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Oral evidence Taken before the International Development Committee on Monday 30 June 2003 Members present: Tony Baldry, in the Chair __________ Examination of Witnesses Witnesses: RT HON BARONESS AMOS, a Member of the House of Lords, Secretary of State for International Development, and MS DIANNA MELROSE, Head of International Trade Department, DFID, examined. Chairman: Just to set this session in context, the Committee have been doing, as you know, a fairly lengthy inquiry on trade and development and we have been very grateful to your officials for the help they have given us. The Secretary of State for Trade came and gave evidence early on in our inquiry and we have had evidence ranging from the Prime Minister of Ethiopia to South African parliamentarians. We at the end of this session - ie the week after next - hope to publish a report which will be Trade and Development at the WTO: Issues for Cancún, and then later on in the year we intend to publish a further report but I am conscious that your time is limited now this afternoon so I will ask Hugh Bayley to start. Q503 Hugh Bayley: Secretary of State, can I start by asking for your opinion and your view of the agreement on CAP reforms struck last week? Do you think that the goals of decoupling subsidies from production and of reorientating support towards small farmers survived enough in the final agreement, and what will be the timetable for implementing these EU reforms? Baroness Amos: Before I do that, can I introduce Dianna Melrose who is now supporting head of the International Trade Department? I think the goals of decoupling were achieved. If I have to say the one most important thing with respect to this reform, it would be that it really does open the door with respect to negotiations at Cancún because what it does do is mean that the European Union can meet the commitments with respect to domestic support, so the read-over from CAP reform to WTO negotiations is very important indeed. The Committee will know that these reforms were pretty hard fought: that there are a number of different national interests within the EU. We did get the decoupling of subsidies from production which is very important indeed; it means that with respect to agriculture there will have to be a greater sensitivity to what the market requires which is important. On the timetable, and I may have to ask Dianna to help me on that, I think it is full decoupling for arable and livestock (except dairy) from 2005 but with an option to maintain coupled payments for example of up to 25 per cent for arable in specific problem areas and delay implementation until 2007. Q504 Hugh Bayley: What impact will this agreement have on export subsidies? That is to say, what will the volume of EU exports at lower than EU intervention prices be as a result of this agreement? Ms Melrose: It will not directly affect export subsidies which were not the subject of the CAP reform but, as the Secretary of State has said, by delinking subsidies from production it should drive down production levels and thus you would expect to see a knock-on effect in reducing export subsidies. But export subsidies along with market access are now the priority to be dealt with in the WTO agricultural negotiations. Baroness Amos: Can I add one thing to that? Going into the Cancún Ministerial, it was really important for the European Union to be able to, as it were, look the United States and others in the eye with respect to wanting to talk more frankly about these issues relating to export subsidies. The US are very against us broadening this debate around export subsidies to include export credits and food aid, which particularly impact on them. If we had not seen some element of CAP reform the EU would have been in a very difficult position indeed. The other area of negotiation where this reform is important is with respect of discussions around TRIPS, which the Committee may wish to come on to. Again, it was important for the EU to make some movement with respect to CAP reform so we could then go back to the discussions and in particular challenge the US with respect to their position on TRIPS. Q505 Hugh Bayley: On Thursday last week in Madrid I met the junior Spanish agriculture minister, and when seeking his reaction I formed the impression that this package is a package which the EU put on the table for negotiation in Cancún as starters, but that there will be scope to go further in negotiation. Is that the way the British government looks at this package? Baroness Amos: Yes, although I thought I was not supposed to say that publicly but as he has given the game away -- ! Chairman: Is that under the "if pressed" category? Q506 Hugh Bayley: Finally, have you yet received representations from any developing countries in response to this EU package? Really the question I am asking you is do you think this modest but nevertheless welcome movement in the right direction by the EU will be enough to save the Cancún Ministerial, and keep the Doha Round as a development round on track? Baroness Amos: There are a number of things to say in relation to that. We have not yet had any representations from developing countries with respect to the CAP reform proposals that were agreed, and I do not know whether we will. There was an Economic Commission for Africa and African Union meeting of African trade negotiators which happened before these discussions were concluded, and I think there were some forty trade negotiators present and others, where they themselves were setting out their agenda for Cancún and the things that they see as being particularly important which Africa trade ministers endorsed at the inaugural AU Customs and Trade Committee meeting and they were making it absolutely clear that agricultural reform and in particular access to markets and dealing with export subsidies are key issues for them, and setting out some others including movement on TRIPS and so on, so the developing countries are themselves getting their act together which is enormously important in this process. They make up two thirds of the WTO and if they can use their muscle within the WTO I think that would be significant. Q507 Mr Khabra: I am sure you are fully aware of the agricultural policies of developed countries having serious, harmful effects on the agricultural policies of developing countries, and this is a big issue and a big debate. Does the government accept that this is the case and, if so, would you say that developing countries had the right to protect themselves from these harmful effects? Baroness Amos: There has been a debate raging about protectionism, if you like, and the right of developing countries to continue to protect their markets, because very often South Korea is used as an example, that they achieved growth through partial protectionism of their markets. I think we need to remember the context in which we are operating. That happened, if you like, pre the whole shift in the world economy and the degree of globalisation that we now have in the world, so maintaining protectionism in our view is not the way to go. What we would like to see are the special and differential treatment aspects of the WTO package being maintained, and we want to see those being discussed and carried through the discussions in Cancún, but moving backwards to developing countries protecting their markets we do not think is the way to go. Q508 Mr Khabra: As a supplementary, what is the government trying to do to convince some of the countries who are stubborn in their attitude and are not prepared to change their policies? Baroness Amos: This is a negotiation and what we have to try to do is convince those countries that there is benefit in them shifting their position. This is one of the things that is very important to us with respect to the discussion on TRIPS. Just about everybody agreed in December last year apart from the United States. The hope is that the movement that we have now seen with respect to CAP reform will mean that United States will see that the EU has shifted and that they will be able to shift with respect to TRIPS and the compromise text all others could agree in December. Can I go back to your question about agricultural policies because there were two special and differential provisions which were made in the Harbinson proposals -- Q509 Mr Khabra: That was my second question, actually! Baroness Amos: Shall I wait for you to ask the question then, because it does relate to your question about agricultural policies. Q510 Mr Khabra: Dumping is one of the biggest problems - it is I would call it criminal, personally. It may be economically viable for rich countries but there are many poor people in the world who can benefit if the food is not dumped. Baroness Amos: Absolutely. We support two specific special and differential provisions which are made in those proposals. One is that 'special products' regarded as particularly important for food security should be exempt from tariff reduction commitments and, secondly, that a special safeguard mechanism is established for developing countries to call upon when a surge in import levels threatens their domestic production. We support both of those. Q511 Mr Walter: For a second could we go back to the CAP reform situation and look at what is on the table? I want to ask you a straight question. Does the government, and your Department in particular, believe that 45 billion euros a year can be delivered to support farmers in such a way that it neither distorts production or trade? Baroness Amos: And why are you picking on 45 billion specifically? Q512 Mr Walter: Because that is the size of the CAP budget. Baroness Amos: The 45 billion euros a year to support farmers -- ? Q513 Mr Walter: Can that be delivered in such a way that it does not distort production and more particularly trade, which is obviously one of the objectives of the Doha Round? Baroness Amos: There are some elements of domestic subsidy that we think are not trade distorting - what element of that 45 billion I cannot tell you. Do we have a figure as to what element of the 45 billion we think is non trade distorting? Ms Melrose: It is busily being worked on now. DEFRA are busy working on the figures in the amber box in particular and comparing them with the EC, but I can give you our assessment in terms of the Harbinson proposals - that we believe under the CAP reform proposals which were agreed we could fully meet Harbinson's revised first draft modalities paper, in terms of reductions on blue box subsidies - that is not the most trade distorting subsidies but the direct subsidies linked to production reducing agreements. On the amber box, however, the figures are still being looked at very closely. It was quite a complex negotiation, as you will appreciate, and we are having to see whether we could, indeed, meet those targets. Q514 Mr Walter: Well, it is quite complex because the United Kingdom's position, if I can congratulate the United Kingdom, is one of being pretty positive on this and other Member States are seeking to use those subsidies and to use their share of those subsidies to continue to pay them to farmers - and it is not just the EU in the dock here because we mentioned the United States before. The United States' farm subsidy regime is just as large and just as trade distorting, despite all the protestations that this Committee has heard from the Department of Agriculture. But why are we looking at a situation where we in the European Union are going to be throwing 35 billion euros at one particular industry and the United States is going to be throwing $50 - maybe $100 - billion at their agricultural industry and the Japanese doing something similar? In any other industry, for instance, if I was a washing machine manufacturer in east Africa, I would be pretty cheesed off if the washing machine manufacturer in Europe I was competing against was being subsidised to such an enormous extent that I could not compete, yet we seem to think it is okay for agriculture to throw this kind of subsidy at an industry simply to keep them producing goods that could be produced cheaper elsewhere? Baroness Amos: That is precisely the point - the United Kingdom does not think it is okay - which is why we were so pro the CAP reform proposals which were put and, as I said, this was a hard-fought negotiation. It has not gone as far as we would have liked to have seen but it goes, we think, sufficiently far enough to enable us to negotiate constructively at Cancún, and in particular to negotiate not only on the agricultural proposals but on some other areas which are key for developing countries. I entirely agree with you, however, it is not acceptable and if we look at the amount of annual development assistance in the world it is only $50 billion, so we are talking about support for the agriculture sector in developed countries which goes way beyond the amount we collectively, as the OECD, are putting into development assistance. Chairman: There will be two tests at Cancún: the test as to whether the EU has moved sufficiently far on to negotiate with the United States to get the United States to move and, secondly, whether the developing countries think that the combination of the US and the EU together is sufficient for them to move on new issues and GATS, which really takes us on to Singapore. Q515 Hugh Bayley: Does the British government, our government, accept that the new issues will not go into negotiation unless there is an explicit consensus at Cancún that they should? Baroness Amos: Yes. Q516 Hugh Bayley: And does that mean, therefore, that a single developing country resolutely opposing the inclusion of the Singapore issues on the agenda would be able to thwart that explicit consensus? Baroness Amos: Yes, but I think what may well happen is that there is less contention. Investment and competition are really the two issues that are deeply problematic. On the transparency issue, for example, it is possible that what we might see are countries objecting to one or two of the issues rather than all four. That then will leave us with a problem, because the European Commission has stated that the four new issues are a package, if you like, and we would then have to make a decision at that point about what we do. Q517 Hugh Bayley: In the evidence we have received over recent months, I would be hard put to identify anyone who is really enthusiastic about reaching agreements on these issues. There are many people who said that it would be a good thing for development if there were clear explicit global rules on investment and competition because then you would get more investment from the developed world into developing countries and it would be good, but in terms of enthusiasm for compulsory global agreements I do not know who is driving this agenda - certainly not developing countries. They, as you know, are cautious. When I have spoken to individual EU governments they are not opposed but, once again, in Spain last week there was no great enthusiasm. When I said "Who is driving this forward?", they said, "Well, I suggest you ask questions in London". They did not seem to be strongly committed to it. Who is driving this agenda, and why? Do you personally think a sensible solution might be to make progress on some of the issues, the transparency issues in particular - you just cannot have development if there is government corruption - and to leave at least some of the more contentious issues because from the least developed countries we have had evidence that there just is not the capacity to negotiate more agreements, and even if they signed up to them blind there is not the capacity to implement them. Baroness Amos: I totally agree with you on the capacity point. I cannot answer the question about who is driving it - it is certainly not us. Patricia Hewitt has said publicly that it is not a priority for us. Obviously if these issues are agreed and discussed as a package we are prepared to discuss them. If there is a proposal to decouple and that is agreed then we will look at individual issues, although as I say this is something that the European Commission will have to make a decision on because they have already stated that they see the four new issues as a package of issues, but given that they have to be done by explicit consensus, as you say, any one country can object and that will mean that the discussion could not happen. Q518 Mr Colman: Finishing on this point, if in fact the view was taken forward to decouple and for investment and competition to be dealt with outside the WTO, how would you see that moving forward? What mechanism would you see for investment and competition to be dealt with outside the WTO? Baroness Amos: I do not know what the mechanism would be. I see some benefits, I have to say, in these issues being discussed within the context of WTO although they are not a priority for us. When I was minister with responsibility for Africa, I talked to a lot of business people about why they did or did not look upon different African countries for investment purposes. They always came up with the same list. Stability was at the top of it but there were real issues about transparency, about a proper regulatory framework; a whole host of things. There was almost a check list which businesses had which was the first step before they would even consider whether or not to then take the risk, as they saw it, of investing in these countries. So having a discussion within the context of WTO and having countries sign up to an investment agreement which tackles these issues I think potentially could be a real benefit to developing countries, but they themselves have to see that and they themselves have to acknowledge that. I entirely understand some of the concerns from their point of view, which are about the capacity to ensure that if this is negotiated it is negotiated in a way which does not disadvantage them. There is also an issue I think for developing countries, which is about making sure their national interests are not taken away and their ability to regulate for themselves is not taken away. Again I think this is an issue relating to capacity. This does not have to be launched at Cancún. There are possibilities for this to be brought into the negotiations at a later stage. I think we should just wait and see. Q519 Mr Colman: Can I say in counterbalance to Mr Bayley, I have had developing countries saying to me that they do not want to lose this off the agenda, which is I think important. Baroness Amos: I think on a whole range of these issues, we assume there is one developing countries' perspective or position. That is not the case, which is also the reason that developing countries cannot always use their collective muscle within the WTO because actually they have very different interests. Q520 Mr Colman: Can I move us on to TRIPS, Secretary of State. You mentioned a couple of times you thought the important thing about the CAP decision last weekend was that it enabled us to potentially do a deal with the Americans on TRIPS. Would you like to unpack that a bit more and perhaps in connection with that say what the view has been from the British or the European pharmaceutical industry, how they see the negotiations going forward to make sure there is a nailed-down agreement at Cancún on TRIPS? Baroness Amos: What we are trying to do is get the US Government to agree to the text which all WTO members could agree to, the text which was put out on 16 December last year, which all WTO members could agree to apart from the United States. My understanding is that the United States were very much looking, partly as a negotiating tactic, for some movement from the European Union on some of the other issues on the agenda, which is why I hope the agreement on CAP reform we have come to will mean there is some movement from there. They also have some concerns because of lobbying they have had from some of their major pharmaceutical companies. Here in the UK, Clare Short, as you know, had chaired a working party on access to medicines and we very much had the industry on-side I think with respect to this although they wanted to see a couple of caveats. The US particularly want only three diseases to come under this - drugs which have an impact on HIV/AIDS, on malaria and TB - developing countries want to see a wider range of diseases being covered. That is one of the points of difference between the United States, ourselves and developing countries. As I say, we had the working party. On TRIPS, there were some issues which were raised by the companies which were to do not so much with coverage with respect to drugs and with limiting them to those three areas, but to do with countries wanting to move into the more lifestyle drugs - Viagra and so on. We feel it would be possible to put some constraints on which would deal with that and we have been looking at that and we have been talking about that. We think there are some ways round this. The other thing would be that if a developing country did actually break the rules, it would be pursued vigorously through the WTO dispute settlement mechanism - again we do not have a problem with that, if we were able to reach agreement within the WTO and one of the developing countries broke the rules we would have no problem with them being vigorously tackled within the context of WTO, because what we want to see is movement more generally on trade. Q521 Mr Colman: Are we having discussions with India or Brazil in terms of perhaps brokering an agreement, given they were the countries which were most difficult? Baroness Amos: We are having discussions with India and Brazil but also with a number of developing countries who want this very much, encouraging them to lobby other countries about what they want, but also about the safeguards they are prepared to put in place. If we are able to get the developed countries to understand the safeguards to be put in place and developing countries are happy with that, we may get some movement. Q522 Mr Battle: Could I ask about another acronym which is causing controversy and that is GATS, the General Agreement on Trade and Services. I recently heard someone ask, "Is it not a disgrace that the Government is pushing all developing countries to sell off their council housing as happened in Britain." It was an interesting remark but I do think there is a tension between those who think that GATS will be development-friendly, as the Government does, and those who believe it will undermine their services. What is the Government doing to clarify the interpretation, the meaning, the ambiguity around Article 6.4 of GATS, to ensure the core regulations are not seen by the World Trade Organisation in its interpretation as "excessively burdensome", which is the phrase they use. What is the Government doing to convince, in other words, developing countries that GATS is in their interests? Baroness Amos: Can I say a couple of general things first because I think there are some misunderstandings about GATS and the way they are negotiated. They are very much negotiated as bilateral agreements. It is not the WTO conducting a negotiation or an agreement as a whole but two countries sitting down, so it is very much a bottom-up approach, and we really need to get that across to not only NGOs but developing countries themselves. Again it is one of these capacity issues. On GATS Article 6.4, it calls on WTO members to "develop any necessary disciplines covering measures relating to domestic regulation of services". Our view is that the fear which has been expressed is unfounded and that is for a number of reasons. All WTO members recognise the need for services liberalisation to be underpinned by an appropriate regulatory framework and everyone has agreed that. The work programme is only addressing technical standards, qualifications and licensing, not everything to do with domestic regulation. Business, as I understand it, is also not arguing for the removal of regulation and recognises consumers need protection through proper regulation. I think you are absolutely right, we need to get these messages across. I also think we need to simplify these messages because as someone who has come relatively new to this, I had to read this quite a lot of times before I understood exactly what it meant. Mr Battle: I think we are all in the same boat. Q523 Chairman: Something I detest is all these different coloured boxes. I have lost track of all the colours. Secretary of State, are you going to Cancún? Baroness Amos: Yes, I will. Q524 Chairman: Perhaps it is also important, and maybe this is not a point which has been reinforced sufficiently, that Cancún is not the be-all and end-all, it is just a step in the process. I have not yet had a chance to exchange notes with other colleagues who were lobbied by the Trade Justice Movement last week but I get the impression that the tendency is to think Cancún was it, and it may just be, depending how the US respond to such things as TRIPS and agricultural reform, that not a lot may happen at Cancún, but from a development point of view we may just have to be patient on that and see this as a longer story, if that is the case. Baroness Amos: I think that is true. I think the concern is, because we missed the deadlines on agriculture and on TRIPS, there are now huge expectations which have been placed on Cancún, and also the timetable is so tight. We are looking for progress by the end of 2004 to conclude negotiations by 1 January 2005, so we actually have not got a huge amount of time, and if we miss deadlines as we have done on agriculture, for example, it means we do not even begin to discuss some of the other issues and everybody sees the timetable running out by which we have to reach some kind of agreement. That is why I think there is such a huge expectation about Cancún. But I entirely agree with you, it is but a stage in the process and in a way we have to dampen down expectations about what may or may not be achieved at the Cancún Ministerial. Q525 Chairman: Secretary of State, thank you very much for coming. I know you have had a busy time reading to your brief and then a visit to Iraq, so we are very grateful to you for spending time this afternoon to go through both concerns on Iraq and Cancún, and we look forward to meeting you in October to go into issues of trade and development and so on in further detail. Baroness Amos: Thank you. Can I also thank the Committee for changing the date on which I gave evidence on Iraq so I gave it after I had visited rather than before. Chairman: Thank you. |