TUESDAY 8 APRIL 2003

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Members present:

Tony Baldry, in the Chair
John Barrett
Mr John Battle
Hugh Bayley
Alistair Burt
Mr Tony Colman
Mr Robert Walter
Tony Worthington

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Memoranda submitted by Save the Children Fund UK and

World Development Movement

Examination of Witnesses

MR JOHN HILARY, Trade Policy Analyst, Save the Children Fund UK and MR PETER HARDSTAFF, Head of Campaigns Policy, World Development Movement; examined.

Chairman

John and Peter, thank you very much for coming to help us with our inquiry on trade and development and Doha. The House starts, as you know, on a Tuesday at 11.30, so we have just under an hour, so colleagues have promised to be reasonably brisk with questions, and I am sure you will be reasonably brisk with your answers. You both might like to answer this, because really it applies to both of you; in your view, what would make the Doha agenda a genuine 'development round', what are the litmus tests, what are the bullet-points, what are the indicators by which you believe that Doha will be judged a genuine development round, and how do you rate the prospects of this occurring? Peter, let us start with you, from the World Development Movement.

(Mr Hardstaff) Thank you, and thanks for the opportunity to provide oral evidence. I think, if we run through a number of the key issues then what WDM would be looking for from a genuine development round would be some significant reform of the way that the WTO operates currently and its current rules. So clearly within that would be some significant reform on agriculture, currently we have a very unfair trading regime, as the IDC has recognised a number of times. We would be looking for reform on TRIPS, intellectual property rights, both in terms of the 'access to medicines' issue, but also, more broadly, from the development perspective, we would be looking at reform of patenting rules relating to life forms. We would be looking for significant reform on GATS; at the moment, obviously, we will be covering this in more detail, but we believe that GATS has some serious flaws which need to be addressed. Also there are issues like trade-related investment measures, a review is under way but no progress has been made, the so-called 'implementation' issues cover that partly but also a wider range of issues. And institutional reform, the way that the WTO actually operates. Last year, a group of developing countries put in a proposal for reforming the way that the WTO operates its negotiating procedures, to try to make them more transparent, to try to ensure that developing country proposals get heard and that the procedures at ministerial conferences operate in a way that draw in a larger number of countries to the decision-making process. So I think that forms quite a substantial agenda to change the way that the WTO already operates, to make it fairer, more transparent, involve a greater number of countries, and also in terms of the rules.

John, have you got anything to add?

(Mr Hilary) Yes, thank you, just briefly, and can I extend my thanks also to the Committee for allowing us to present evidence here today. When we came back from the Doha Ministerial, in November 2001, a group of ten of the UK's NGOs, including both the World Development Movement and Save the Children, produced a statement on what we believed would constitute a genuine development agenda for the Doha round, and obviously I will be very pleased to make this available to the Committee. This was written over a year ago, and it is very interesting now to look back and to see how incredibly few of those suggestions, of those provisions, which would make this round a genuine development round, have actually been put into practice. We have seen already the incredible block on any movement in terms of special and differential treatment, in terms of TRIPS and public health, in terms of any progress on agriculture, or indeed in terms of the assessment of the impact of GATS. All of these were key indicators which we believed would show whether or not we had a development round; they simply have not been met. And I think that is why a lot of developing countries, in the run-up to Cancún, are throwing up their hands and saying, "Where is this development agenda that you've been talking about?".

Chairman: John, let us have that, and obviously we can have it as a sort of exhibit to your evidence, so to speak, when it comes to the printed report as well; a very useful document.

Hugh Bayley

I wonder whether you will accept the Government's argument that having a multilateral agreement on various new issues would be better than having a patchwork of bilateral agreements on these things like contracting and public procurement and investment, and so on? More generally, what are your impressions of what developing countries are saying about the desirability of putting the new issues on the agenda at Cancún?

(Mr Hardstaff) I think that it is important to distinguish between the issues, when we are talking about a patchwork of bilateral deals. I am not aware that bilateral deals tend to encompass, for example, competition policy. I think the main issue, when it comes to bilaterals, is investment, and, you are right, there is a large swathe of bilateral investment treaties around the world, apparently some 2,000. I think the critical thing to recognise with this is that the investment agreement, as seems to be proposed by the European Union and countries like Japan, will not replace these bilateral deals, it will not supersede them in any way, so, if you like, the regulatory spaghetti that is apparent currently from bilateral deals will not be replaced by a multilateral agreement within WTO, that will merely add to it. So we do not agree with the argument that it would affect in any way these bilateral deals. Also it is important to recognise that the European Union has proposed what is called a GATS-style approach for a new agreement on investment. And the GATS currently, the way that it is negotiated is done on a bilateral basis, the so-called 'request-offer' process; so if you put that within a WTO agreement on investment then what you have is a series of bilateral negotiations within the WTO, so you do not get round the issue of pressure from countries in a bilateral situation when you put it into WTO and make it a formalised bilateral negotiating process. So I think it is important to bear in mind that this will not deal with either of the issues concerning the number of bilateral agreements or the kind of pressure that can be brought to bear in a bilateral process.

(Mr Hilary) If I might just reply as well. In terms of the competition policy suggestions, where the European Union also is pressing for a multilateral framework agreement on competition policy, it is often put forward in very unambiguous terms that this is a very pleasant, a very positive thing for developing countries because it is going to be tackling the problems of hard-core cartels, particularly in some of the industries where they have actually had particular experience, and negative experience, of those. And I think everybody would agree that hard-core cartels are one of the things which the world does need to tackle. However, there is no need at all to embark on a whole round of new negotiations into the issue of competition policy at the WTO for that, it is perfectly possible, as indeed the UK Government itself has acknowledged, to pursue hard-core cartels and the international co-operation needed to deal with them within a discussion framework, as currently it is, at the WTO. The negotiation process is about introducing national treatment provisions into the domestic competition laws of WTO member countries, and for that reason developing countries themselves are extremely wary of it. Your question also asked, what is the developing country view on this?; we have had very strong statements from developing country representatives, from African and Asian countries, in particular, but also from some Latin-American countries, that, just as before Doha, they simply do not wish to see the WTO agenda expanded to include these new issues. And I think there is a growing body of civil society opinion across the world which really supports developing countries in their resistance to what is, in effect, quite an aggressive EU agenda.

We have heard some really quite compelling evidence about the capacity of developing countries to operate these agreements, even if they were to sign up to them, and so we have heard a lot about that. Leaving that aside, what are the reasons given by developing countries for not engaging in the debate about this issue; after all, they want investment, they want to drive corruption out of their systems; apart from the capacity issues, what are the other reasons why they would want to resist making agreements in the WTO about these matters?

(Mr Hilary) The key one is the policy space which they are allowed, as sovereign governments, in order to maximise the positive effects of foreign investment, because it is that policy space, particularly, for example, where a country will be requiring of a foreign investor that it joins with a domestic partner in a joint venture, or indeed putting levels on the equity participation of foreign investors. Performance requirements, where a foreign investor will have to provide a certain number of jobs at a high management level, or indeed will be committed to technology transfer. All of these provisions allow developing countries to make the most of foreign investment, and it is precisely those provisions which are under attack from the proposed multilateral investment agreements. So that policy space argument is absolutely key.

(Mr Hardstaff) If I can just follow up on that, I think that the recent paper by the Indian Ambassador, at a seminar a couple of weeks ago in Geneva, set out a range of arguments why India currently is opposing insertion of an agreement on investment in the WTO. As John said, the critical issue is policy space and the flexibility which developing countries have to use the different measures to maximise foreign investment. It is not that they oppose FDI, and the same is true of us, we do not oppose foreign direct investment, this is not about whether or not to attract foreign investment, it is how then you can regulate it to maximise the benefit. If I can just quote from the Indian Ambassador: "We are of the view that we do not want an MAI in the WTO," and he is not saying that this is the OECD MAI but a multilateral investment framework. So I think it is important to recognise that there is a range of opinion against inserting investment into WTO because of its core principals of national treatment, which over time will affect the ability of countries to maximise the benefits of FDI.

Alistair Burt

You are very cross about GATS, you are very, very cross about GATS, and you are in contact with people who support you and you ask them to write to us about GATS. We have tested this out, when we have been going round taking evidence from other people, and I will come back with one or two things they have said in a second, but could you explain just why you are so concerned about it, do you not believe there is any opportunity for developing countries to benefit from the liberalisation of trade in services, and what evidence do you have that developing countries really are opposed to this?

(Mr Hilary) The first thing, which I think is a critical distinction to make, is to distinguish between the liberalisation of services and the liberalisation of trade in the services and GATS; they are two very, very different things. We do believe that in certain sectors there are certain benefits which developing countries can gain from liberalising and opening up to competition from foreign providers, but that is a completely different issue from making a binding commitment under GATS. Under GATS, your commitment introduces a whole range of disciplines, which again, very similar to the investment argument, close down the policy space which governments have to maximise the positive use of FDI. Also in GATS, as we know, there is the lock-in clause, which makes any commitment irreversible, effectively, and that means that you are setting up a particular policy choice into the long-term future without the prospect of being able to bring it back if it turns out to have been a mistake. The document which we have circulated to you just today - which is hot off the press, so you will excuse me that it was not circulated earlier - is on GATS and water, and it looks particularly in that sector at the damaging results of liberalisation, in country after country, across the developing world. Now, given that some of those countries have had such negative experience, in our view, it would be madness for them to commit these sectors under GATS.

Do you mean liberalisation, or privatisation?

(Mr Hilary) In this case, in water, liberalisation is akin to privatisation because it is a natural monopoly. If you have one particular provider within any geographical locality, opening up the sector to competition ipso facto opens it up in some way to privatisation, not wholesale privatisation maybe, not even the transfer of assets, but, in terms of privatisation of service, that certainly is what it opens up, in terms of a particular sector, like water.

(Mr Hardstaff) Again, just to follow on from that, I think to reiterate the point that you do not need GATS to liberalise, and you do not need GATS to attract foreign investment. The United Nations Conference on Trade and Development have done research suggesting there is no link between signing up to GATS and attracting more foreign direct investment. So in order to retain the kind of policy flexibility to maximise the benefits from services investment then signing up to GATS does not make sense. Our problem is, with GATS, not so much necessarily with liberalisation, our campaign is not a kind of anti-FDI campaign, it is pro-flexibility, pro-regulation, and so our problems with GATS are about the ability of countries to regulate, to change, in the light of experience, in the light of changed political or social circumstances. Again, recently we have produced a report looking at the European Union's requests, which were leaked, and one of the examples we draw on in that report is of Thailand, which submitted a paper to the WTO last year looking at retail liberalisation. And Thailand some years ago liberalised in retail, attracted a lot of foreign direct investment from European companies; over time, that experience, Thailand has realised that there have been some adverse impacts on domestic retailers and now is looking to reregulate. Critically, it is able to do that because it has not made a GATS commitment, although the European Union now has requested it to do so. But the whole idea of locking in GATS is one of the critical issues, and the ability of countries to change over time, in the light of adverse impacts or changed political circumstances, is crucial.

The response we tended to have, from World Bank, from IMF, from the EU, was a sense that GATS they felt was not well understood by NGOs, they felt that if there had been poor privatisations it should not knock out privatisations per se. I think we have been a bit more flexible with what you have said now. Putting to the EU, putting to Pascal Lamy, the straightforward point about why the commitment, he said, "Well, it's a trade-off, in return for this opening up," and there was a necessary trade-off in terms of a commitment. Do you think you have taken a stance which has been very anti, and actually that there might be more flexibility in what you said, because, with so many of the people we spoke to, the whole concept of the liberalisation of trade being beneficial to developing countries was almost always set in a context that said you had to take account of lots of other circumstances, they were not absolutely prescriptive about, in every case, it always works because, and do you feel that that flexibility matches some recognition of flexibility on your own account?

(Mr Hilary) No. I think that the people who have said that we are not very well acquainted with GATS actually are trying to pull the wool over your eyes. Certainly I have been working on it for five years now, and we tend to have much stronger arguments than the Government and the European Commission officials, which we talk to, actually; in particular, in relation to flexibility, we know that the architecture of GATS, the way in which the positive list approach works, is intended to give developing countries more flexibility in which sectors they will commit under their national schedules. But the process of GATS negotiations at the WTO negates that flexibility, because it brings completely unequal partners into bilateral relations, bilateral negotiations, in secret; and we have heard from many of the developing country representatives at the WTO that this puts them at a terrifically unfair disadvantage, they cannot withstand the overwhelming pressure which comes at them from those countries which are trying to push them to liberalise. And in the case of the European Union we know that they have the most aggressive interests in opening up developing country markets, which they say, and the UK Government fully admits, are for the benefit of business interests in the UK and in Europe. And what we are saying is, it is not just about pushing forward the business interests of Europeans, actually it is looking at the impact on the poor and the most vulnerable in developing countries, which, of course, from Save the Children's point of view, also includes the children in those poorer communities.

Tony Worthington

I have been trying to read your 'water' paper, at the same time as listening to you, so I may have got it wrong. You say you are arguing for flexibility and for policy choice, and in 'water' you say "We're going to take away that policy choice, we're going to ban any WTO country from choosing to go the GATS way"; that is right, is it not?

(Mr Hilary) Not at all, no, we do not say we are going to ban anything. I think it would be presumptuous of a single NGO to suggest that we could ban; we are recommending that WTO members do not commit their water sectors under GATS, precisely because that would then eradicate their choice, if they wanted to bring back their water sectors into public control, as so many have.

Well I am trying to find it, but it does say that water should be withdrawn; it should not be?

(Mr Hilary) We agree that water should not be a sector in which countries make commitments, so you know in the national schedules, under GATS - - -

That is a ban, to my mind?

(Mr Hilary) Who are we to ban it; it is a recommendation that no member country of the WTO actually should commit their water sector under GATS, because indeed that would be cancelling out their policy choice. You will see the quote from Mike Muller, who is the Director General of the South African Water and Forestry Directorate, where he says South Africa has actually engaged the overseas private sector foreign investment in its water sector, but it believes that definitely it should not be making GATS commitments, because that would close down its policy choice for the future. So we are putting the same point.

Yes, but you want to take away from the developing countries the freedom to choose to go in that direction, that is what you want to do, and yet no WTO member country has committed its water distribution sector to GATS, and there is nothing that can compel them, as I understand it, to commit?

(Mr Hilary) The issue is not so much about compelling them to commit, it is within the context of these WTO negotiations they come under overwhelming pressure, as they themselves have told us on numerous occasions, and what we are saying is - - -

It is overwhelming pressure which no-one has succumbed to, according to your paper?

(Mr Hilary) That is because this round currently is the first round in which there have been requests of developing countries to open up their water sectors.

But no-one has offered?

(Mr Hilary) They have only just received the requests, and, as you know, the offers phase is ongoing as we speak. What we are suggesting to developing countries is that they do not offer water.

And they are accepting, but they have freedom to decide whether to or not, but you want to take away that freedom. What would be interesting to me is, how do you recommend that large-scale water provision should be supplied; how do you recommend that should be supplied?

(Mr Hilary) That is a little bit outside the bounds of this particular paper and your inquiry, but I will answer it very happily. We have heard from the private sector companies themselves that they do not believe they have even a tenth of the capacity to meet the Millennium Development Goals, which in this respect means halving the proportion of people throughout the world without access to water, the private companies themselves are saying that they do not have the capacity, really they are not more than a marginal part of the solution to this. What we would recommend, therefore, is a dramatic mobilisation of public resources, from international donors and also within countries themselves, in order to provide effective and sustainable public systems to deliver water to all the people of those countries, and that includes a commitment to public sector reform in those countries where the public sector simply is not working at the present.

Sure; but it seems to me there are poor developing countries that do not have their own capital resources, so they have to involve the developed world in some way. One way they can do it is by going into straightforward debt, supplied by the World Bank, or major infrastructure; the other way is by using the resources in the private sector. And what are you recommending; because it does not seem to me there is any point in you telling us what not to do unless you have got a perception of what we ought to do?

(Mr Hilary) The third way would be to take, as I said, public money in order to build up public systems, which are sustainable and can deliver these services for the whole of the population.

So it would be grant from the developed world to the developing world?

(Mr Hilary) And also, as I say, as much mobilisation of local domestic resources as possible. The thing about the private sector is, in fact, that you are not unlocking capital which is flowing in without actually incurring extra debt, a lot of the case studies in our report show that, for developing countries which take on privatisation, or part privatisation, of their services, they end up with enormous debt on top of that as well. Tanzania is the most obvious example most recently. So what we would say is, there are many other, more useful avenues to explore than involving the private sector, because the private sector actually does not have any answers to the problems of non-access by the poor, since the poor cannot afford to pay and sustain the profits which the private sector needs.

Tony Worthington: So it is sort of agreeing with what Alistair said. We have gone round, and this issue about GATS is raised by British, European NGOs but is not raised with us by the developing countries. Is there a way in which you can answer that criticism?

Chairman

Peter, can you respond to that comment, and any other comments you want to make to Mr Worthington's questions?

(Mr Hardstaff) Thank you. First of all, I just wanted to reiterate that, when John is recommending that countries do not make a GATS commitment in water, that is not about not attracting FDI in the water sector, that, again, just to reiterate, these things are separate. You can attract FDI, you can liberalise, you can privatise, you can do whatever you want outside of GATS; the critical thing about GATS and our problems with it are the lock-in, the rules which affect the way that you can regulate FDI. So a position where you recommend a country does not take on a GATS commitment is not saying "Don't ever involve private finance in any sector," these things have to be separated. On the developing country angle, or development side, we work with NGOs in developing countries; there is a recent report by an NGO called Social Watch, which is a network of some 60 NGOs in developing countries, raising concerns about liberalisation and about GATS, so this is not just a northern NGO concern. I think it is fair to say that the developing country governments in Geneva at the WTO are steadily realising some of the problems with GATS and are starting to raise some of those. Developing countries consistently have called for more assessment on the implications of GATS commitments, on the implications of liberalisation; those still have not been met. On the bilateral pressure, I would like just to quote a speech from a Bangladeshi ambassador about the pressure, about bilaterals. I quote: "When you go into bilateral format of the negotiations you are vulnerable; why? Because against a major developed country you simply cannot withstand the level of scrutiny and you do not have the strength and numbers that you get in the multilateral process. This is exactly what happens bilaterally in the WTO." I think it is fair to say that there are more and more examples of developing countries concerned about the kind of pressure that they come under in GATS, a lot of it, of course, is not official, if you like, not through government papers but anecdotal, and that tends to be the way that these things come out in the WTO, and I think an increasing level of concern is being expressed. But, as you say, this has not reached the level of developing countries putting forward proposals, like they have done with implementation issues and like they have with agriculture.

Alistair Burt

We have discussed also, to some extent, Article VI.4, which is the Article about burdensome regulations, which gives countries the opportunity, it gives them this choice on their regulatory structure, requiring countries to develop rules aimed at restricting their domestic regulation to measures which are not more burdensome than necessary, however. The sense is, how will these regulations be interpreted, and we have a sense that probably you believe that the interpretation of such an Article will not necessarily be development-friendly, whereas the other interpretation equally is possible. What leads you in your particular direction?

(Mr Hardstaff) I think, on the issue of Article VI.4, the proposal for a necessity test, where you are setting up a rule whereby government regulations should be the least trade-restrictive and no more burdensome than necessary, we have no way of knowing how a WTO panel will interpret those rules if a dispute is brought to the WTO; however, I think our main concern is should the power be given to a WTO panel to interpret what is least burdensome.

Somebody has to.

(Mr Hardstaff) Why?

There is no point in having the rule which requires that arbitration unless you have some reference point for it?

(Mr Hardstaff) Exactly. We question the need for those rules in the first place; why do you need a rule requiring government measures to be least burdensome. This has not happened in the WTO before. This is an expansion of the WTO's rules into areas which we have not seen before, and we are concerned that this will constrain unduly the ability of governments, and not just developing country governments, effectively to regulate service providers. There is no definition at the moment on what these rules might cover, technical standards, qualification requirements, we do not know how broad the definitions might be of the kinds of regulations that the rules will cover, so we question the need even to insert these rules into the WTO. And it is important to recognise that this is not about the WTO's core competence, if you like, of so-called non-discrimination, this has got nothing to do with discrimination, these are rules that will be about the trade-restrictiveness or the burdensomeness of a government regulation. And it seems wholly unnecessary to both develop those rules and transfer the power, if you like, to the WTO dispute panels to decide what is or what is not least burdensome; as far as we are concerned, that is up to governments.

(Mr Hilary) Can I give you just one example which might be useful in this respect? It is the precedent which actually is cited at the WTO for how they see this concept of necessity panning out in dispute settlement. It comes from a 1990 ruling of a GATT dispute settlement, that is pre-WTO but still used by the WTO, and it relates to the case brought by the US Government against Thailand for the import ban that the Thai Government has always held on foreign cigarettes. The Thai Government came to this disputes panel and said, "Well, we maintain this ban on the import of foreign cigarettes because we have been told by the WHO how great an increase in smoking, particularly among children and women, is likely to be seen if actually we have American cigarettes coming on top of the Thai cigarettes, which are smoked just by men, and particularly older men." And the US came along and said, "Well, we can see that there is a public health issue here, but what we would like to maintain is that it is not necessary to maintain this import ban," and the WHO itself gave evidence and said, "Yes, we know, from Latin American countries and other Asian countries, that when you do drop a ban on imports you do see dramatic increases in the level of smoking." But the pre-WTO panel, the GATT panel, ruled in favour of the US, saying that it did not consider an import ban to be necessary under the trade rules which GATT and the WTO are there to uphold. So that gives us a sense of how genuine public health objectives actually will take second place to the trade liberalisation agenda of the WTO and any panel ruling.

Mr Colman

It is an interesting read-across, and, as somebody whose parents died from excess smoking, and my mother was very ill when sadly she died two years ago, certainly I would agree with that; but it is a strange read-across to GATS. But I am sure, in the evidence that you have seen we have already taken, the DTI emphasised that, in contrast to the multilateral agreement on investment, they say, that is DTI, corporations will not be able to bring GATS cases to the WTO dispute settlement panel, and therefore developing countries need not fear that their decisions about how to provide public services will be challenged in this way. Are you reassured by this, and, if not, why not?

(Mr Hardstaff) On the whole regulation issue, again, I think it is important to make a distinction. When we talk about regulation, we mean regulation of investors and also regulation in terms of the quality of the service, so it is not just environmental and social standards, for example, and how you provide a service; regulation for us also incorporates all the measures which the GATS is designed to get rid of, in terms of performance requirements, joint ventures, etc. And the DTI is absolutely correct, the GATS does not encompass investor states dispute resolution, and we have never said that it did, we have never claimed that GATS will allow companies to take disputes in the WTO, obviously companies can encourage their governments to do so, and, as we have seen with previous disputes, for example, bananas, a company can lobby its government to initiate a dispute settlement proceeding, but we have never claimed that companies will be able to do that directly in GATS. When you look at the kinds of regulations that GATS is slowly whittling away then we have major concerns; the leak of the European Union's 'GATS requests of developing countries' lists a whole swathe of regulations which the European Union is targeting for elimination. Cameroon currently has reserved its right to require, for every $10,000 of foreign investment, at least one job is created, and the EU has asked for that to be eliminated. El Salvador has a limit on the profit remittances of companies, and the EU has asked for that to be eliminated. Chile has capital controls, which some years ago actually were praised for sheltering Chile from a financial crisis; the EU has asked for that to be eliminated. These are the kinds of regulations which we are concerned, slowly, over time, are being whittled away through the formalised GATS process.

Do you think though that the dispute settlement mechanism is sufficiently transparent and accountable?

(Mr Hardstaff) In the WTO?

Yes; because it does provide, if you like, a benchmark which all the countries of the world, or all the members of the WTO, must all accept; it provides a level playing-field to developing countries and developed countries?

(Mr Hardstaff) There are particular problems with dispute settlement, when we say level playing-field, then, in terms of capacity, to initiate disputes and afford to initiate disputes, there are clear differences, in terms of the ultimate enforcement mechanism, which is trade sanctions, then there are clear differences in the ability of countries to use that, either the threat or the enforcement of sanctions. So currently there are still problems with the dispute settlement process, but it does provide an opportunity for both developed and developing countries to initiate a legal process to deal with what it sees are violations by the members of WTO rules.

And that is pro developing countries, in terms of ensuring that there is, if you like, a basis on which the regulatory framework, in fact, can be queried around the world?

(Mr Hardstaff) Having a legal dispute mechanism is not something that we have ever questioned; we question the operation of it and, if you like, the detail of the way that it works, but having a system, and a legal system, to resolve disputes is not something we have ever questioned.

(Mr Hilary) Might I make just one single point in that respect, which I think is important for the inquiry as a whole, it is to distinguish between the formal and the actual elements of the WTO. When you heard from Pascal Lamy very recently, he brought up this old canard that the WTO is an organisation which works on the principle of 'one country, one vote'; it does not vote, the WTO has never had a vote. So bringing up this idea that it is a 'one country, one vote' system actually is not particularly informative or meaningful because they do not have votes. Similarly, with the GATS, as we have already seen, it has the architecture of a very development-friendly agreement, but actually the process of negotiating it, and the market access negotiations which we are in currently, reverses completely that development-friendly architecture. So I think you need to look below the level of the formal WTO processes and actually find out what really is going on. And one thing which I know the Committee will be interested in for later on in the year, there is a book which is coming out in a couple of months' time, which actually is looking at some of the real processes which go on behind the scenes at the WTO, it is based on interviews with developing country representatives and many others within Geneva, and I think this is something which lays open the truth about what actually happens in international trade negotiations. We will certainly send a copy to each of you.

Mr Colman: I did ask that that be reviewed, in fact, prior to publication, by Members of Parliament, who actually were at Doha, but I am afraid that was refused.

Mr Walter

I wonder maybe if I could just turn this on its head. Clearly, it is not the case that developing countries are full of efficient service providers, providing water, electricity, sanitation, waste disposal, and so on, and clearly it is not the case that, even if they were there, they are not about to be cherry-picked by western multinationals. But, given your criticisms of GATS, which I see essentially as a framework, rather than a necessary process, but it does provide legal templates, and to some extent is a catalyst, in the absence of that kind of stable investment climate that GATS could provide, how do you envisage the provision of public services in developing countries being improved; the question is, if it is not GATS then what?

(Mr Hardstaff) Again, coming back to the point there is no evidence that GATS has increased the amount of investment going to developing countries, so if you make a GATS commitment that, whatever legal certainty you think that provides, obviously it has not been enough to attract primary investment. So, again, let us make a distinction between attempts to attract FDI into developing countries and making a GATS commitment, because the two are separate. WDM does not have a kind of 'in principle' opposition to private sector involvement in services, the private sector is very diverse, when you look at successful service provision in countries like Brazil, in countries like Bolivia, then there is a different private sector model that seems to be emerging, in terms of community participation and community-based management systems; in this case it is water. Now there are lots of different possibilities for increasing the transparency, increasing effective service provision, we do not claim to know the answer; what we are concerned about is the ability for countries to change, to iterate, as they go along, and that is where our problem with GATS lies. So I do not think it is a question of, if not GATS, what else, because I do not think GATS necessarily is relevant to providing services in developing countries, countries can try to develop service provision systems without GATS, I do not think it is that relevant.

But many countries have been trying to do this for years, and what GATS has done, or has attempted to do, and we are only at the beginning, we are talking about major investment projects now, these are not something that happened overnight because somebody signed a piece of paper in Doha, really it is trying to create the framework, the climate, in which companies will feel some stability in being able to make that investment. What you are saying is, "No, let's kick that away, let's not involve the WTO, let's just leave it as it was and hope for the best"?

(Mr Hilary) No, because I think, if I may respond to that, companies already have a fairly high level of security through the other investment-related provisions of the World Bank, in particular, ICID, the committee through which they can actually chase up any compensation for contracts which have been cancelled, they already have that level of assurance. What GATS does is, it gives them an extra level of guarantee against political and commercial risk. What we feel is that handing more and more and more of these guarantees and rights to companies actually could swing the pendulum much too far, because it takes away the rights of the people whose lives potentially are harmed by some of the most negative investments. What we are suggesting is you need actually to get back into a more balanced framework, which allows countries the flexibility to have their own policies to maximise the positive use of foreign investment.

What is negative investment?

(Mr Hilary) You have many examples of investment where the foreign investor will come in and undermine already existing state provision of services. The example I can give you, from Save the Children's research, is in terms of health insurance, where you have countries which have tried to roll out a social state health insurance programme across their population, which is based on risk-pooling, cross-subsidisation and the greatest number of people participating within that. If then you have competition from Prudential, or Alliance, or one of the other big multinational insurance providers, actually that cuts the market in half and makes it unsustainable, and, before you know it, the common saying is that the poor are left with poor services and the rich end up with even better services than they have already. It is in that type of framework that foreign investment actually works to the disbenefit of the poorest, which again is why it is wrong to lock it in under GATS.

Mr Battle

Could I ask about Mode 4 of GATS, that labour mobility clause, and when the Secretary of State gave a speech at Chatham House, she said "...that if developed countries increased the proportion of temporary labourers to the equivalent of just three per cent of their labour forces it would yield an increase in world economic welfare one and a half times greater than the gains we could expect from the liberalisation of all the remaining trade restrictions." So, that question of Mode 4 of GATS allowing that mobility, what is your view on the desirability of Mode 4?

(Mr Hilary) Certainly we have always called for the richest countries to open up their systems for increased mobility of labour, and we agree completely the level of benefits actually that could bring back to developing countries. In 1997 already India gave more than $10 billion in the remittances from its own personnel working overseas. But, within that general approbation of the idea of extending the mobility of labour, Save the Children, in particular, has wanted to make just one small caveat, it is a large caveat, actually, and that is in respect of the migration of key personnel from developing countries in, for example, the health sector. The World Bank actually has suggested to developing countries that they might see the export of health personnel as a nice earner for their economies, very good for balance of payments, but what certainly we feel, at Save the Children, is that these key public services are under extreme strain already in many developing countries, and it is much more important for the key personnel in health and education and other basic services to be retained within the countries in order to deliver those services to children and their families.

Would not that depend on the circumstances in those countries?

(Mr Hilary) It would, but what we find is that there are only one or two countries in the world which have a genuine surplus of these personnel to send; Cuba is the obvious example, which is targeting other Latin American countries.

Yes, in health; and the Philippines, in nursing?

(Mr Hilary) Indeed, the Philippines in nursing, although there are signs actually that the major drain of Filipino nurses to developed countries actually has begun to have a negative effect.

Just to go back, you put up a strong case to argue against GATS, on the whole, and really it relates to, if not GATS, what other international structures do we look to, and I take your distinction between investment structures, but what kind of regulatory framework, if you like, for the whole? And if actually you were to win your case and GATS was dropped, Mode 4 goes with it, what would you replace it with?

(Mr Hilary) If I could just respond, particularly in relation to the regulation of Mode 4, and, as we were touching on health, stick within that sector, you may be aware that there is a joint project of the WHO, the International Organisation on Migration, the International Council of Nursing, a lot of different organisations, including the ILO, to try to develop a binding code which actually will ensure that there is not the wholesale poaching of developing country staff. So, in terms of regulation, there are international, global moves to ensure that this is not something which will harm developing countries.

But you would see that separate from GATS, you would pull Mode 4 out of GATS and do it through the ILO, is what you are saying really?

(Mr Hilary) No. What we are saying is, that is the forum, this international body is the forum for working to regulate that flow of personnel; let us be clear that that flow of personnel is happening absolutely independently of GATS, and so, in a sense, there is nothing which is actually being lost in that respect. We would still push for developed countries to open up greater possibilities for mobility of labour, but ensuring that these types of sensitive, basic service industries are excluded from that general push.

So, if I can be clear then, you would want to separate out the questions, the issues around Mode 4, from the general argument on GATS?

(Mr Hilary) The increased mobility of labour is something which certainly we do support. We do not see that necessarily it has a particular place within GATS, inasmuch as also it can be negotiated and the systems can be improved outside GATS.

John Barrett

You mentioned on a few occasions about countries buckling to pressure in negotiations, and you had mentioned also, I think it was, anecdotal evidence from Bangladesh, again, that excessive pressure had been put on countries to make decisions that were not in their own interests. But is it not the case that, just to be devil's advocate, the countries which have lost out in negotiations will say, "We were put under undue pressure," or is there any hard evidence that you can give us to show that this did happen, and that countries actually made decisions which were not in their interest? And have you hard evidence again that people did not have the capacity to negotiate in their own interests?

(Mr Hardstaff) On the issue of pressure and signing up to things that you did not mean to, I think that, at the moment, the most obvious examples would be other WTO agreements, like trade-related investment measures, TRIPS, signing up to the agreement on agriculture, where developing countries thought that this was a framework where they were going to get similar benefits, and over time they have not seen them. So the whole raft of so-called implementation issues at the WTO is a case in point, about signing up to agreements and then wanting to review or change those agreements because you do not feel that they were beneficial. In terms of pressure, most of the evidence, if not all of it, is anecdotal, like the quote from the Bangladeshi ambassador I gave earlier. This is in the context of the current negotiations, rather than talking about something that has gone on before, so it is not about Bangladesh feeling like it has lost, it is talking about, in the current context, of the current negotiations, this is the kind of question that it can come under. So the evidence largely is anecdotal, but when you look at the progress of previous agreements and the desire to change them then I think that is a clear indication that countries signed up to something which they have realised they do not like, they may have felt they came under undue pressure to sign up to the rules as part of the single undertaking in the past round, and now want to review, change, reverse, those rules.

(Mr Hilary) Can I just address the issue of capacity, which was the other question you raised. One interesting story from the meeting we had with developing country representatives in Jakarta last year. The Ministry of Health officials from Jakarta, from the Indonesian Ministry of Health, said very proudly that they had not committed any of their health services to GATS, and I pointed out, in the chart which we had in our report to that meeting, that, in fact, the Indonesian Government had committed its health insurance industry. And the representative from the Indonesian Ministry of Health was horrified, immediately got on the 'phone to the Ministry of Finance and said, "How on earth did you do this?" and the Ministry of Finance said, "What's it to you; we deal with insurance, you just deal with health?" And it shows, that was ten years ago, when they were making their initial commitments under GATS, at the original time, that there would be absolutely no co-ordination at all with the sectors' representatives which had been most affected. That is a story which has played out across almost all of the countries which made commitments ten years ago, some of which now are saying, "We'd like to take them back," but are being told, in the Council for Trade in Services, "Forget it; this is a one-way street, you can't go back. Once you've committed to it, that's it."

Alistair Burt

As you are aware, the WTO negotiations are all-embracing, everything has to be included and a big final deal has to be come to; that is because there is a whole series of trade-offs and balances. In your view, are developing countries better off or worse off if the whole thing fails and just does not happen at all?

(Mr Hardstaff) I think, from our perspective, the issue of the so-called single undertaking is a big one. There is, I think, an extremely valid criticism of piling all the issues together, so that nothing is agreed until everything is agreed.

But that is how it is?

(Mr Hardstaff) That is how it is, because the European Union and some other WTO members pushed for it to be; that does not have to be necessarily how trade negotiations are done.

But it is how it is for this current round?

(Mr Hardstaff) That is how it is for this current round.

My question is, if it all breaks down, because of the objections and one part cannot fit together with another, are developing countries better off or worse off if this just fails, if Doha fails?

(Mr Hardstaff) I think, if the negotiations collapse then, from our perspective, developing countries will be better off, because we hope there would be then a period of reflection, review, of the reform. We believe that the issues that developing countries have raised and that civil society has raised concerning problems with existing agreements, with the negotiating processes, need to be dealt with as a matter of priority. And what we have seen, from the current negotiating process, the single undertaking, is that those issues tend to get sidelined whilst the industrialised world is pushing its expansive agenda; the classic will be new issues and the decision at Cancún and the trade-off that is being set up between agriculture and some degree of CAP reform and agreeing to a whole swathe of new WTO agreements. So, I think, from our perspective, we would see it as potentially positive, if there is a shock to the system and if there is then a process of reflection and reform.

Alistair Burt: And what incentive would there be then for it all to start again; and, in the meantime, how much damage would be done?

Chairman: I think that is a comment, a rhetorical comment; and I am keen that we should try to discipline ourselves to finish these sessions by 11.30 when the House starts to sit. I think we have all had a good opportunity to go round these issues, and thank you for your contribution, which has been extremely helpful. Thank you very much.