Examination of Witnesses (Questions 41
- 59)
TUESDAY 29 NOVEMBER 2005
MS SHEILA
PAGE AND
PROFESSOR ROBERT
HUNTER WADE
Q41 Chairman: Can I first of all
thank you for being here; apologies that we have overrun a little
bit, but we have been having quite a lively exchange of views.
I appreciate that you have expertise to share with us really on
the issues of what, I think we all agree, is an extremely complicated
agenda in trade because there are so many different issues that
are being brought into play. With two weeks to go before Hong
Kong and some of our previous witnesses saying that not only is
a deal not possible but not even desirable, can you really indicate
what you think at the moment are the stumbling blocks for an agreement
in Hong Kong? What, if anything, do you think will break the logjam?
Ms Page: Thank you for inviting
us to give evidence on this. There are two types of stumbling
blocks, there are the fundamental ones and there are the detailed
ones. The fundamental one is that this round started a little
too early after the previous round. Normally a WTO round starts
when some country has built up a real desire to change something,
a real desire for more access, a real desire for more protection
of intellectual property, something. This one started more or
less automatically because the Uruguay Round provided for negotiations
on agriculture and services to start not more than five years
after 1994, therefore the Seattle Conference happened in 1999.
Then the other areas of the negotiations were added because it
is very difficult to negotiate on agriculture if you are not also
looking at non-agriculture, and once the negotiating started people
brought other things in. But we remain with the fundamental problem
that on agriculture there is a real feeling by all developing
countries that they did not get what they expected to get out
of the Uruguay Round; that they did not get what they thought
they had got out of it on agriculture. The details almost do not
matter, but there is a real feeling that this time something must
happen on agriculture. On the other side the EU and the US—but
mainly the EU—do not particularly want a move on agriculture
and there is not a corresponding countervailing pressure from
any private sector interests in non-agriculture or services that
would push the EU on agriculture, so the EU does not face any
internal pressure not to just sit there and do nothing. The specific
stumbling blocks are agriculture, of course, and exactly how much
the EU can negotiate beyond its currently planned reforms, and
it could do this either by agreeing to do something after 2013—and
after all the Round will not end until, the most optimistic, 1
January 2008: 2013 is only five years after that and it took us
10 years to put all the Uruguay Round reforms through, so that
is not inconceivable—or the EU will have to eat a lot of
words. On the other side there have been fairly strong indications
that some of the larger developing countries will offer something
on non-agriculture, will do something on services, but because
of this resentment over agriculture they feel even more strongly,
as people always do in negotiations, that they do not want to
take the first step.
Q42 Chairman: It does appear hypocritical
for the EU to say that reform of our agriculture is conditional
on further tariff reductions on NAMA and GATS, even if people
view that as a desirable step. It is a pretty one-sided approach.
Ms Page: It is even more one-sided
than that because what they actually said in the 28 October negotiating
document was: this is what we have already decided to do within
the EU on agriculture and we are not going to do any more, but
we still want you to do something more. It is an odd negotiating
position regardless of tariff reductions.
Q43 Chairman: What you say is that
the extent to which the UK can influence the position will be
to press on at least with the 2013 date and some kind of principles,
is that right?
Ms Page: To press on with that
and also to press for a slightly more accommodating approach to
it, because the EU acquired at the last ministerial meeting in
Cancún two years ago the reputation of waiting to give
all its concessions until the early morning on the Sunday, which
was the last day. This was tactically not a good idea because,
as someone pointed out in the previous session, you are now negotiating
with groups and groups cannot respond and turn around as quickly
as individual countries. So the EU would be the worst country
to do a last minute presentation of this kind.
Chairman: I witnessed that in Johannesburg,
as you did, Joan.
Joan Ruddock: Yes.
Q44 Chairman: Do you have anything
to add to that, Robert?
Professor Wade: Only that I think
the conflicts of interest are so deep, the conflicts of interest
that were there right from the very beginning of the Doha Round,
and the term "Doha Development Round" was a kind of
fudge to try and get developing countries on board to paper over
these very deep conflicts coming out of the Uruguay Round and
which blew apart the Seattle meeting. Those remain very deep so
there are many more stumbling blocks on the way to the Doha Round
than there are opportunities for solution. Right from the beginning
there was a very high probability that it would fail.
Q45 Ann McKechin: Turning to the
NAMA discussions, under what circumstances should developing countries
be allowed to protect their industrial sectors from outside competition,
and also—we heard some evidence this morning—whether
there is any differentiation between the Chinas and Indias of
this world and the sub-Saharan countries of Africa.
Professor Wade: You mean should
there be any differentiation?
Q46 Ann McKechin: Should there be
any differentiation between the liberalisation demands and the
policy debates as have been referred to by the NGOs?
Ms Page: You can actually eliminate
from consideration a lot of the sub-Saharan African countries
from the start because it has already been agreed—as far
as anything is agreed—that all the Least Developed Countries
will not be asked to make concessions on tariffs in either agriculture
or non-agriculture in this round. There is a bit of ambiguity
about whether they will be asked for anything on services or not,
but certainly on tariffs they are not being asked to cut, so that
takes 30 or 40 countries out of consideration to start with. Secondly,
the cuts that are proposed in NAMA tariffs are in what we call
the bound tariffs, in other words the tariffs that have been registered
with WTO. While developed countries on the whole have applied
tariffs that are roughly the same as their bound tariffs, most
developing countries have lowered their applied tariffs substantially
over the last 10 years and are now typically 40 to 50% bound,
20 to 25% or less applied, so you could have a 50% cut in tariffs
with absolutely no effect on what you are actually doing. The
exceptions to this are quite few, and the important exception
is India which still has very high applied tariffs and applied
tariffs that are similar to their bound rates.
Q47 John Battle: Applied tariffs
are what?
Ms Page: Applied tariffs are what
you actually charge at the border, bound is the maximum you are
allowed to charge by the WTO. If you are charging half what you
are allowed to, you can very happily accept a requirement to cut
your bound tariff by up to 50%. It does of course reduce your
freedom ever to change the policy backwards, but it does not remove
it, there is always the possibility of renegotiating the bound
tariff, although it is quite difficult. More importantly, most
of these countries are not actually trying to do that at the moment.
The point you are trying to make about industrial policy—which
is of course the argument for having tariffs—is that this
is an argument normally for strategically chosen tariffs, not
for a generally high tariff proposal. So as long as you are allowed
some high tariffs, it is within reason possible to have a strategic
industrial policy and have a general tariff cut. While we talk
constantly about the formulas—agriculture and non-agriculture—whatever
deal is done, it is going to be like a Swiss cheese, it is going
to have lots and lots of holes in it with exceptions and special
products. It is very important to decide exactly what you want
to do and then see whether the proposal is going to allow you
to do it, rather than you—being each least developed member
of the WTO—taking a blanket position that a particular formula
will hurt you. It may hurt you, it may have absolutely no effect
on you, it may require you to do some rather strategic rearranging
of your tariffs, but there simply is not one answer.
Q48 Ann McKechin: But it needs each
individual country.
Ms Page: Each individual country
needs to do this. It is not a universal route to anything—Zambia
is one of those that has applied tariffs way below the bound tariffs
but it is not an African issue, it is literally a country by country
issue.
Q49 John Battle: I wonder if I could
pursue the point about services really; what would you see in
the service negotiations are the main obstacles really?
Professor Wade: For GATS?
John Battle: Yes.
Ms Page: The main obstacle, frankly,
is that this is not what trade negotiators are accustomed to negotiating,
and the whole structure of knowing how to do it is a lot weaker
than on tariffs where we have been negotiating about them for
150 years and know all the tricks. Services has only been there
since the Uruguay Round, so when the EU, for example, asked that
all developing countries must include a certain number of services,
this, to anyone who knows anything about services, made no sense
because to include services really means to have a section in
your offer on services referring to that particular service. What
that section may say is that we restrict foreign providers of
this in every conceivable way, but you have still included the
section. There is a bit of floundering on services by trade negotiators
and the one promising thing literally in the last couple of weeks,
has been a return to using the word "plurilateral",
which means that you reach an agreement among the major suppliers
and major consumers of a particular service, and once you have
done that you can then open it on a most favoured nation basis
to all the other members of the WTO. But you do not talk about
formulas, you do not talk about numbers of sectors, you actually
get together some people who know about telecommunications—as
was done after the Uruguay Round—to work out what is important
on telecommunications. Then you get someone to transfer that into
GATS language and then you put it through. If one could get some
working groups going on some of the other services—transport
is an obvious one that is of interest in developing countries,
tourism—where you need to bind in some of the current access,
possibly the questions of the movement of temporary labour from
one country to another and where there are a lot of precedents
within regional agreements on how you can do this. So it is not
an impossible thing once you get some people who know about it
but, frankly, if you leave it to the people who know about tariffs
it is not going to work.
Q50 John Battle: In your first answer,
Sheila, you mentioned about the Round starting too early and,
in a sense, the thing is not building up from the base, from the
south, for change, but from the top, the northern, dominant approach.
In terms of service negotiations, do you detect any pressure from
the South for service negotiations that could be beneficial to
poor countries?
Ms Page: There are two or three
initiatives, particularly among the COMESA[4]
group of countries in Africa for having a negotiation on services;
there is a Caribbean position on services; India has recently
talked very strongly about what it should do on services because
of course the outsourcing of services is becoming a major export
for it. In terms of the GATS process it is years after all the
deadlines but countries are now starting to get this done so that
given time, which we do not have, we could start to have some
sensible negotiations. It is time now that is the problem.
Professor Wade: Can I comment
on one aspect of GATS which is Mode IV, movement of natural persons,
or the idea of having a multilateral agreement for short term
migration of both unskilled and highly skilled people from developing
countries to rich countries. My sense is—but I stand to
be corrected—that some developing countries, especially
those with deep labour pools like India and China, are developing
quite an interest in having a multilateral negotiation in the
WTO under the umbrella of GATS on this, and they may push in Hong
Kong for some substantial initiative on this kind of agreement.
My guess is that the advanced countries would strongly oppose
or certainly try and divert any such negotiations in a multilateral
forum for various reasons, not least the sensitivity of Britain,
France and Holland to unrestricted Muslim immigration, which would
be seen as a bombshell. What they are doing is to engage in bilateral
and regional negotiations to bring in unskilled and skilled labour,
such as Japan making agreements with the Philippines and Vietnam,
and the US of course has its H1B visa scheme. If this becomes
an issue with the big developing countries pushing it in Hong
Kong, then I think the temperature will go up and they will get
nowhere, and it will be seen as another kind of breakdown issue.
Q51 Mr Davies: Professor, do you
accept the theory of comparative advantage?
Professor Wade: I do not accept
it as a guide to what developing countries in particular should
do in their trade policy, for the reasons given earlier. I think
assumptions that are integral to that theory make it simply a
misleading and, indeed, a dangerous guide for developing country
trade policies.
Q52 Mr Davies: The Trade Justice
Movement this morning referred to empirical studies which purported
to show a negative causal relationship between trade liberalisation
and economic growth. Are you familiar with that literature and
can you make any comment on it?
Professor Wade: Yes. I actually
do not think the evidence is as a clear-cut one way or the other
as the earlier witness suggested. What I do think is the case,
and this is really an answer to Joan Ruddock's point—you
asked for evidence of countries that had practised selective protection
as part of a larger industrial policy, the point that Sheila made
earlier, and that is the critical point. We are talking of protection,
not as a kind of blanket high levels of tariff all over, but the
scope for protection as part of a larger industrial policy. The
most obvious cases, the most devastating cases to ideological
free traders, are not places like Honduran rice farmers but cases
like Japan in the post-war era, Korea, Taiwan—I have written
a great deal about all three cases—also Vietnam, China today;
all of them have had high levels of protection. I am not talking
about uniformly high protection, but protection which in some
sectors was high because it was one instrument amongst others
by which these countries were promoting certain industries and
then subsequently the protection was brought down as the industries
became successful. The fact of the matter is that this has worked;
it has worked in the most successful countries of all, and on
the other hand you had, for example, a whole swathe of countries
in Latin America who had indeed followed something if not close
to free trade then close to a highly liberalising economic strategy
since the 1980s, and their economic performance has been really
dire, both in relation to that—
Q53 Mr Davies: Chile? You are saying
that in Chile the economic performance has been dire?
Professor Wade: We are not saying
Chile.
Q54 Mr Davies: But that is an outstanding
example of trade liberalisation—
Professor Wade: In most Latin
American countries—in most—the region as a whole has
clearly been something of a star pupil of the Washington consensus,
as we call it, and its performance has been dire, both relative
to that of east Asia and relative to that of the previous two
decades when it was following an import substituting industrial
strategy. Its growth performance since 1980 at a regional level
as a whole has been roughly half that of the previous two decades
when it was not following a kind of Washington consensus agenda.
These are empirical facts, but then there are exceptional cases,
I agree, such as Chile, but I do not think that the exceptional
cases are the rule, they are exceptional cases; Chile is exceptional.
In other words, Joan, there is a lot of evidence.
Q55 Mr Davies: I do not know whether
that response was to Joan Ruddock or me, but it was interesting
anyway. Can you explain to the Committee why, in a recent article
in the FT, you said that projections about the benefits
to developing countries from reductions in export and production
subsidies are exaggerated?
Professor Wade: I was thinking
of Martin Wolf's article in the FT[5]
where he claims that the World Bank projections to 2015 show very
large gains to developing countries of complete agricultural liberalisations
in the West, in the EU, Japan and North America. I was puzzled
and I went back to look at those studies, and part of the reason
why he said the gains were very large was because he was talking
in terms of money—that is increases in income in terms of
so many billions higher GDP in developing countries—
Q56 Mr Davies: It was $350 million,
was it not, in the World Bank study?
Professor Wade: I am just coming
to that, hold that point for a moment. He was talking of numbers,
billions. If you put it in terms of percentages, percentage of
GDP, how much increase in the GDP of developing countries by 2015,
the percentage is tiny. The current estimates—and these
are estimates now based on the numbers for 2003, that is since
China joined—suggest that the gains to developing countries
will be of the order of 0.01% gain. That is one point, the World
Bank's own estimates—people like Kym Anderson's projection
models—show that in percentage terms the gains are very
small. The other thing of course is that we are talking about
projections to 2015 and the margin of error around these projections
is very large. What you cannot say, therefore, is that the World
Bank projection studies show that the gains in percentage terms
are large; essentially taken at face value they suggest that the
gains are pretty small.
Q57 Mr Davies: We shall have to look
at that because I gather that in the World Bank's global economic
prospects model—and of course a model is only as good as
the assumptions on which it is based—what comes out on the
basis of rich countries' agricultural tariffs being limited to
10%, manufacturers' tariffs to 5% and developing countries' tariffs
around 5% higher, is that the gains for developing countries are
in the order of US$350 million by 2015. US$350 million, even spread
over 10 years, is a good deal more than 0.01%.
Professor Wade: The critical point
is that the World Bank has very substantially, in a new study,
revised downwards those prospects.
Q58 Mr Davies: I was not informed
of that by those by whom we were briefed. We had better see the
new study, perhaps we could get it from the World Bank[6].
Professor Wade: Yes.
Ms Page: Could I just say something
about the study? The point is that you have to be very careful
because the World Bank, when it is talking about the gains from
trade negotiations, includes the country's gains from its own
liberalisation. From a trade welfare point of view it is obvious
to any international economist that the principal gains from the
EU reforming its agricultural policy will go to you and me, they
will go to consumers within the EU, but this is not the way countries
negotiate at the WTO. If the EU wants to reduce its agricultural
subsidies and tariffs on its own unilaterally it can, subject
to EU procedures, do that this afternoon. One has negotiations
in order to force other countries to do something, so someone
other than the World Bank doing the calculations will only include
the gains that you get from what other countries do. More than
half of the World Bank numbers come from what countries do or
do not do to themselves. The second point to make is that a lot
of the assumptions are considerably larger than the sorts of settlements
that we are actually likely to get out of the Round, but the third
point, in the opposite direction, is that, yes, the gains in aggregate
terms are going to be some fraction of a percentage, but the gains
for particular countries and particular types of producer
within those countries will be extraordinarily large for him,
and some of the losses for other countries, as we heard earlier
this morning, which on aggregate are point zero something, are
going to be very large for particular countries. The WTO has in
the end to reach an agreement that satisfies sufficiently every
one of its members so that they are willing to sign up for. Working
through the aggregate numbers therefore is interesting, but it
bears very little relationship to what the negotiations are actually
about, which is: will my country gain or lose.
Q59 Mr Davies: All I can say is that
any economist I have ever met from the World Bank—and I
have met quite a number—has always seemed to me to be extremely
professionally competent, so I think we had better look at these
studies. I doubt they are open to very simplistic methodological
challenge, but we will see.
Ms Page: It is not a challenge,
it is just a difference of how you do the numbers. They say how
they do the numbers and from an economic point of view the gains
which one gets from liberalising one's own trade are certainly
gains; the question is are they gains because of negotiations
or not.
4 Common Market for Eastern and Southern Africa. Back
5
See "Beyond `liberalize trade'", Robert Hunter Wade,
Financial Times 26 July 2005; also, "The world has
everything to lose if trade liberalisation fails", Martin
Wolf, Financial Times, 2 November 2005. Back
6
Kym Anderson, Will Martin (eds), Agricultural Trade Reform and
the Doha Development Agenda, November 2005. Back
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