TUESDAY 11 FEBRUARY 2003

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Members present:

Tony Baldry, in the Chair
John Barrett
Mr John Battle
Hugh Bayley
Alistair Burt
Ann Clwyd
Mr Tony Colman
Mr Piara S. Khabra
Mr Robert Walter
Tony Worthington

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Memoranda submitted by CAFOD, Christian AID and OXFAM

Examination of Witnesses

MR DUNCAN GREEN, Policy Analyst, CAFOD, MS CLAIRE MELAMED, Senior Trade Policy Officer, Christian Aid, and MR MICHAEL BAILEY, Senior Policy Adviser on Trade, Oxfam, examined.

Chairman: Thank you for coming and giving evidence to us today. You are individually and collectively well known to the Committee. Questions will be generally addressed to the team. You are not all obliged to answer every question. Please feel free to work out between you how you allocate the questions. The purpose of this inquiry is to try and get the detail. We are pretty conversant with the broad brush concerns. We are trying to see whether we can identify particular actions that could happen or changes of policy that could make a substantial difference. We are looking at Doha and other things and we are looking at: what is it that we should be doing, either in the EU or in WTO. We are looking at the more detailed policy.

John Barrett

  1. Often the best way to find how to move forward is to see what has gone on in the past. Looking back, what historical evidence is there that you can tell us about the link between trade policy and poverty reduction? That sets us in the context of where we are. What have you learnt, particularly in relation to trade liberalisation for yourself or your partners, about the way forward? Looking back, what have we seen happen and how do we move forward?
  2. (Ms Melamed) The one clear message that comes out of a review of the evidence is that there is no single relationship between any given policy, be it trade liberalisation or any other trade policy, and economic development. There are instances where liberalisation has had a positive effect on development in general and development of particular groups of people within countries. There are many more instances where it has had a negative effect. Similarly, with protectionism, with subsidies and with various other instruments that are the subject of this debate. There are cases where they have been extremely successful in developing local enterprise and national economies. There are instances where they have been less successful. The single message I would give is that there is no single message.

    (Mr Green) This is a big issue. There is a danger sometimes when you listen, say to the World Bank or others, that they seem to mix up cause and effect. In many cases what history suggests is that the kinds of policies that are prescribed as a way of achieving development are often the result of development. I will explain what I mean. If you look at countries like Taiwan and Korea, they have often liberalised after a successful period of state development and, when their economies are strong enough and complex enough to cope with the dangers of liberalisation, then they liberalise. This has been fairly effective in some areas. I have just come back from Argentina; I was there last week. There you have a situation where a country with quite a big economy liberalised very rashly, both in terms of trade and capital flows, in a very poorly handled privatisation process and it is now suffering the consequences. GDP has fallen by about 13 per cent last year; the country is 60 per cent below the poverty line. That is a situation where liberalisation was too hot to handle for the economic and political structures that exist. It is important to look at liberalisation, as Claire says, country-by-country, but also to see what parts are the result of a successful state-led process.

    (Mr Bailey) In the Oxfam Trade Report, which we published last year, we did a detailed study of the relationship between trade liberalisation and poverty reduction, using a different set of assumptions to those commonly used by the World Bank. We found that in fact there was some correlation, a weak correlation, between cautious liberalisation and success in poverty reduction. We are not saying that that proves the point. We agree with what Claire said, that in a way you can show almost anything with models. The answer is that there is no single strategy on trade which reduces poverty, but, if anything, cautious liberalisers have done better. Certainly we have seen in a number of countries that we have studied how incautious, over-rapid liberalisation has caused considerable damage to local industry or to small farmer interests. That is not to argue against liberalisation. We have also seen countries where reducing trade barriers has led to more efficient national industry.

    (Mr Green) Claire has reminded me of something we were talking about outside. The historical focus is very important and too often neglected in favour of discussions on the basis of modelling and theory. I had a fascinating conversation with a man called Uri Dadush, who is Head of Trade Policy at the World Bank. He laid out essentially what the post-Washington consensus is: good government, sequencing and pace with liberalisation, and so on. At the end of that I said, "Fascinating, could you just give me some examples of countries that have developed in that way?" and he looked blank and said, "I cannot think of any, but there must be some". This man is Head of Trade Policy at the World Bank. The alarming thing about that is that it demonstrates a lack of historical awareness, or lack of historical interest even. At least he should have been able to give some examples. On the wider point, I definitely welcome some historical focus.

  3. All three of you used that term, "trade liberalisation". Looking back, is there more that we can learn from what has happened in the past to make sure that we actually use trade policy as a focus for poverty reduction and not just as a trade-focussed issue?
  4. (Mr Green) I think there is an important distinction between trade openness and trade liberalisation. Trade openness is related to GDP and it is often used as a shorthand for trade liberalisation. Some of the most open trading countries, countries like Taiwan and Korea, are very much not liberalised. The experience is that export promotion and openness to trade can be very effective in reducing poverty, but trade liberalisation is different set of policies, which have many more down-sides, in our experience.

    Chairman: In this inquiry we want to get together a glossary of terms. We will send that to various witnesses. You can all give your definitions of some of these things. Part of this debate, we have discovered, is conducted by those within the secret garden in a sort of shorthand. Sometimes the shorthand does not always mean the same. It would be useful for parliamentarians, and others more broadly, to have an understanding both of what some of these phrases mean and what are the different nuances. This may be one of the first reports that will have a glossary in the back in relation to terms and what different organisations mean by those terms.

    Mr Colman

  5. "Trade openness" is a new one on me. Could I ask you what are the prospects for the post-Doha negotiations amounting to a development round?
  6. (Mr Bailey) I would say very gloomy. I was in Geneva last week and on Friday I spoke to the Indian Ambassador and also to the Bangladeshi Ambassador, who co-ordinates the Least Developed Countries Group. I asked them whether they had seen anything in the course of the months since Doha where there have been significant gains of any sort to developing countries. Both of them said: "We have seen no progress whatsoever on matters of concern to us". If you look at the slow progress in reforming European agriculture and at the US Farm Act, which was passed last year, you can see that the problems of agricultural protectionism have increased rather than diminished. I think agriculture is going to be the main stumbling block, in fact, for the new round. Unless there is some progress on agriculture, I think everything else will stay pretty stuck. Developing countries have quite a long shopping list of issues from the Uruguay Round which they want dealt with as a priority. It was agreed at Doha by all the Member States that those would be addressed as a matter of priority. For example, to use a bit of jargon, on the question of special and differential treatment: developing countries are saying, "In the trade rules for liberalisation, we need to be treated differently. We cannot expect to have a balanced equal reduction in tariffs, say, between rich countries and poor countries. We cannot expect to implement the same rules in terms of intellectual property ". The rich countries have agreed: "yes, we will put this whole question of how developing countries should be treated differently as a priority on the negotiating table." In June, the first deadline for results was missed. In December, the second deadline for results was missed. That negotiating group has failed to come up with any significant agreement on how developing countries should be treated differently. The only small change I think is in the question of notification, where developing countries do not have to tell the WTO immediately about changes in their customs arrangements. These are purely nominal. As the Bangladeshi Chair of the LDC Group said to us, "We have had no changes in special treatment of any commercial or economic value whatsoever". I use that as an illustration to show that what was held out to be a key part of the development round, has made absolutely no progress at all. The list could go on to market access for textiles and the resolution of the current debate about the TRIPS Agreement and its impact on access to medicines and so on. I came back last week with a very depressing picture of the willingness of industrialised countries to make any concessions whatever to developing countries. I am putting this very strongly because there really was a very grim picture as far as development content goes.

    (Ms Melamed) There are two things to add to the point that Michael made. Yesterday, the committee dealing with special and differential treatment actually recommended to suspend the discussion because they said that they were getting nowhere and that they were taking up so much of developing countries' limited time and capacity in order to get nowhere. The developing countries decided it was better to suspend the whole negotiation until a later date. It is important to emphasise that the time-tabling and the point about certain issues being given priority were things that were supposed to make it a development round. It was not simply that the development round was defined by the range of issues; it was also defined by the way in which these matters were dealt with. The idea was that certain issues would be dealt with first. That was, first of all so that developing countries would not have to spread their capacity over a number of issues; and, secondly, that key issues for developing countries, special differential treatment, TRIPS, and public health and implementation, would not be subject to the kinds of trade-offs that would be forced to occur if the decisions were delayed. The idea was that developing countries could get certain issues of key importance to them resolved without having to pay for them through making concessions in other areas. Because of the slowness and delays and missing of deadlines, that key component of the development round has already been lost. I think there is a certain kind of complacency sometimes that creeps into the thinking about the delays, that this is not that important, it is bound to happen and we all know that in rounds everything is always decided at the last minute, that is just how it is. It is important to emphasise that that was one of the things that was supposed to make it a development round; it was supposed to be different this time, and it is not, and now it cannot be.

    (Mr Green) To reflect on why, it is not that the people in Geneva are bad people or anti-development. I came back from Doha quite optimistic but I have been proved rather wrong by events, to my embarrassment. When you look at why, it is something about the way WTO works. As soon as they got back to Geneva, the negotiators rolled up their sleeves and went back to business as usual, and that is extracting as much as you can get and giving as little as you can. That is not even the free market but a very straightforward mercantilist approach to negotiation. The amount you invest depends on how much economic and political clout you have. That has very much been the story since Doha. Increasingly I think that we should bear that in mind when we put issues in to the WTO, that it is very hard to imagine it ever working really any differently. It is a fairly hard-nosed negotiating forum.

    (Mr Bailey) That description of how the WTO works is almost word-for-word what the Deputy Head of the UK Mission in Geneva said to me on Friday. He did add that the UK, of course, was the one country that did it differently, but he would, wouldn't he? It is that idea that a trade negotiator gets one over on the other if he can and gives nothing away.

  7. The Interparliamentary Union is having a conference with the WTO next week on Monday and Tuesday. What would your advice be to the British delegates going to that conference as to what they should be pressing for and what single thing do you think the UK Government should be pressing for to ensure that this is a development round?
  8. (Mr Green) This needs a regular comparison of what is going on in the WTO against the Millennium Development Goals. Call the WTO and actually ask them to show how they intend to help the international community deliver by 2015. That is something people just do not think about in Geneva. They may put it in the Doha Declaration but I would pretty much guarantee that since Doha it has not crossed many people's radar screens. If the Parliamentary Union can have that political oversight and accountability role, it would be very helpful.

  9. Clearly it has that particular oversight. What do you think the UK Government should in fact be pressing for, just one thing?
  10. (Ms Melamed) The UK Government negotiate in the WTO through the European Union, so any change of approach obviously would have to be negotiated through the forum. As Michael said, agriculture was one of the keys to the round. Pressing the European Union to change its views on agriculture somewhat would be helpful. I suppose one key thing that would help very much in making it a development round is not to introduce any new issues at this stage and to say that we are where we are. There is a huge range of issues on the table, the difficulties of those are well known, and there has been slowness of progress. The idea of introducing anything new into this situation is really rather bizarre if people are serious about involving countries and getting a good outcome for that.

    (Mr Bailey) Your question is a bit like which of our children we prefer; it is tricky. On agriculture, in relation to subsidies and protection by tariffs and so on, I think the UK Government has been working hard in Brussels to try and convince its European partners that we need changes. We would like them to do it harder still of course. Where the UK has been particularly active is on the question of expanding the WTO agenda to include new issues. The European Union is the principal "demandeur", as they say, the principal driving force, for getting these so-called new issues - investment, competition and government purchasing - on to the WTO agenda. Within the European Union, the UK has been the main enthusiast for this. That is possibly an enthusiasm somewhat tempered at the moment. I think that if the UK reviewed its position on expansion of the WTO agenda, that would make a very big difference in Europe, much more than so than anything it said on agriculture. That would, in turn, have an impact on how developing countries perceive the round, and indeed the chances of sustaining the round. I do not think one should underestimate the extent to which the new issues are, along with other things admittedly, a potential round-breaker or round-spoiler.

    Hugh Bayley

  11. I would like to know what NGOs in other countries are doing, what your counterpart organisations are campaigning for, particularly in the EU because of the Common Agricultural Policy. I sense on agriculture that the UK is making proposals, perhaps not as radical as you would like, which are still ahead of the field in the EU. The Government feels very strongly that unless we can build a fan club for fairer trade across Europe, as Jubilee 2000 did on debt, they will not be able to put together a pan-EU view that drives the debate forward. What is happening in other countries? What are you doing to encourage colleagues and sister organisations in other countries to work on this issue? What could the UK Government do to make common cause with people who are arguing similar but at least complementary positions in other countries?
  12. (Mr Green) CAFOD is a Catholic aid agency and we work very closely with our sister agencies in Europe and elsewhere. We have probably taken the lead on agriculture with the Catholic network. We have done a joint submission to the Commission on the Mid-Term Review of the CAP. I think it is fair to say that most of our views are in that joint submission. Each agency tends to reflect the national political context, and so it should. The discussion between us and the Catholic organisations in France and elsewhere tends be a mini version of the discussion between governments. In terms of what the UK Government should be doing, I think it should be very careful. UK governments going and telling the UK NGOs what to say is risky; telling the European NGOs, it is liable to blow up in their face. I think one thing which is very useful is funding the right kind of research - I have some examples of different research later that have been helpful - and then putting it in the public domain and seeing if it is taken up. The difference with Jubilee 2000 is that trade is a much more complex issue and in some areas we agree with government and in some areas we very definitely disagree. It is not a completely analogous situation but there are definitely pan-European movements growing around some areas and I would say "No New Issues" in the WTO is probably the biggest unifying thing across Europe at the moment.

    (Ms Melamed) Various networks of NGOs exist. There is the European Trade Network, which exists mainly to co-ordinate the activities of NGOs on trade with regard to the European Commission. That meets regularly and discusses strategy and so on. There are also embryonic Trade Justice Movement type organisations in various countries. I think in Germany that is probably the most advanced. There is a growing level of campaigning on these issues across Europe as well. I endorse what Duncan said, that the particular issues that they focus on depend on the national context. I do not think that necessarily many or all of them would see themselves as existing to back up the UK position within Europe. Obviously many NGOs would support the UK position on agriculture, and a lot of them do see their role as being to push their governments in agriculture. But, as Duncan said, the "no new issues" is another as important, if not more important, focus of NGO campaigning, and on that we disagree with the UK Government. I think it would be wrong to see campaigning necessarily as the cheerleader for the UK Government.

    (Mr Bailey) As Oxfam International, we are present in 12 industrialised countries. We are co-ordinating our global campaigning on a number of themes, one of which is agricultural dumping, subsidised dumping, by both the US and by the European Union. We are working with partners in Europe on this. We will soon have someone working in France because it is a big part of the problem on agricultural reform. Was the extent of the concerns of southern NGOs part of your question?

  13. Yes.
  14. (Mr Bailey) Clearly there are as many concerns as there are NGOs and countries. Certainly this point about expansion or threatened expansion of the WTO agenda is exercising everyone. We have found that our work on commodities, particularly on coffee, has an echo in quite a number of developing countries. We have good partnerships with producer groups, particularly in Latin America and the Caribbean, who are concerned that something is done about the state of the world commodity markets. We also find that in a number of regions there is a lot of concern about regional trade agreements, particularly those promoted by the United States. In Latin America, for example, at the World Social Forum where both Duncan and I were recently, the Free Trade Area of the Americas, which is in many ways WTO-plus, is pushing liberalisation further and faster than the WTO process. It goes beyond TRIPS, for example, in intellectual property protection. That is something that we foresee as quite a serious problem and the general consensus amongst our partners is that they do not want the free trade areas in the Americas. The EU regional agreements, for example Cotonou, or the Mediterranean agreements, are also of some concern to our partners. This is mainly because of the lack of recognition that the developing countries should not be asked to open up as much as the Europeans should be prepared to open up. Of course, on a number of products in industrial sectors we know that the Europeans are not prepared to open up very much at all. Underlying almost universally the concern amongst our partners on trade issues is this basic point we touched on at the beginning of this session, which is that the pressure is on them, whether through the WTO, regional trade agreements or the World Bank and IMF, to open up their markets to foreign investment unconditionally, to open up to import competition without conditions and at a high speed. If you ask most people that we work with who they see as the bad guys when it comes to forced and rapid liberalisation, they will point to the Bank and the Fund rather than to what is happening with the WTO. That is a very live issue because they are still in debt and they are encouraged, I would say in some cases actually forced, to introduce trade policy measures that otherwise they would not do.

    Chairman: May I make two brief comments on the question of Doha? Firstly, what you collectively have to say about what is happening in Geneva, which we are already seeing to be a development round, is depressing. Of course, we on this Committee will probably not be reporting until the autumn but we may issue a short report before then. Claire, as you have the misfortune to be sitting in the middle, could you kindly co-ordinate an informed NGO note on what is happening in Geneva at the present moment? I would like to write on behalf of the Committee to Patricia Hewitt just flagging up these concerns now and to write to Lamy now. That would be helpful. Can I also pick up Hugh's question and re-visit it because it is important. I think all of us yesterday received a note from the Trade Justice Movement about a weekend in June. The policy people behind you can deal with this. That is when the Trade Justice Movement is going to want to see us all MPs in our constituencies. They are trying to see every MP during the 24-hour period in his constituency. I can see as a lobbying campaign that has a lot of force. I doubt if you will find a Member of Parliament in the UK who does not believe and would not put their hand up to straightforward issues such as the need for fundamental reform of the Common Agricultural Policy. From hearing your evidence this morning, agriculture is high on the agenda. The question I would ask the TJM, and they are making an important point, is: what is being done to do a similar exercise with members of the French National Assembly, the German Bundeshaus, the Spanish Cortes? Unless one actually starts lobbying members of other parliaments and national assemblies around Europe, all we are doing is having a mutual cuddle. Frankly, mutual cuddling may make us all feel warm but it does not take us forward. May I reinforce what I think you were saying a few moments ago, that we need to ensure that concerns in the UK about trade policy are taken out elsewhere in the European Union. We are certainly trying to do that at a parliamentary level but it also needs to be done through the NGOs.

    Alistair Burt

  15. I think we have covered the subject quite well. We must move on. You are pretty rude about CAP between you. "Crime against humanity" is probably the least worst point that you make, you quote that, and the $2 a day cow. Could you set out briefly for the record your views about the impact of CAP on food security and livelihoods in developing countries and, secondly, your genuine consideration of whether or not reform is possible with the Franco-German attempt to seize up CAP reform. Was it a final act of desperation to try to hold off the tide or is it just an example of an absolutely intransigent attitude you are going to face throughout Europe and you are not actually going to change very much at all?
  16. (Mr Green) We are development agencies. CAFOD certainly has no mandate within the UK, so it has to tread carefully in what it says about the CAP. Our principal concern as a development agency about CAP is that it leads to over-production, which is then dumped on developing countries at the cost of or below the real cost of production. We see this in a number of countries where we have talked to partners. I notice that our Jamaican partners sent a rather good submission to the Committee, which we are very pleased about, which details how this dumping takes place. Our concern on CAP reform is that a way must be found to stop that dumping happening. If you look at the way the CAP has changed over time, it has got slightly less bad in the sense that export subsidies are probably the most egregious kind of policy in terms of dumping and the move - and I am sorry if I am going into CAP speak here - to direct payments and the move proposed now by Fischler to decouple payments from production should help a bit. The idea that you can throw $2 at a cow, or _40 million a year at agriculture and that will not have any effect on trade is rather hard to believe. What you will get is a situation where, even under the decoupling proposals, farmers will get an income cushion and will then trade on top of that. This will enable them to sell at a price at which they would not otherwise sell. I do not see how that can be minimally trade-distorting, as is claimed by Fischler and Lamy. Our view is that with levels of spending that high, dumping will continue. There are a couple of other things in terms of the politics of all this. You asked if the Franco-German accord was a final act of desperation. I wish. 2013 is a long way away. The Franco-German accord agrees funding will continue to 2013. I noticed in the hearing you had last week with the people from DEFRA that they were saying it is actually not bad because we are capping it and it is now 25 countries rather than 15, so really it is a decrease. It is up to a point but the new countries will only get a small proportion of the overall CAP spend, so it is not actually decreasing it that much. Lamy has said, I think probably privately, that it is CAP reform that drives the WTO position, not the other way round. Fischler is trying to use the WTO negotiations to get CAP reform and that is why they are saying such different things at the moment about the relationship between CAP and WTO. Fischler wants to get CAP reform; Lamy wants to keep the WTO on track. Therefore there is a serious division in terms of the signals they are sending. My fear is that CAP reform is really going at a snail's pace and will break the Doha Round.

    (Mr Bailey) May I add that there is considerable evidence of damage to small farmers livelihoods in many developing countries from subsidised exporting. We have documented the impact on developing countries of cotton subsidies in the United States, for example, the effect on West African producers. We have looked at sugar and milk in the European case. We will be looking at wheat and cereals as well in the near future. It is a catalogue of scandalous destruction of livelihoods or missed trade opportunities for developing countries. In the case of sugar, thanks to the exception of sugar from the 'Everything But Arms' initiative of the European Union, Mozambique is losing about $100 million a year in potential sugar exports. For a country that is as desperately poor as Mozambique - and surely we all sympathised with people hanging off trees during the floods - it is pretty scandalous that we are effectively robbing them of $100 million a year, an amount that they desperately need, through the subsidy system, because of the dumping. We are prioritising this in our global campaigning, especially the export subsidies. It is not just the imports that countries have to compete with, and which they cannot deal with, but we should not forget the loss of developing country exports to third markets. India is the biggest milk producer in the world and would quite like to export milk, say to the Mediterranean or to the Middle East, but it is unable to do that because highly subsidised European milk is dumped in those markets. That is what they have lost. My final point on this question in relation to the CAP and subsidies is that we also have to look at the pressures on developing countries to open up their own agricultural markets, even though these subsidies are still there in full force and dumping is in full spate, if you like. You have to be very careful in the Agreement on Agriculture - the negotiations on agriculture with the World Trade Organisation - that developing countries are able to protect themselves against this tide of products, but the European Union position is not as strong as we would like on that. The many industrialised countries which are pushing developing countries to open up their agricultural sectors - and we could talk more about that - should agree a series of measures at Geneva which would enable these poor countries to stave off the flood.

    (Ms Melamed) To add on that, the point that Michael made about the development opportunities being foregone is really important. This is not a static problem of people not able to grow. I was in Ghana two weeks ago. Dumped products is a big issue in Ghana. There is a whole range of products where people are arguing that they are losing out through dumping. One of these is poultry. There is an argument that in fact the current producers of poultry in Ghana not only are being undermined by cheap imports of poultry from the European Union and Brazil, among others, but also the poultry industry in Ghana has quite a significant multiplier effect on the economy. Were the Ghanaian poultry industry to be able to sell more widely, just within Ghana, there would be implications, and therefore there would be requirements for poultry feed, processing and so on. The implications for the economy of Ghana would ago far beyond simply the poultry farmers. Were the Ghanaian markets accessible to Ghanaian poultry farmers, there would be far more implications for development than you would see by simply looking at the poultry industry. I have documents from the Ghanaian Poultry Farmers' Association that I am happy to show you, if you are interested. It is very important to look at this in developmental terms as well as simply in terms of the livelihoods of individual poor people, which is obviously very important to do.

    Mr Walter

  17. We tend to focus very much on Europe and the CAP but if we look at the total OECD subsidies to agriculture, we are looking at significant multiples of just EU subsidies. I am particularly interested in the United States. Do you see a similar move in the United States to link the support given by the US Department of Agriculture, which is very significant, and other agencies as well there to the WTO agenda, or are they not yet at that stage of discussion?
  18. (Mr Green) I think the US has been much cleverer in the handling of this issue than Europe has been. It does not have this public spectacle of 15 countries arguing all the time, and therefore it has got off the hook quite successfully in Geneva. The US Farm Bill at the beginning of 2002 increased support for agriculture, as you know, and the US is a significant dumper. But it has managed to turn a lot of the attention to the EU at the moment. There is a movement in the US and NGOs are doing excellent work there. With Mr Bush in the White House at the moment, he seems fairly keen on keeping the farm lobby happy.

    Mr Colman

  19. I come back to your intervention of earlier about the Trade Justice lobby in June and that coming to see MPs. Clearly some of us represent agricultural constituencies. CAFOD said that it was not able to comment on how it would see agricultural policy being developed in the UK because it consists of development NGOs and could only represent those issues that developing countries are bringing forward. Do you have partner NGOs, as it were, in the UK actually working on the detail of how you would like to see the CAP change, which would mean that we would still be able to support, if you like, a rural economy in Britain but would clearly fulfil what the Trade Justice Movement would like to have happen?
  20. (Mr Green) We work very closely with a number of NGOs in a very tight network on CAP reform. Some of them have been doing it for 20 or 30 years, so they really know their stuff, people like the RSPB and the Consumers' Association. There is quite a good link between overseas, the environment and the domestic impact on all these things. We have taken a general view on what should happen in the UK, pointing out that most of the benefits do not go to small farmers. One important point is that large companies and farmers should not be able to hide behind the skirts of small farmers in terms of public opinion. If Britain could move from MAFF to DEFRA and change its way of thinking about rural policy, why is the EU not capable of doing a similar thing? Let us have a common rural policy rather than a Common Agricultural Policy and then start looking at who lives in the countryside and what they need, rather than have this very farm and business-driven approach to half the EU budget. We have said a few things.

    Tony Colman: It would be very helpful to have that angle moving forward. That may be much more hard-edged than perhaps the generality of saying: should developing countries have better access in the EU? Everyone would agree, but what does it mean to individual rural constituencies in Britain that could be very hard hit by those changes?

    Hugh Bayley

  21. Duncan, may I reflect on that last phrase you used about farm and business-driven agenda. It occurs to me that these are different things. If you look at the food industry, it is a consumer of farm products and it has conflicting interests with the farmers. Nestlé, who may not be your favourite multinational, came to me recently to say that they are up for campaigning against the European sugar regime for, one understands, very clear reasons of self-interest. If they could buy sugar, which is perhaps one-third of the cost of a Kit-Kat, from Mozambique at half the price that they have to pay for EU sugar, there would be benefits to the company. Almost all the food industry (and some food campaigners which would campaign against this) use a high content of sugar in processed food, which is mostly of what most people eat in the developed world. To what extent are you looking for allies on this issue, even if not more general partners for development within the business sector, as well as the NGOs and the Consumers' Association?
  22. (Mr Green) This falls into the long spoon club set of answers! One of my colleagues was in Davos recently and one of the things he was doing was talking to the World Economic Forum Agricultural Taskforce and seeing what kind of common ground there is. There are some areas where we agree on subsidies, for example, and there is work that can be done there. Often you say similar things for different reasons and you have to be very careful about how you do this. Certainly, we are well-versed in engaging with a whole range of private sector actors. We take the initiative here and elsewhere but we do not have an ideological problem. We have to be clear about where the alliance begins and ends.

    (Mr Bailey) I would say that the same is true for Oxfam. We were in Davos mixing with the same people. If there are sectors of industry which are supporting reform of the CAP for their own reasons, that is fine. If they want us to do a very public alliance with them, that becomes slightly problematic from our point of view. We support their pressing in the right direction. On the question of European farm subsidies: Oxfam has a domestic poverty mandate as well as an international one. We are certainly not calling for the abolition of all subsidies. I do not think there is any NGO North or South who is saying, "Scrap all subsidies for rural areas". What we do say is that they should be considerably reduced and targeted very much at the smaller farmers. Clearly where there is more rural poverty, there should be more subsidies - also targeted at environmental and broader social objectives. We are very clear on that. If Europe opens up more to developing country agriculture or reforms the subsidies regime and exports less, clearly there will be some adjustment, but we do feel that the rich countries are in a much better position to help some farmers over a period of time, to move out of farming. There is a big difference between moving out over a 20-year period and over generations, say, with some assistance to do so, and being thrown out of your land overnight, which is what happens in many developing countries with the import surges and liberalisation that we have had. We are very clear that we do not want to destroy the livelihoods of the Welsh hill farmers, absolutely not, for the benefit of Argentinean cattle barons, but that does require quite significant reshaping of the European Agricultural regime. We are concerned, I would say, that the British Government is not putting those social environmental objectives really to the fore in its reform propositions. We were very disappointed that the UK opposed the Commission proposal to limit individual farm subsidies through the CAP to 300,000 Euros. It would be a very welcome step to say: no, the money is not going to agri-business for the big guys who can probably take care of themselves, we should the smaller farms. But the UK, regrettably, has opposed that. We need to keep pressing on that.

    Tony Worthington

  23. To go back to two points about campaigns, WTO and the prospect of the weekend of 27 and 28 June being taken up with trade matters, we are going to get lots of letters which will be inspired by NGOs, the World Development Movement, by the Trade Justice Movement, in which WTO will come across as the anti-Christ and yet there is a huge danger in this. One feels that the NGOs would be campaigning for the creation of the WTO if it did not exist because it is democratic, it has all the nations of the world in it, and yet the WTO does not really exist in terms of its members. If it did not exist, the bullies would win all the time. Do you not feel there is a danger in the style of campaigning that you are going to undermine something that could be a considerable force for good in the world?
  24. (Ms Melamed) That is a difficult question. Obviously, when you are campaigning and attempting to reduce what are very complex policy arguments to issues which can be campaigned on, there are always issues. I think that NGOs have been very careful to try and emphasise to supporters in the course of building up the trade campaign that the WTO is not like the World Bank and the IMF, which are significant actors in their own right, and that the issue of the WTO is, as you say, very much more about the way in which countries act within it, that the WTO as an institution actually is driving trade policy forward. That said, I think there is a big distinction between the way the WTO could and should work and the way it does work. It is absolutely legitimate to draw attention to the problem of democracy within the WTO. As you say, in theory it has 145 members, no voting, decisions by consensus, et cetera. In theory it is a very much more democratic institution than most other international institutions. In practice, as we have already alluded to and as I am sure you will find out if you to go to Geneva in the course of this inquiry, it does not work like that. The experience of the developing country delegates at the WTO is not that they are participating in a democratic process as equals with the EU, the US and the other developed countries; their experience is that they are under-resourced, they cannot attend key meetings but if they do not happen to be in the room at the moment of decision, their approval is assumed. It is passive consensus; you have actively to say "no" rather than actively say "yes". There all kinds of ways in which the day-to-day experience of developing country delegates in Geneva is that the WTO is simply not as democratic as it could be and as it should be. There are very few commentators on these issues who would say at this point that things would be better when there is no WTO but one absolutely should not make the leap from there to say, "And therefore the WTO is fine". In a sense, it is that ground that we are trying to cover.

    Chairman: I have some sympathy with Tony's point. My point is that maybe a month before the WTO lobby, the Trade Justice Movement lobby, we might see if the Committee could have an informal session with your policy advisers rather than campaigners and an exchange of views on what works so far as we as parliamentarians are concerned and what they are trying to achieve as campaigners. I agree with Tony: I think there is a danger sometimes in campaigns becoming very simplistic in single lines, and then people say that is unreal.

    Mr Battle

  25. I am not sure that 27 June is going to be a mutual cuddle. Just as we think there is a quick and easy answer and that the World Trade Organisation is undemocratic, not very efficient and still playing the capitalist game, we tend to say this of the American and European farmers. I think underneath those words such as "trade openness", "trade liberalisation" and "market access" are massive unspoken hidden assumptions of different economic models and we do not really open up that debate and try and understand the complexity of it. I put it to you this way in an attempt to stir it up. I do not think it is an easy consensus about what we want or what the NGOs think they want, what poor farmers think they want or what northern Europeans and the rich world wants. An official from DEFRA last week said that as far as relations with developing countries goes, the primary purpose of CAP reform is to provide better market access, to use a phrase. In the CAFOD memo, market access is "very far from being a poverty panacea or even the most important issue for poor farmers in developing countries". I would like to ask: why is market access not a poverty panacea and what do you think poor farmers really want?
  26. (Mr Green) All two and a half billion of them! I start with my own experience. I went to Kenya this year and last year. Among other things, I went to see the people who grow flowers and vegetables for Marks and Spencer. If you are growing mangetout in Kenya and you want to sell to Marks and Spencer, you have to get the product from the fields to the Marks and Spencer shelf, or to the Tesco shelf, or any of the other shelves in Britain, within 48 hours in chilled conditions for as much of that time as you can. The mangetout have to be all of the same kind and the same length. There must be no kind of a blotch. Now you must use no pesticides because of the requirements of the EU. The level of technical skills, marketing skills and capital investment required is beyond most small farmers and so the small farmer is being squeezed out of that production chain. That is one reason why the kind of simplistic market access equals trade equals poverty reduction should be questioned. Actually, those markets are quite job-creating and so they do reduce poverty, but in other cases, such as soya bean exports from Brazil or Argentina, the impact on jobs is quite limited through the tax system. You have a situation where people are making a claim which they cannot back up with anything like a serious case study or research. One of the things DFID could be doing is trying to look at the cases in which export promotion has led to poverty reduction and the cases where it has not. This can lead to the expulsion of small farmers from the land if big guys come and buy it all up to grow flowers. There is far too much dogma and not enough evidence on the whole issue. I want to plug somebody else's book for a change. There is a Korean economist who is my number one guru at the moment, a chap called Ha Joon Chang. He has written a book called Kicking Away the Ladder. He goes back to the 14th century and shows how countries managed trade, intellectual property rights, investments, all the issues which are now being debated in WTO. He shows that in every case, except possibly Holland, they have always discriminated between national and international producers; they have always used high levels of state regulation. This idea that these things should now be made illegal under the WTO is, in his words, kicking away the ladder, which comes back to the point right at the beginning about the importance of looking at history when discussing this subject and not approaching it in a Chicago boys' vacuum.

    (Mr Bailey) I would add this on the market access issue. Our Trade Report emphasised that developing countries could earn about $100 billion more a year if the northern countries were less protectionist. This is looking at agriculture, footware and textiles. All the things that developing countries are good at exporting, we are good at stopping at the border. There is a clear development benefit with improved market access. However, that does not come automatically. We would argue that that market access is a necessary but not a sufficient condition for there to be benefits in the developing countries. There are a lot of other things that developing countries have to do to make sure that the benefits from exporting, as Duncan has suggested, are actually shared more widely and do not accrue simply to local elites or at the expense of the environment. Though one of the demands in Oxfam's trade campaign is to reduce these northern barriers. We have to be very careful that we do not then subscribe to the view that export-led growth is the way to go. In that sense, we do have to qualify our call for market access very quickly and very carefully.

  27. What resonance does that receive in the Agreement on Agriculture negotiations where they are still pushing very hard for export-led growth and market access, which is the final category?
  28. (Mr Bailey) Certainly developing country governments in Geneva are pushing hard to improve market access, along with other things.

    (Ms Melamed) The important issue with market access is the terms on which you get it. Quite often market access is offered under conditions which actually make it less useful in that countries are less able to improve their supply response in order to have more for exports. For example, the current negotiations in which the European Union is involved with the ACP countries, the Cotonou and the Cotton Associations. The idea is that the ACP countries are being pushed to move from non-reciprocal market access to reciprocal market access. The danger there is that that is going to undermine the whole way in which market access might potentially be useful. The countries that have benefited under the previous non-reciprocal regime are those that have actually used various kinds of interventionist and protectionist trade policies within their own economies in order to boost their production, in order to benefit from market access, such as Mauritius. If those options are not being made available to the ACP countries under the proposed new arrangements, market access will be a lot less useful in future than it has been in the past.

    (Mr Green) We should be careful about saying what developing countries say. The positions of developing countries usually reflect their own economic situation. The big agri-exporters, like South Africa, Egypt, Argentina and Chile, want market access. The importers are much more worried about the impact of dumping. There is one other factor. DFID has funded something called the Globalisation and Poverty Programme over the last three years, which spends 3 million on a number of research areas, such as the impact of investment, impact of trade liberalisation and what good government in the WTO looks like. The Committee might like to think about asking the researchers, who are led by Professor John Humphrey from IDS, to present their findings which should be ready by June or July.

    Chairman: We move on to special and differential treatment and development box proposals.

    Mr Walter

  29. We move into the area of jargon. The Doha Declaration agreed that: "all special and differential treatment provisions shall be reviewed with a view to strengthening them and making them more precise, effective and operational". That is the idea. The development box was not actually mentioned in the declaration itself. We had, as you probably know, the DTI officials, and officials from several government departments, here last week. The DTI officials stated that the Government believes in principle that there should be appropriate special differential treatment to allow developing countries to be smoothed into the liberalised system. Is this the right objective and what, in your view, should the development box include and how would it help developing countries?
  30. (Ms Melamed) The development box is, in a sense, a specific instance of special and differential treatment. If you do not mind, I will start with a general discourse on special and differential treatment and then perhaps others will come in on the development box. We seem to keep coming back to your first question here about what is good trade policy from the point of view of development. The debate on special and differential treatment is perhaps, of all the debates in the WTO, the one that most closely touches on that issue. The Government's approach to special and differential treatment, outlined in what you have just said, is that the purpose of special and differential treatment is to deal with the difference between WTO members in terms of their capacity to implement WTO rules, so that, for example, with particular complex rules, it may take longer for a developing country to implement the agreement on intellectual property rights because it has to develop certain institutions and so on. It is an expensive and complicated business. Therefore, it makes sense to give developing countries longer to implement what are virtually the same rules. That was the approach taken for special and differential treatment in the Uruguay Round, and that is the approach which the UK Government, and most other industrialised country governments, are still taking. The difficulty is that it is precisely that approach which the developing countries objected to, which is why special and differential treatment is such a big issue at the moment. What the developing countries in the WTO tend to argue, and again obviously there will be differences between developing countries, put crudely is that what they require is in fact special and differential treatment which will reflect their different trade policy needs, rather than making a difference in implementation. What they need is special and differential treatment, which will actually allow them to have a different kind of trade policy for a period of time, which will allow them, as Duncan said, to do exactly what the European, American and other countries have done in terms of building up their domestic industries, protecting their vulnerable populations, and so on. That is the crux of the argument. Within the WTO, as is wont to happen with the WTO, this has taken all kinds of political and bizarre twists and turns. The outcome, after nearly a year, has been absolutely nothing. Despite the very heavy engagement of developing countries in this process, very little has happened. Actually, apart from the importance of issues of special and differential treatment, there has been an interesting test case on the capacity arguments in the WTO. We are used to hearing that the problem with developing countries in the WTO is that they lack capacity and therefore if you put money into capacity-building, everything will be OK. In the special and differential treatment discussions, in fact there has probably been an equal level of participation from developed countries. They have put in an enormous amount of resources; they have taken all the advice they can take; and yet, even when they put in equal amounts of resources and even when capacity is less of an issue, they still do not get what they want. That is something of an aside but it gives you quite an important indication into the realities of power politics in the WTO.

    Chairman: Hugh Bayley has two specific questions on SDT and then we will come back to the other questions on the development box.

    Hugh Bayley

  31. First of all, Claire, can you tell me a little bit more about the framework agreement your paper talks about? How would that work? Can I link to that: is there not a danger that too much SDT will undermine the principle of reciprocity upon which the whole WTO edifice is based?
  32. (Ms Melamed) I will start with the framework agreement. The idea of the framework agreement was first mooted by a group of developing countries before Doha as something they wanted to put on the table as a possible way of dealing with this.

  33. Can you remember who they were?
  34. (Ms Melamed) I think Pakistan, Kenya and India were involved. I can send you the original proposal that they tabled in the WTO. The idea was essentially to deal in advance with the kinds of problems that had come up in discussion. At the moment, the way the special and differential treatment is dealt with tends to be on an agreement-by-agreement basis, so that developing countries have to negotiate the special differential in agriculture, industry, TRIPS and so on. Basically what they have to do in WTO, in the mercantilist way in which the WTO operates, is to give something away every time. In a sense, they are negotiating the same point over and over again in each agreement, that they need to have more flexibility, they need to have longer implementation times. They are achieving the same thing every time and yet having to give something away separately every time. The political purpose of the framework agreement is to prevent that happening. If we think collectively as WTO members that this is an appropriate way of dealing with the differences between countries in the WTO, then let us set that out at the outset rather than having to negotiate it separately every time. That was the political purpose of the framework agreement. The economic purpose was as I have just said. It came from this understanding of the history of trade policy, that developing countries have specific requirements in terms of trade policy, in terms of being able perhaps to use a wider range of trade policy instruments than a more industrialised county needs, and that therefore that should also be reflected in WTO agreements. I think the whole experience of what has happened to special and differential treatment since Doha has borne out that political calculation, that developing countries are going to be required to pay an extremely high price come Cancun for whatever they get in special and differential treatment. In a sense, everyone agrees that they should get special and differential treatment but yet everyone is returning to extract the maximum possible price for that.

  35. I have one little supplementary on that point before we move on. If you have within a framework agreement an acceptance that the least developed countries, or some developing countries, should simply notify, shall we say, the WTO what their SDT requirements would be in relation to TRIPS or whatever it might be, there will come a point of course when least developed countries graduate out of the need for special assistance. That, of course, is the critical issue. It is about when Malaysia, for instance, needs the ladder and when it is reasonable for the ladder to be kicked away. How do you deal with that issue if you have institutionalised special terms of trade? How do you deal with the graduation?
  36. (Ms Melamed) The graduation issue is one of the matters that is holding everything up. The WTO at the moment has this rather bizarre system where the category of developing countries is self-selective, so that any country can simply announce that it is a developing country and receive the benefits due to it. The United Nations category is used for least developed countries. There has been an enormous amount of debate on this subject. It is one of the things that is really holding up the whole discussion. This is an illustration of the problems with the way WTO works, that in a sense the politics of the situation get in the way of what are perfectly sensible economic discussions. At the moment, there is huge resistance by developing countries even to discuss the issue of graduation because they fear that basically it will be used as a device to give away less things to less countries, whereas in private some of them do agree that obviously it is something that will have to be discussed. Even some of the developing countries' proposals do have the germs of ideas about differentiation. Perhaps the most sensible way to look at it would be to have a framework agreement which set out a requirement that within each agreement there should be special and differential treatment; that it should be designed in such a way as to give developing countries more flexibility for development purposes; and that within each specific agreement there has to be some kind of consensus on the criteria that could be used to define which countries could be eligible for special and differential treatment under that agreement. The special and differential treatment has to be appropriate to the problems which it is designed to solve. Clearly, there may be some countries that would require much greater flexibility in their agricultural policy which perhaps would not require it in their industrial policy, and vice versa. It is important to make sure that the instruments countries are allowed to use are appropriate to the particular problems that they have.

  37. May I make one comment in leaving that? I do not think the problem is just in terms of defining the countries which are least developed or developing and therefore need special and differential treatment, but it is in designing the process of removing that assistance in a way that does not simply knock them back to square one. There is the graduation process but there is an economic problem as well as one of definition. That is a comment. Duncan, you said in your paper that you wished that trade rules could be redesigned to distinguish between social groups and not just between countries. I wondered how that could possibly be achieved? What does it mean? Does it not undermine the role of the government in a developed country which has the responsibility to pursue economic policies for poverty alleviation and a more equal society?
  38. (Mr Green) That is all about squaring various circles and this is an attempt to square the development circle, if you like. If you are presented with a large country, and let us take Brazil where you have millions of small farmers and a few tens of thousands of very big farmers, somehow it is very arbitrary to apply the same trade rules to both those groups. In the past, trade rules have always been done country by country. The development box is an attempt to see whether trade rules could be designed in such a way to be a filter and only apply to certain social groups. This actually already exists in the Agreement on Agriculture. There is talk of special rules for low income and resource-poor farmers. There is talk of special rules for staple foods in the existing rules on agriculture; it is just that no one has really picked it up. We took that existing stuff and said that staple foods are mainly grown by the poor, not by the rich, in developing countries - that is a very generalised view - and if the low income, resource-poor farmers exist, then surely we can have trade rules which do things like allowing governments to exempt staple foods from liberalisation commitments or allowing them to subsidise low income, resource-poor farmers in ways that they cannot subsidise big farmers? This is about trying to drill down a little bit below these national categories, which I think is an alternative to this endless attempt to differentiate between developing countries. There are poor people in Brazil and in Ghana: why do we have to classify Brazil as one thing and Ghana as another if we can find a rule which picks up poor people in both countries?

    Chairman

  39. That is helpful and brings us back to Robert Walter's question: what in your view should the development box include and how would it help developing countries?
  40. (Mr Green) I laughed when I read the transcript and the awful idea of spending a Sunday afternoon in Oxford debating what a development box is. That rings true. The development box is a way of talking about development in WTO jargon, and in particular in the case of agriculture. It is asking how we can talk about development in such a way that people in Geneva understand what we are on about. That is the big picture. Specifically it means that you have a set of exemptions and allowances within the Agreement on Agriculture which deal with precisely this problem: small farmers and staple food producers. The experience is that one of the worst impacts of over-hasty trade liberalisation has been the impact on those small farmers. There is a group called Friends of the Development Box; there is Friends of Fish, Friends of Geographical Indicators and there are all sorts of bizarre groups in Geneva. The key proposal of Friends of the Development Box is to exempt staple foods from production commitments. There is a number of other bits and pieces within the development box. I would say that is at the heart of it. Can you take staple foods and treat them differently within the trade rules? That received a lot of interest in Doha. There was a head of steam. It did not make it into the ministerial declaration, and that is a great shame. There has been a number of submissions since. DFID has taken the issue seriously. The EU has taken the issue seriously in its own way, which is to co-opt language and remove almost all content. The EU has now said it supports what it calls a food security box, and

    actually it has much less in the box than developing countries would like to see, but it has successfully confounded the campaign for the development box by doing that.

    Mr Walter

  41. I want to pursue the development box idea because there is a danger, is there not, and I think the DEFRA officials we had here last week did not say any different, that agricultures become isolated and that actually what you should be doing is trying to encourage them to diversify, to get into different areas where they would be competitive, rather than just protecting and effectively ossifying their own domestic agriculture. Do you think there is that danger?
  42. (Mr Green) I come back to Michael's point, that that requires good government policy over a long period of time and a transition, not a vast swathe being cut through small producers. Something like 97 per cent of the world's small farmers are in developing countries. The enormous majority produce for the domestic market. The idea that all of them are going to start growing mangetout is not clearly thought through. UNCTAD in the last Trade and Development Report said, especially for the larger countries, that those countries like China and India are going to have to develop on the basis of their domestic markets and there have to be domestic linkages, and not on the basis of export loan credit. There is just not enough demand for that level of export. The term "ossify"is very emotive language and we would not want to condemn those two and a half billion people for being poor; they have had terrible lives as under-resourced farmers. But trade liberalisation right now is not going to make things better. The experience of the FAO, UNCTAD and NGOs has been that it makes it worse. The question is: how much will a more holistic view of an agricultural policy help those farmers improve their productivity? It may help some of them move into international trade, but the market access that matters, and will continue to matter to those small farmers, is access to their domestic markets.

    Tony Worthington: Take the case of Caribbean bananas. What about trade patterns that are historical and those Caribbean banana producers have been producing not for their domestic market but for the export market but they have been protected? Should we not be looking at things that they could produce more efficiently to replace the bananas that could be produced much more cheaply elsewhere in central America?

    Chairman

  43. Anybody else want to talk about bananas?
  44. (Mr Green) I am not a bananas person.

  45. Michael, do you want to talk about bananas?
  46. (Mr Bailey) No.

    (Mr Green) The answer is yes.

    Tony Worthington

  47. One of the areas where there is agreement by everybody is that the developing countries, not all of them but many, are ill-equipped for the negotiations within the WTO and that if the WTO is, in the future, going back to what I said earlier, to be seen as a positive force for developing countries, we have to do something about that negotiating capacity. How should that be done?
  48. (Ms Melamed) The first and most obvious thing that should be done is, if not to reduce it, to limit it to the number of issues that are on the WTO table, and within those constraints of the number of issues that we are dealing with there are then various other measures about boosting capacity that could be done over the long term, but I think the most immediate short term response to that is to say that if we all accept that there is a problem of capacity we have to stop where we are now and not have any new issues.

    (Mr Bailey) We would agree with that. Also, the way that the WTO does its business and reaches its agreements is problematic for developing countries. As you know, since the Uruguay Round what they employ is the method of a single undertaking, so-called, which means that they negotiate a whole series of agreements (in the case of the Uruguay Round a vast number of agreements) and then agree them, all or none, so you are either completely in or you are completely out. This means that developing countries have to sign up to a whole bundle of things at the same time. In the case of the Uruguay Round they really did not understand half of what they were signing up to or the implications of it. We would like to see a reversion to the old way of doing business at the GATT, which is to negotiate agreement by agreement. Then developing countries can know what they are getting into and be conscious of what the implications are for them rather than have this huge package to which at the end of the day they have no choice but to say, "Yes, we agree". This links the point about the volume and pace of the agenda in Geneva.

  49. Neither of those points is about negotiating capacity or about building the capacity of the developing countries. They are about slowing down what is coming at them.
  50. (Mr Green) Yes. There was an interesting study by Sheila Page of the ODI, funded by the Globalisation and Poverty Programme - I do not know if she is going to be a witness - who has compared developing country participation in a number of different negotiating fora, including the climate change negotiations under WTO, and has come up with some ideas on how that can be improved. One interesting one is that the best way to learn about negotiating is to negotiate and that the countries that been involved long term in WTO or other negotiations are much more skilled at it and much more aware of it. The logical conclusion from that is that the whole round structure is questionable, and that permanent negotiations actually lead to capacity building in a way that endless seminars from consultants flying into the capital city and giving a talk do not. She sees ideas that can be picked from other UN processes which could be useful to the WTO. As far as I know none of that kind of thinking is going on except in the ODI. I have got her paper here which I can leave. It is fairly short by ODI standards.

    (Ms Melamed) Can I sum up that what we are all saying is that the problems to capacity lie in the structure of the WTO rather than in bunging in a few more million quid to run a few more seminars, because I think that approach has been tried and developing countries in Geneva are rather cynical about that approach and NGOs are becoming so.

  51. I am a bit surprised that none of you has suggested building up capacity on a regional basis. We are recently back from Malawi and are therefore familiar with SADC. I think it is difficult to believe that Malawi, given the size of the country and the under-development, could realistically cope with all of Geneva on its own in the foreseeable future.
  52. (Mr Green) Sheila is one of Malawi's negotiators.

  53. In one of them?
  54. (Mr Green) In one of the summits, yes.

  55. But the regional point. That is how we do it, is it not, in the European Union?
  56. (Ms Melamed) Yes. I think in Geneva to some extent developing countries do do that informally. There is a strong Africa Group which organises the money itself and there is an informal division of labour within that group as to which countries will be focusing on which negotiations. I think it is an important approach where it comes from the countries themselves and where it is based on definitions of mutual self-interest. The danger comes if it is imposed - "You are all in southern Africa so you must have the same interests", whereas in fact, for example, in southern Africa there are a number of occasions on which South Africa has taken a very different negotiating stance from other southern African countries, so I think there is a danger of assuming that because they are all developing countries they must all have the same negotiating interests. That often is not the case but I think there is a lot of mileage in self-selecting groups, sometimes regionally-based, sometimes issue-based, and that is actually happening in Geneva.

    (Mr Green) But there are also a lot of stories - this is all on the level of gossip in Geneva - that where regional groupings do emerge countries who are negotiating against them do their best to undermine the unity of those groups. There is a lot of talk, for example, about (and these are all allegations) the US using AGOA (the African Growth and Opportunities Act) to pick off certain countries who are key within the Africa Group and thereby weaken its voice. It is not as if everybody is saying, "Oh, great. Our negotiating partners are better at negotiating now". That is not how it works.

    (Mr Bailey) Just on the capacity building, clearly there is a need. It is important that the capacity building that is provided, the resources that are provided, do go to genuinely assist developing countries work out what is in their interests and how to negotiate. Our anxiety is that some of the resources that have gone for capacity building are actually about helping developing countries implement WTO agreements, in other words, to conform, if you like, to what is expected of them by the system rather than understanding more clearly what their interests are and how to battle for them.

  57. You have said that we should drop the new issues in the forthcoming negotiations. What do the developing countries themselves feel about that?
  58. (Mr Bailey) It is quite difficult to know exactly what they feel. When we talk to most of them in private, and certainly when they were making public declarations before the Doha Ministerial, the majority of them are against the expansion of the WTO agenda. But through a variety of means which we can go into if you like, they were persuaded to accept at the Doha Ministerial that negotiations could start after the Fifth Ministerial, the Cancun Ministerial, which is coming up. However, a number of them were still unhappy with that and, as you may recall, India mounted a last-ditch effort to keep the door open at Cancun to not starting negotiations on these new issues. So we have this rather strange situation where formally negotiations can start after Cancun but any country can say, "We do not agree with the scope of the discussions", or the scope of the negotiations or the details, and therefore indefinitely postpone starting negotiations. Before Doha the least developed countries and the African-Caribbean-Pacific countries came out clearly against negotiating the 'new issues'. But by a variety of devices, including particularly skilful manipulation, I would say, Pascal Lamy managed to persuade them to go along with it at Doha. Currently, there are one or two countries that clearly are in support of the new issues - Korea at the top end, almost the OECD end, of the developing countries scale, and Costa Rica, but I would say the majority are against and if they had a free choice they would not expand the agenda.

  59. What would happen if you had your way, if new issues were put on the backburner? That does not mean those issues would have no activity associated with them. I assume that bilateral activity would go on and that it would be taken out of the framework of the WTO. Would there be a down side to that?
  60. (Mr Bailey) There have been discussions at the WTO since 1996 when a working group on trade and investment started, for example, so discussion would continue within the WTO on negotiation of new rules and possibly market access as well. Investment, procurement, and competition can be subjects of regional trade agreements and clearly we would be concerned if the Americans were successful, for example, in pushing these through in their bilateral treaties. The sad fact is, though, that although we have the multilateral process on a whole range of economic governance issues it does not stop the bilaterals. It would be nice if they did but I think that is the reality. What we do say is that there are important issues to do with investment, competition and procurement that need addressing by the international community. We know that there are problems of cartels, for example, in some international commodity markets. We know that there are problems of market domination in coffee or in grains. Restrictive business practices abound and they operate internationally - tax evasion, tax avoidance by companies, transfer pricing, use of tax havens. There is a whole series of issues concerning management of the international economy that we do want to see addressed in order to assist developing countries. What we are saying though is that that is not what the rich countries are proposing when they propose expanding the WTO agenda. What they are about much more is increasing market access and actually deregulating international investment.

    (Mr Green) WTO is the wrong place. Everything gets sucked into the WTO because it has a court and it has teeth vis-a-vis the settlement procedure, but actually one of the WTO's two core principles is national treatment. You have to treat foreign entities at least as well as domestic entities and for all the historical reasons I laid out earlier that does not work for investment. You actually have to distinguish between foreign and national. Our argument is that it is just the wrong place and also you have got to find a forum that can balance the rights and responsibilities of large companies and that will not happen in the WTO.

    Mr Khabra

  61. The WTO is holding Mini-Ministerials to ensure that sufficient progress is made prior to Cancun. What is your view of Mini-Ministerials and should we welcome them as a way to break the deadlock in trade negotiations or condemn them as limiting the effective participation of developing countries in trade negotiations?
  62. (Ms Melamed) It is a difficult one. I think to some extent in the WTO with the very large membership there is a kind of efficiency/equity trade-off and that if you have meetings with smaller numbers of people then you will be looking to get faster progress. The question is really what you want in the WTO. Do you want progress or do you want good rules? We would argue that the Mini-Ministerial process is perhaps erring on the side of efficiency at the cost of equity within the WTO process and that there is a real danger with having a small group of countries where it tends to be the same countries invited over and over again, that they are being given in a sense a privileged position in decision-making, other countries by definition being squeezed out of that process, and there is a danger that what you come out with may be decisions but they may not be the right decisions.

    (Mr Green) It is an extraordinary situation. I asked DFID once if they would fund the WTO on the basis of its governance. There is a de facto executive committee, which is what Mini-Ministerial is becoming, where it is down to the host country to decide who to invite, presumably in consultation with the WTO Secretariat, but the whole thing is completely unaccountable, completely un-transparent, and they may or may not help break deadlocks but where is the governance in all this? It is rather worrying. For example, the next Mini-Mi, as they are now called, is taking place in Tokyo this weekend. They are discussing agriculture as the main issue and as far as I can see from the list of countries there is not a single one of the countries that proposed the Development Box invited. That is probably an accident but that means where is the accountability in that? No-one has been involved in making that decision. It is very worrying.

    (Mr Bailey) It is a hand-picked group of developing countries, certainly the larger ones, because you cannot not invite Nigeria or Brazil. But in the case of the Tokyo Mini-Ministerial, Bangladesh, the current Chair of the least developed countries group, which is obviously really important from the development perspective, was not invited. Of the Africa Group you have Senegal and Lesotho, who are fairly tame; they are not the outspoken ones who are going to raise tricky issues. Particularly for the smaller countries there is definitely a problem of inability to participate in key moments in moving things forward.

  63. Your operation suggested that the Government should urge the WTO to review the effectiveness of the process of Ministerials. In your view what is wrong with the way in which the WTO works, and how would UN-style negotiating processes á la the Framework Convention on Climate Change improve things?
  64. (Mr Green) This comes back a bit to the work that ODI has been doing. You can see it begin to shape up for Cancun now. The idea in Doha was, as Claire said earlier, that various things would be ticked off and sorted out before Cancun and Cancun would be a stocktake and a sort of steady-as-she-goes. Instead, everybody is pushing everything into the final decision-making in Cancun. Cancun is three or four days and none of those decisions will be taken until three A.M. on the day after the Ministerial is supposed to close. In Doha a large number of developing country delegates had already left when the declaration was signed because they could not change their flights. It leads to a kind of chaos and extraordinary brinkmanship which does not lead to good law. In the ministerial process, especially because there are now 145 members of WTO, as the WTO expands and its agenda expands, the idea that you can crack everything at the last minute just leads to problems and then you have to go back over implementation problems, the developing countries get upset, you have to renegotiate everything. It just produces a kind of chaos. There are other models of governance out there, other models of international negotiations and I think we should look at them.

    Chairman

  65. I think it just reinforces the point that we made earlier that if you collectively can do us a note on your concerns about how Doha is coming up to Cancun, that would be helpful because we can then take this up with ministers. In the Oxfam paper, and this is addressed to you, Michael, you focus quite a lot on the commodity crisis, you talk quite a lot about coffee and we have got Prime Minister Meles coming to give evidence to us shortly. I was in Ethiopia and I note with interest your paper on coffee. Is not the difficulty with coffee simply that there is too much coffee being produced in the world? Vietnam has come to the market place. Brazil is substantially increasing the volume of coffee it is producing and there is a finite amount of how many cups of coffee we can all drink.
  66. (Mr Bailey) Absolutely. There are supply problems. Many countries, as you say, have been encouraged to increase their coffee exports, in the case of Vietnam very much encouraged by the World Bank, and this has led to the current crisis with historically low prices.

  67. Sorry to interrupt, but Vietnam is a developing country so they were just taking an opportunity in a market they could enter into.

(Mr Bailey) Sure, but what they were not advised was that if they increased production and other countries simultaneously increased their production there could then be a complete price collapse. At the moment you have farmers based in Vietnam unable to sell and cover their costs of production. It is clearly not good news if the price has gone below your production costs. That is not sustainable. There is no single answer, no magic policy, that is going to transform the coffee market overnight. We think there are a number of actions on different fronts which will make a difference. Certainly reducing the supply is important and we back the proposals from the International Coffee Organisation to reduce the supply of low quality, low grade coffee on to the market which has increasingly been what we are drinking, regrettably. That also requires co-ordinated action by the producer countries, monitoring by the consumer countries and the co-operation of the big roasters who are so strong in the international coffee market. In the short term we are arguing for the destruction of some stocks because they do hang over the market depressing prices. Reducing the supply is not going to do everything. Some people are going to have to move out of coffee, so diversification for farmers is important and they need aid for that. We also need to look at the trade barriers in the US and Europe and Japan which make diversification difficult because you cannot diversify into something if you are facing a trade barrier for that product. Another element of the solution is to increase the value added in coffee or in other commodities in these countries. Clearly, if you are a manufacturer of instant coffee you are much less vulnerable to the fluctuations in the market than if you are exporting green beans. There is clear scope for advance there. If you look at Brazil, where I did the launch of the Oxfam Coffee Campaign last year, Brazil has a sophisticated economy but 95 per cent of its coffee goes out in the form of green beans. Why? Because it has not suited the international roasters to set up manufacturing and export of processed products. If you look at the global coffee market, ten years ago 30 per cent of the value of that global market stayed in developing countries. Now ten per cent stays in developing countries, so the lion's share, all the money in coffee, is being made outside. Adding value in countries will increase their income but will also make them less vulnerable to these low, volatile prices. Finally, I would say that the companies have a responsibility too. The five big roasters control half of the world's coffee market, so if they started paying better prices on long term contracts that would make a difference, and if they bought more fair traded coffee, if they just went up to, say, two per cent of their sales in fair trade coffee, that would again make a huge difference. We are not talking about reverting to the old style 1960s interventions where you try and keep an artificially high price for a commodity and then you cannot sustain it and it all collapses and it is a mess. We are talking about a series of interventions by different actors in a concerted way which will not necessarily give us great prices but will give us better prices and more stable prices, and that will make a big difference to millions of producers.

Chairman: Thank you all very much for coming and informing us on a lot of policy issues. We look forward to getting your report in the very near future about what can be done to try and get Geneva back to being more of a development round.