negotiating capacities in recent years,[282] but the workload for developing countries is extremely demanding, if not practically impossible.[283] The capacity constraints faced in the capitals of developing countries are also severe. We urge the Government to address these issues.[284] The WTO's agenda should not be expanded against the wishes of developing countries and careful consideration should be given to the wisdom of imposing tight deadlines which prevent their effective participation. If developed countries wish to expand the WTO's agenda, this must be backed up by increased resources for developing countries at the WTO, and realistic timetables for negotiation.[285]

133. The Government must remain committed to providing technical assistance and capacity-building for developing countries, both in Geneva and in developing country capitals. If the right structures are in place, this can be a cost-effective way of making the WTO more development-friendly. We were impressed by the work of the Geneva-based Advisory Centre on WTO Law. The Government and especially DFID can be proud of its support for such work. We encourage the Government to consider supporting other initiatives such as regional collaboration by groups of developing countries at the WTO. But capacity-building is a long-term process which rarely achieves quick results.[286] And care must be taken to ensure that capacity-building and technical assistance is about providing developing countries with the knowledge and expertise to consider their options,[287] rather than helping them to implement policies favoured by donors.[288] Finally it should be recognised that problems of governance cannot be resolved simply by providing more technical assistance.[289]

134. Effective participation also demands that the voices of developing countries are heard and carefully listened to by the more resourceful and powerful countries. Despite undoubted improvements since Seattle, we remain doubtful that they are. Despite it being a multilateral forum, the WTO works by hard-bargaining and power politics. Practices such as mini-Ministerials exclude developing countries and their concerns. We trust that the UK will consider seriously suggestions made by developing countries,[290] and by others, as to how the WTO's governance structures and practices can be improved to ensure that the voices of developing countries are heard.[291] The Government itself must listen to developing countries' concerns too. Patricia Hewitt has recently stated that the Government "will not accept any proposal we believe will damage the prospects of developing countries trading themselves out of poverty."[292] This sounds good, and is to be expected in a "Development Round", but it doesn't go far enough. The UK will have its own views on what makes for development-friendly trade rules, but the Government cannot determine developing countries' interests. It must listen to the views of developing countries.

Development-friendly rules

135. More than any other issue, the fundamental request made by developing countries at Doha was that the WTO must become an institution which allows and enables countries at all stages of development to benefit from, and prosper within, a framework of flexible multilateral trade rules. Behind this request is the idea that countries at different stages of development should have different rights and obligations in relation to the WTO; they should either be exempt from certain WTO rules or be granted preferential treatment in their application. The hope is that such Special and Differential Treatment (SDT) will create "a level playing field for unequal players in the multilateral trading system",[293] making the notion of a "Development Round" compatible with the reality of hard-bargaining.

136. SDT is hardly a new feature of the multilateral trading system. Developed countries have been able to offer trade preferences to developing, and developing countries have had more freedom to control trade or discriminate against developed countries, since the 1970s. The Uruguay Round Agreements include 155 SDT provisions for developing countries, including: specific exemptions for Least Developed Countries from restrictions on tariffs and subsidies; smaller tariff reductions for developing countries; non-reciprocity between developed and developing countries; longer transition periods in which to implement GATT/WTO agreements; and promises of assistance with implementation costs.[294] But developed and developing countries have become increasingly dissatisfied with the way in which SDT works. SDT has rarely led to assistance with implementing agreements, lengthy transition periods have rarely encouraged development, and by allowing opt-outs SDT has led to a fragmentation of the multilateral trading system.

137. SDT provisions may have been ineffective, but new and improved SDT has become a priority because of the increased membership and diversity of the WTO, because of the WTO's increasing interest in legislating for behind-the-border domestic regulations, and because of the Single Undertaking.[295] At Doha the WTO's membership mandated a review of SDT provisions "with a view to strengthening them and making them more precise, effective and operational."[296] Members also committed themselves to providing SDT within agreements on specific issues. The deadline for the review was July 2002. This was extended to 31 December 2002, by which time developing countries had submitted over 80 proposals for amendments and improvements to existing agreements. Proposals covered issues of: preferential market access; space to follow policies that would otherwise be subject to WTO disciplines; exemptions from WTO rules requiring the adoption of harmonised regulatory or administrative disciplines; the provision of financial and technical assistance to help with implementing WTO rules; and, proposals to make SDT mandatory and legally binding.[297] Only 4 proposals were agreed to by the deadline and progress remains slow. Of eighty-four proposals, 14 are in principle agreed; 24 have a "greater likelihood" of being agreed or have significant "developmental value", 38 have some chance of an "early harvest" at Cancún, and 12 are proving particularly difficult. This sounds like substantial progress, but there are questions about the developmental value of those proposals which are close to agreement, and doubts too about just how close to agreement most of the proposals are.[298] The Government's view is that a positive outcome is needed to demonstrate that multilateral rules can be flexible enough to accommodate countries at all stages of development and to help developing countries to participate in the multilateral trading system.[299]

138. SDT is a complex and politically sensitive matter at the WTO, with debates touching on the purpose of the WTO, the nature of multilateralism and multilateral rules, the meaning and practice of sovereignty in a globalising world, the relationship between liberalisation and development, and whether and how to differentiate between developing countries. These are not issues which we can settle, but they are extremely important issues which the international community, and the international development community especially, must address. Such issues are perhaps made most concrete in discussions about SDT and "policy space". In this context, policy space refers to the latitude which a country has to pursue within its borders policies which have been determined through its political processes. Policy space is sovereignty. In this respect, all countries have the right to policy space. But in an increasingly globalised world where the effects of national policies such as agricultural subsidies cross borders, sovereignty and policy space may need to be constrained. Indeed by joining the WTO, countries have agreed to pool some of their sovereignty. The central questions are: what is, and what should be, the relationship between the WTO and policy space; and what type of policy space is needed to enable the multilateral trading system to function to the benefit of all, whilst preventing its fragmentation?

139. In early 2003 the publication of a book called "Making global trade work for people" caused some excitement amongst NGOs and others.[300] A team of authors led by Kamal Malhotra produced the book through extensive and comprehensive discussions with a wide range of stakeholders, and listened carefully to many southern voices. The production if not the message of the book was supported by the UNDP. The book's starting point was that the purpose of trade should be to enhance human development. The central message was that if development really mattered, the global governance of trade would not be as it is. The argument is that a development-focused WTO should function to manage the interface between different national systems - providing policy space and flexibility—rather than reducing national institutional differences.[301]

140. The WTO chose not to participate in the book's launch, but Dr. Supachai did offer a response to its critique. In his view, the WTO is not in the main about reducing national institutional differences, and in the cases where this does happen—when the WTO moves away from its core market access issues and into areas such as services, TRIPS, TRIMS and maybe some of the new issues (his examples)—this is only possible when sovereign members make the decision to surrender policy space or exchange it for other benefits within negotiations.[302] Additionally, Dr. Supachai stressed to us that the principle of national treatment does not necessitate regulatory change, merely that domestic and foreign firms are treated the same.

141. Oxfam meanwhile asserts that: "Multilateral trade rules now constrain the development of national policies in a wide range of areas that are vital to poverty reduction."[303] Particularly for the trade liberalisation pessimists, policy space is such an important resource that it should not be surrendered or exchanged by developing countries within multilateral trade negotiations. There is no consensus as to what trade policies are most effective for development and poverty reduction. It is a complex picture, in which the effects of trade liberalisation are highly country-specific. Developing countries should therefore be allowed to use—subject to the constraint of not unduly harming other countries' interests—whichever policies they regard as suitable for the pursuit of their developmental priorities. For some countries this may include selective interventions to protect infant industries, to move exporters towards products with greater market and productivity dynamism, or subsidies to encourage linkages with other sectors of the domestic economy.[304] Patricia Hewitt explained recently that: "Just as we all have a right to good health, but don't all need the same medicines, there is no one-size fits all solution in trade. Different countries have different needs."[305] We would go further. Even if there were greater consensus on what constitutes the best trade policies for poverty reduction, it is a "big step" from recommending these policies, to enacting international agreements which prohibit governments from using other policies.[306] Each country, as Patricia Hewitt states, has "the sovereignty to make their own choices."[307] Sovereign states may have the right to surrender or exchange policy space, but such exchanges must only ever take place on a level playing field where developing countries can participate effectively. The WTO is not such a place.

142. It might be argued that policy space matters only to the extent that the policies selected are effective in reducing poverty. We disagree. Local ownership of policies matters hugely. Multilateral agreements must take great care not to undermine emerging democratic processes. The right to policy space is fundamental; how such space is used is a second order issue. Pascal Lamy explained to us, in relation to the Singapore Issues, that: "Of course it is putting a constraint on their governance systems, but I think that we would all agree that part of the development problem is improving the governance system. If this can be done as a sort of trade-off, in the WTO not plugging extremely sophisticated systems but the sort of basic systems which improve the level of economic governance of these countries, then it is a good deal for everybody."[308] Improving developing countries' governance is very important, and is a reasonable request for donors to make of developing country aid recipients.[309] But whereas no country has a right to aid, all countries have the right to pursue—within limits set by the international community and the UN—their priorities and policies. Aid decisions do and will take account of how well policy space is used, but the right to pursue nationally-determined policies is not something to be granted to developing countries on the condition that they use it in a certain way (conditionality).[310] Such treatment of policy space is undemocratic. The Government, along with other donors and developing countries themselves, needs to consider carefully the limits of effective and legitimate conditionality.

143. The hope held by many is that new and improved SDT at the WTO will help developing countries to protect and perhaps regain their policy space, and will even in Prime Minister Zenawi's words, "empower the poor countries, particularly the Least Developed Countries, to design their own trade policies".[311] The fear held by some, including the UK, is that some SDT proposals will cut developing countries out of the multilateral trading system, to the detriment of developing countries and the multilateral trading system.[312]

144. Determining the amount of flexibility needed for an effective multilateral trading system is a complex issue. Equally challenging is the issue of determining which countries should be eligible for different degrees of SDT. Currently there are three groups of countries which the WTO recognises for SDT purposes: the developed, the developing, and the least developed. The LDC category is defined by the UN, but countries decide for themselves whether they are "developing". Even for LDC status, countries which do develop have a big incentive to lobby to ensure that they are not reclassified out of SDT-eligibility. The result of such a situation is that Special and Differential Treatment is poorly differentiated, and that the developed world's generosity is spread very thinly. In addition, developed countries have managed to exclude big poor countries such as India and Pakistan from LDC status for dubious reasons. This is clearly a highly ineffective way of delivering SDT, but developing countries are extremely resistant to change. In their view, SDT is not costly for the developed world—and according to trade liberalisation optimists ought to be beneficial—and greater differentiation would serve simply to undermine one of the few strengths which developing countries enjoy at the WTO, the weight of numbers.

145. Progress on SDT, including on the issues of differentiation and graduation out of eligibility is essential. We are pleased that DFID, along with other organisations including the International Centre for Trade and Sustainable Development, is playing a leading role in stimulating discussion, and considering a range of options for the more effective delivery of SDT.[313] We are not in a position to endorse one or other of the options, but we can state some general principles which ought to be followed. These are:

SDT ought not to be primarily about opt-outs or longer time periods to implement rules. Development-friendly rules to which all countries can agree are preferable to opt-outs. Longer transition periods or assistance with implementation do not make bad rules good. If agreement cannot be reached on rules in a particular issue area, it may be that the WTO is not the appropriate forum for dealing with such issues.

b) When countries cannot implement new rules to which they have agreed, "positive SDT" should be employed to enable them to do so.[314] Assistance should be based on developmental status and resource needs. Transition periods should be based on development milestones.

c) SDT must not be something which countries have to offer concessions in other areas to gain. Still less should developing countries have to make repeated concessions to gain SDT for each and every agreement.[315] To prevent this happening there must be - as some developing countries have suggested[316]—a framework agreement which establishes the fundamental role of SDT in a development-friendly WTO.

d) SDT should be mandatory, legally binding and enforceable through the WTO.[317] Any other arrangement would suggest that SDT and the needs of developing countries are not central to the WTO.

e) SDT should be more differentiated, with clear, open and transparent mechanisms for effectively determining the needs of developing countries,[318] for monitoring the implementation, impact and effectiveness of SDT, and for graduating countries from SDT as they develop. In this way, SDT could fulfil its promise of being "a tool for development, adjustment or integration depending on the situation and capacities of individual countries".[319]

146. If developing countries are to benefit from the multilateral trading system, effective SDT is crucial. It is only in this way that the right balance between multilateral cooperation and sovereign policy space can be achieved. If SDT can be tailored to the needs and priorities of individual countries, and if local ownership of poverty reduction strategies can be made a reality which is supported by the IFIs, there may - despite the neglect of trade in Poverty Reduction Strategy Papers[320]—be exciting possibilities ahead in integrating the trade and development agendas at both the international and national levels.[321]

Policy coherence, political commitment and leadership

147. There is much to be done if Cancún is to be part of a genuine development round. The stakes are high, including not only the development prospects and livelihoods of billions of people, but also the future of multilateralism in trade and international relations more generally. Success at Cancún would consist of: substantial progress with reducing the distortions in agriculture; a successful outcome to the TRIPS and public health stalemate; and agreement to act to make SDT a central component of the WTO. If these goals are achieved, the international community will have done a good job. If they are not, WTO members will have failed to live up to their Doha promises.

148. We have made a number of specific recommendations and suggestions as to what the Government should do—in large part through the EU—to maximise the chances of achieving success at Cancún and of securing a genuine development round. We have two more general recommendations to make; on coherence, and on leadership. It is the Government's view, and ours too, that international trade has the potential to be a win-win game. Therefore there should be no fundamental contradiction between policies which favour international development and policies which favour European agricultural, industrial or consumer interests. So policy coherence across UK Government Departments and between European Commission Directorates General should be achievable.

149. It was significant that the Government's memorandum to the inquiry was jointly produced by DFID, DEFRA, the DTI, the Foreign Office and the Treasury. And we were very pleased to take evidence from Patricia Hewitt and DTI and DEFRA officials as well as Baroness Amos and DFID officials. This is indicative of the serious efforts made to ensure that UK policy on trade is coherent and that government is joined-up. But we do have some concerns. It is not easy to see inside inter-Departmental relations, but we know that Departments do not always agree. We hope that the inter-Departmental disputes which Clare Short recently exposed concerning the sugar regime,[322] and some time ago revealed as regards the export to Tanzania of an air traffic control system,[323] were exceptions to a rule of inter-Departmental harmony. On the Singapore Issues too, we wonder where the balance of power lies. On a positive note, we welcome the fact that the DTI and indeed HM Treasury are increasingly development-minded. We are less concerned about which Department is in the lead, than that development is at the forefront of the Government's thinking as regards a "Development Round". Greater transparency about how various interests are balanced in the practice of joined-up government would be very welcome, to us and to the public whose interests we represent and balance.

150. A second general recommendation relates to leadership. The Government, largely as a result of DFID's work since 1997 under Clare Short, has an excellent reputation for international development. The UK has been one of the most enthusiastic proponents of a "Development Round". Without real leadership, the Round is in danger of collapsing. Failure at Cancún may tempt the USA to move further away from multilateralism in trade and other areas. The Government and the Prime Minister have a responsibility to do their utmost to prevent this happening. They should seize the opportunity to provide the necessary leadership. This is an opportunity not to be missed, and a responsibility not to be shirked.

151. The Prime Minister stated in May 2003 that "the biggest thing happening in the next six months is world trade."[324] War in Iraq has understandably absorbed his energies recently, but nevertheless there does seem to have been a shortfall of effort on trade. In Europe, Margaret Beckett has no doubt done as well as she could given the Franco-German compromise on CAP reform reached in November 2002. It is disappointing that the UK did not object more forcefully to this initial compromise. Given the UK's support of the USA in Iraq, the Prime Minister must have accumulated plenty of political capital with the USA. Now is the time to spend it, persuading the USA on TRIPS and public health, and building bridges between the EU and the USA on agriculture, so that the interests of developing countries are not drowned out by trans-atlantic arguments.

152. A genuine development round can still be secured if leadership and political commitment are forthcoming. The UK must not be found wanting. Neither must other countries. All that is needed is that the WTO's members honour the promises they made at Doha.

274 Ev 1, para 1 [HMG memorandum] Back

275 Q 201 [Franz Fischler, European Commission] Back

276 Sustainability Impact Assessments have been undertaken by the Institute for Development Policy and Management-see http://idpm.man.ac.uk/sia-trade/ Back

277 Ev 250, para 3.4 [ActionAid memorandum] Back

278 Ev 2 [HMG memorandum] Back

279 WTO, Doha Ministerial Declaration, para 6 - see footnote 3. Back

280 Q 52 [Duncan Green, CAFOD] Back

281 Q 320 [Richard Eglin, WTO] Back

282 Q 344 [Shishir Priyadarshi, WTO] Back

283 Ev 31 [CAFOD memorandum] Back

284 Sheila Page, Overseas Development Institute, Developing countries: Victims or participants? Their changing role in international negotiations, 2003. Available at http://www.odi.org.uk/iedg/publications/dev_countries_web.pdf Back

285 Ev 127 [World Development Movement memorandum] Back