Examination of Witnesses (Questions 60
- 74)
TUESDAY 29 NOVEMBER 2005
MS SHEILA
PAGE AND
PROFESSOR ROBERT
HUNTER WADE
Q60 Mr Davies: If the assumption
was that they are gains from negotiations they would be covered
in that way; if not, they would not be covered in that way. It
is the sort of mistake I do not think the World Bank probably
would be making. Can I ask you, Professor Wade, do you believe
that greater market access for developing countries would be more
beneficial than the removal of subsidies, and if so for which
countries and which sectors in broad brush terms?
Professor Wade: Could I ask you
to say that again?
Q61 Mr Davies: Do you believe that
actually that greater market access would be more important for
developing countries than removal of subsidies. In general, do
you think it is more desirable to proceed down the route of greater
market access for developing countries in Japan, EU, the United
States?
Professor Wade: Particularly for
agriculture?
Q62 Mr Davies: They mostly have free
access for non-agricultural products at the present time, so for
agriculture, yes.
Professor Wade: Frankly, I do
not know. It is probably something for Sheila, the relative importance
of subsidies versus protection.
Ms Page: I would like to draw
the Committee's attention to a paper that the WTO just put out
yesterday on developments in the Round[7].
You might want to take account of it because it is billed as a
revised version of the previous one, but it is not, it is a completely
new one. One of the things that struck me in that is that although
all the chapter headings are the same, the contents are different,
and in particular they have reorganised it to put access before
subsidies in discussing agriculture, so all their emphasis is
on access. If you ask delegations in Geneva what is the one thing
you want, it tends to be access, with the exception of the cotton-producing
countries of West Africa, which of course are damaged by subsidies,
and some of the food-importing countries who actually are helped
by subsidies on food exports. It is unsafe to say most countries
because most members of the WTO are actually quite small countries,
and there is a very large number of countries which might be damaged
by subsidies, but most people in developing countries are in countries
which would gain more from access than the effect of the subsidies,
which is not to say we should not get rid of the subsidies.
Mr Davies: That is a very clear answer
to my question, and I am grateful. Thank you.
Q63 Hugh Bayley: Whether one listens
to John Hilary or to you, Robert, you both, with a slightly different
amount of passion, counsel that the theory of comparative advantage
breaks down when you compare an elephant with a mouse.
Professor Wade: I did not emphasise
country size differences, I emphasised that it is not a theory
of growth if it contains nothing in it which is to do with relative
growth rates, and that is very important. It is a very static
theory.
Hugh Bayley: I had understood you to
be saying that the evidence was inconclusive.
Q64 Mr Davies: Specialisation hampers
growth, is that what you are saying?
Professor Wade: Yes, the predominant
process in development is a process of diversification rather
than specialisation, number one, and, number two, agricultural
specialisation is a trap because agriculture faces diminishing
returns and declining terms of trade, so that while some increase
in agricultural exports may be a good thing in the short run,
it has to be part of a larger development policy which is diversifying
out of agriculture. Agriculture, except for a rather small number
of countries, is a bad thing to concentrate on. I remember reading
in the Financial Times a report of the impact of China
on Latin America in which an analyst suggested that China's rise
in manufacturing would encourage Latin America to go back to its
historical comparative advantage, namely agriculture and primary
products. This analyst suggested that would be a good thing for
Latin America, but that is just crazy—Brazil concentrating
more on primary products—soy beans—and relying on
China for its imports of manufactured goods? That would not be
good for Brazilian development.
Q65 Hugh Bayley: Can I ask you to
look at the other end of the spectrum? Trade policy has tended
to protect the interests of smaller countries, or countries with
smaller economies, with special and differential treatment. This
question is for both our witnesses: which countries ought to benefit
from special and differential treatment and what do you see as
the main issues to do with special and differential treatment
that need to be addressed at Hong Kong?
Ms Page: I think, on a practical
level to start, there is no future whatsoever in trying at this
point to change the classification of countries. It certainly
creates a great deal more heat than light and we can all think
of reasons why a particular country should or should not get special
and differential treatment depending on whether we are looking
at that country or the country to which it exports. What one sees—and
Claire Melamed made the point in the last session—is that
in all the WTO agreements there are a lot of de facto forms
of special and differential treatment, with respect to that agreement.
The agreement on agriculture last time had a list of countries
which were allowed to use subsidies in a particular way; the agreement
on intellectual property and public health has a list of countries
which say they will not take advantage of the terms of that agreement;
the negotiations on agriculture this time are going to allow all
countries to specify sensitive products and developing countries
to identify special products, and by the time you have done that
you should be able to get as much special and differential treatment
as you like. There are lots of arguments about the most important
areas for developing countries but it is really to identify what
its interests are in a negotiation and to find a way of seeing
whether, as a developing country, it can get slightly more than
the normal—whatever the agreement is on it, so get better
than normal access or make less than normal concessions, or have
more time to adjust to a rule. That is the point of some generalised
special and differential treatment, as you can imagine, but if
you are actually asking the question you have to say what is important
for Brazil, what is important for Malawi, and the answers may
be different.
Q66 Hugh Bayley: Can I push you a
little further, Sheila? You are talking about especially sensitive
products and there is a big row about the EU proposal because
although it sounds as if it is just a few percentage points, basically
it will allow rich countries in Europe to protect pretty well
anything that they feel would benefit from protection. If one
sees special and differential treatment as a way of providing
space for economies that are not competitive in a particular area,
to allow them to adjust, there cannot be any case, can there,
for special and differential treatment for developed countries?
If you accept that premise then you must draw a distinction, you
must draw a line at some point, even if you draw a line after
the Organisation for Economic Co-operation and Development (OECD)
and say special and differential treatment will apply to everybody
else. A line has to be drawn at some point, but is it right that
the line should be drawn there, so that any country that finds
itself as a developing country gets this special and differential
treatment, or should you—which seems to be happening in
practice through trade negotiations—should you be drawing
it to provide a higher level of protection for the Least Developed
Countries?
Ms Page: But there is not a single
line, there are lots of lines. The line that is appropriate for
one area is not appropriate for somewhere else. India is a developing
country in agriculture, it is quite competitive in manufacturing
and it is competitive in some services. For Brazil, it is a different
set of things, China yet a different set, and even to say agriculture
does not tell you very much because you are looking at particular
products.
Q67 Hugh Bayley: Do you see Hong
Kong being able to tease out, at least in some areas, some sub-groups
of countries that require special and differential treatment for
particular sectors?
Ms Page: This is what the sensitive
and special products are intended to do. You mentioned the EU's
8%; again, according to World Bank calculations, which we agree
are always very professional, you only need to eliminate 2% in
order to protect everything that is necessary and from Brazil's
point of view you probably only need to eliminate about five products
before it ceases to have any value, so sensitive products is one
of the areas where there will be negotiations. I do not think
it is useful to think about having too many exceptions, because
the point of having the WTO is that countries have decided that
it is worth having some costs for the benefit of certainty. Where
the WTO makes mistakes is when it tries to extend the rules too
far, forgetting that it now has 148—149 since last week—very
different countries, with not just different levels of development
but different approaches to development, and that is an issue
about what policy is required. That needs thinking about. I have
great difficulty with your question because if you were asking
me about tropical products I would have one answer, if you were
asking me about financial services I would have a different answer.
Chairman: That is what we are struggling
with, the more you get into it the more complicated it becomes
and the more special circumstances there are.
Q68 Hugh Bayley: Should there be
a graduation strategy? Once you have agreed a package for special
treatment do you provide that for all time?
Ms Page: It is never for all time,
it is until the next WTO round. It can be defined by income level,
but in the end it is normally defined by list. The list may be
based on income level but formally there will be a list of countries
and there are provisions for revising the list of Least Developed
Countries and provisions for revising each of the lists within
the WTO definitions, even if not for developing countries themselves.
Q69 John Barrett: I am going to turn
to aid for trade. What is aid for trade? Is it basically a bribe?
Is it something that is only going to help winners in the most
developed countries? Is it going to affect the WTO negotiations
and is it something that is going to be a very one-sided equation?
Ms Page: Aid for trade now tends
to mean whatever the speaker thinks has been neglected recently
and therefore needs some more money, but there are probably three
useful definitions of it. One is the very narrowest one, doing
something about the Integrated Framework for the Least Developed
Countries, which is not aid for doing things so much as aid for
assessing the needs of countries from the trading point of view,
and everyone is agreed on that one and there is no dispute about
it. Then there is the broadest definition which is the argument
that there should be a shift of aid resources in general towards
more support for things to do with trade, with productive capacity,
with helping the so-called supply side in states and countries
and away from the emphasis on more social types of spending, which
has probably been brought to the fore by the fact that there is
a WTO round going on, but it is not of itself directly connected
to the WTO round. These are countries that had supply side problems
before the Round and will have supply side problems after. What
I think is the important one to note in the WTO context is the
so-called costs of the Round, costs of negotiations. In the Uruguay
Round it was the expected increase in the price of food because
of agricultural reform which would have an impact on food-importing
developing countries. The reform never went far enough to have
any effect on anything so this was not a problem, but you can
see that it is an identifiable problem for a country that will
be hurt by something that is for the general good. The preference
erosion definition is the same sort of thing: if you reform the
EU sugar policy you can try to do what has been done so far, which
is ensure that even if you lower the price internally you do not
actually allow any imports in, but eventually the EU is going
to have to allow some imports in. This will help some countries,
it will hurt the traditional suppliers, it will help more people
than it will hurt, therefore you want to find a way of compensating
the losers. It is wrong to use words like "bribe"; in
a sense all negotiations are about bribery—if you open your
agriculture I will bribe you by opening my services, so it is
a bribe in that sense, but it is no more of a bribe than anything
else in the Round.
Q70 Chairman: Some people would call
that a negotiation.
Ms Page: Yes. There are certain
countries to whom we have offered already virtually 100% market
access—the Least Developed Countries have duty free, quota
fee access in the EU, the ones of them who are African have access
for most of their products in the US, and with the exception of
rice to Japan and dairy to Canada they have reasonably good access
for their products to Japan and Canada. You cannot offer this
sort of country anything more on access so if, as you said at
the beginning, all countries are likely to have some gain from
the Round, you have to think of something else to offer them,
and as economists our minds naturally turn to money.
Professor Wade: Can I just flag
one issue under the heading "stumbling blocks" because
this has not come up at all, and that is to do with the proliferation
of free trade agreements or preferential trade agreements. As
you know, the WTO has a clause which makes it possible for countries
to establish preferential trade agreements under certain kinds
of conditions, and my sense is that there already has been an
explosion of these agreements, there is huge momentum on the part
of the US and the EU and other countries to form preferential
trade agreements bilaterally or regionally and there is certainly
a worry about the relationship between the conditions which are
negotiated in the agreements and the conditions that are part
of the WTO agreements. It is not obvious that the two things
are compatible and complementary, the PTAs may be undermining
agreements reached in the WTO and there is a question of whether
the WTO is going to try and exert some sort of multilateral discipline
on the formation of these agreements. I think it is a very big
issue.
Chairman: Every time you have an agreement
you are actually creating another obstacle to free trade because
you are creating a separate set of regulations outside the general,
and therefore when you come along and say we need to remove those,
you have a whole new set of losers or potential losers, so you
are just making it more difficult. What we are struggling with
is that in a simple world the WTO would simply say free trade
is a good idea and we try to agree how you progress towards it
and whether you can categorise economies as able to cope or at
what point they are able to cope—the graduated point that
Hugh was raising. The concern really is whether the WTO has the
capability of delivering that.
Q71 Mr Davies: I want to take up
a very interesting point that Ms Page just made. It is perfectly
true that since the Least Developed Countries, the poorest countries,
already have all the access they could want, they have complete
industrial access—with the possible exception of textiles
in some areas—and almost complete agricultural access, with
the exceptions that you just pointed out, they want to get something
out of this trade round and the only thing they can be offered
is money, that was your thesis—very well taken, I think.
The problem is, surely, that as a result of the Gleneagles commitments
they have already been offered all the money that is likely to
be available anyway—if you take Gleneagles plus the financial
initiative—so it is hardly credible, is it, that we have
any negotiating leverage with them by offering them money because
that is another issue where they have already got the benefit
in the bag; they have not received the money, but they have at
least been promised it and they are entitled to believe they are
going to get that irrespective of any conclusion of any deal at
Hong Kong or anywhere else.
Ms Page: You just answered your
own question, it is not in the bag. The difference of a WTO fund,
as some people are proposing, from a normal aid fund is that it
would be in some way assigned to countries on the basis of their
assessed needs in WTO terms, the various things that are outlined.
Provided a country came up with a halfway reasonable plan for
how it would spend the money, it would get it, and this is what
the EU has proposed for the countries who will suffer because
of the sugar reforms, they will actually work out how much each
country should get. The problem with relying on the G8 promises—without
being too rude about them—is that there have been promises
about increased aid before and the aid, even when it comes, will
be conditional, will be for the things which the donors want it
to be for, whereas in the WTO—
Q72 Mr Davies: That will be conditional
too, presumably.
Ms Page: It could be less conditional.
It could be clear that if Country A has calculated that it has
lost N million dollars on food imports, Y million on preference
erosion, it is entitled to—
Q73 Mr Davies: That is a very precise
degree of conditionality, that is quantified conditionality, but
a different conditionality might then be imposed by governmental
or multinational aid agencies.
Ms Page: But it would not be conditional
on what it did with the money, it would not be conditional on
whether it had good governance or not, it would not be conditional
on whether it was on the list of countries entitled to receive
IMF funding at the moment, or whatever. I think it is unlikely
that it could be as clear-cut as I have just outlined, but I think
it is possible that there could be more of an entitlement than
there is. One of the points which the Director-General made yesterday
when we were talking about development was that on special and
differential treatment there was a need—he implied that
he agreed with countries on this—for a binding special and
differential treatment for countries that were disillusioned with
so-called best endeavours policies where countries will do the
best they can to provide special and differential treatment, and
he did, according to the text on the WTO website, actually use
the word "binding" which is a fairly strong word in
WTO terms, it is what tariffs are subject to, it is the whole
legal basis of the WTO. That would be a change because up until
now a lot of the special and differential treatment has been that
countries should get this, but there is no particular entitlement
to getting it. It would be binding more in terms of moral persuasion
probably than in terms of legal things, but that is not insignificant.
Q74 Chairman: It is not realistic
to assume that the WTO could agree that developing countries could
just make their own arrangements on tariffs, which is what our
previous witnesses were asking for. It is not a realistic proposition.
Ms Page: By joining the WTO they
gave up that right, and like everyone else they have a right to
give three months notice and go.
Professor Wade: It is possible,
I think, to craft the rules so that the rules do not say that
there is a single direction, liberalisation, which all countries
must proceed on, it is possible to craft rules for not just trade
but trade-related industrial policies which do give countries
more, as they say, policy space, but the use of which is nevertheless
rule-bound so that it is not a matter of people saying give developing
countries maximum policy space or unbridled sovereignty, this
use of policy space has to be rule-bound and it can be rule-bound.
In other words, I come back to your very initial framing of the
whole issue between free trade and protectionism, and I think
that that basic framing of the debate is wrong. It is wrong because
it obscures where we should be heading, and we should be heading,
in a way, somewhere which recognises that protection can have
a place as part of a larger industrial policy, it can also be
abused, it can also have negative effects on other countries,
but still it has a role. Multilateral rules should allow for the
constructive use of trade protection in rule-bound ways.
Chairman: That is a good closing point
because what we are actually grappling with is where these lines
are drawn. Both of these sessions have kind of pushed the boundaries
a bit, so I want to thank our previous witnesses and both of you
as well. I just hope that when we get to the end of this process
we have (a) something positive going on with the WTO, and (b)
something useful that we as a Committee can add to that. Thank
you very much.
7 WTO Committee on Trade and Development, Developmental
aspects of the Doha round of negotiations: note by the Secretariat
(revised), 22 November 2005, available at http://docsonline.wto.org Back
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