Examination of Witnesses (Questions 201
- 215)
WEDNESDAY 15 MARCH 2006
MR PASCAL
LAMY
Q201 Chairman: Good afternoon Mr
Lamy. Can you hear us or are you still being set up?
Mr Lamy: Yes,
I can. Good afternoon.
Q202 Chairman: Thank you very much
indeed for arranging this. We very much appreciate, though we
cannot meet physically and in person, that you have made yourself
available through this technology which has considerable advantages,
certainly advantages over not meeting at all. I would say by introduction
that some members of the Committee were actually at the WTO in
Hong Kong. We saw your Magic Wand speech and a number of your
press conferences. Can I perhaps start by asking you what you
now understand would be the outcome of a development round? That
is where the focus has been. We are a development committee. A
lot of hope and effort has been expended on the commitment to
a development round. We have not got agreement and it is not entirely
clear what a development round would look like, but can I ask
you directly what it would look like to you?
Mr Lamy: I will try to do that
briefly. Again, I am sorry for not being able to travel down,
but, as you said, we now have technologies which may substitute.
How will it be a development round? Let me go back one minute
to why it was labelled a development round. It was labelled a
development round because the agreement between the ministers
at the time was that there remain in today's multilateral trade
rules imbalances in favour of developed countries. That was the
starting point. It has been the case for a very long time. A number
of these, obviously, were not addressed during the previous round,
which finished in 1994-95, and the developing countries made it
a condition, in order to agree to the Doha negotiation (and that
was already the case in Seattle), that a number of these imbalances
are not only addressed but reformed during this round, for example,
in agriculture; and it is obvious that if you compare the level
of either market access or disciplines in agriculture to the ones
which progressively have been put together during the last 50
years, there remains an imbalance in the favour of agriculture
which for many developing countries is their comparative advantage.
If you look at the structure of industrial tariffs there remain
oddities like tariff peaks or tariff escalation, which, by coincidence,
are in favour of manufactured exports where developing countries
have a comparative advantage. To put it very simply, there remain
in the rules and disciplines of the multilateral trading system,
imbalances, which basically stem from previous times, and we all
know that part of the world trade relations were framed by colonialism
at the time. Clearly, developing countries would not put it this
way today, but that is the reality, and so these imbalances have
to be addressed. Number two, it is true, and I think this point
needs to be made although it may not be considered by everybody
as totally politically correct, that in today's world of trade
there is no such thing as a homogeneous developing country constituency.
Again, to take an example, some developing countries have huge
comparative advantages in agriculture which they want to exploit
offensively. Other developing countries have more defensive protective
agriculture interests, notably given the huge importance of this
for the livelihood of some of their populations. Another example,
take textiles and clothing, obviously a number of developing countries
have a huge comparative advantage because of the difference in
labour cost in textiles and clothing, notably on the important
markets like the US, Europe or Japan, but it is also true that
some developing countries have less of a comparative advantage
than others and that more open trade will result in a shrinking
of their market share. So some are offensive, others are more
defensive. Let us take another example where developing countries'
positions may not be homogeneous, which has to do with preference
erosions. Most developing countries enjoy in these big, rich,
deep markets like Europe or the US, trade preferences which stem,
again in the case of Europe, from a relationship with the colonies
at the time, and which stems in the case of the US by general
preferences which they have given. It is true that for some countries
a reduction in obstacles to trade in the form of tariffs or quantity
restrictions will result in an erosion of the preference they
have, because the preference they have is the difference between
a normal tariff and a specific tariff which they are entitled
to. That is the second point that I wanted make. The third point,
and that is a more direct answer to your question, what will make
this a development round in terms of the results? What will make
this is the new balance which we will have found thanks to more
open markets, that is reduction of tariffs and quantity restrictions
where developing countries overall have an advantage, and more
disciplines in sectors where developed countries have a comparative
advantage. We may talk later of things like fisheries, for instance,
which is quite an important challenge for the exports of some
developing countries, but agriculture is going to be the essential.
The core part of the Round is about market access and disciplines,
and this is where the biggest developmental benefits can come
from. On top of that there are a number of specific issues which
have to do with specific developing countries, and we have moved
in this direction with duty-free and contemporary access for the
least developed countries, we have this package which is now being
worked extremely thoroughly with the World Bank, the IMF, the
UNDP, UNCTAD and WTO on aid for trade, and I suppose we will come
back to that in the conversation. We have the specific problem
of small economies, for instance, for whom the notion that the
benefits of trade linked to the economies of scale do not flow
naturally, and I think they have a valid point. We have this problem
of preference erosion, we have a number of issues which have to
do with implementation of the Round, but I will not enter into
the technicalities at this stage. The core business of making
this round a development round, making the system more development
friendly, is with agriculture, manufactured goods and, somehow,
services, because now a number of developing countries have offensive
interest in services different to what it was ten years ago—countries
like India and Egypt, for instance—but we might also come
back to that. How will it show? What is going to be the proof
of the pudding? The proof of the pudding—it is very simple—will
be that the two-thirds of the membership which constitute the
WTO membership are developing countries. In my view there is no
way, in an organisation where two-thirds of members are developing
countries, we will get to an agreed result, and we agree results
in WTO by consensus, without the developing countries having the
necessary evidence that this goal of theirs which we and the ministers
have all agreed, which is to fund local development, is not there
at the end of the day. We started from a situation where two-thirds
of the membership have one-third of world trade. The result of
the Doha Development Round will not change the fact that two-thirds
of the membership will be developing countries. It has to be that
in five or ten years from now—and we all operate in WTO
in the medium and long-term—their proportion of world trade
to their benefit is higher than what it is today, and if it is
not there today it is partly because of imbalances which they
have to face, a sort of disfavouring of their relative productions
as compared to northern production. It is not the only thing that
has to be addressed, and we might also come back to that, because
the fact that you open trade does not automatically translate
into trade flows because of capacity problems, and this is now
also part of the agenda, but those are roughly the main points
which I think I can make in answering your first question.
Q203 Chairman: Thank you for that.
We left Hong Kong with at least the process still intact but with
not a huge amount of progress and with clearly a lot of work to
do. After what you have just said, how far down the track are
we to getting an agreement that will deliver what you have just
outlined? What is on offer at the moment that you believe would
actually persuade developing countries that this still has the
capacity to be a development round?
Mr Lamy: When we all left Hong
Kong I said that, roughly, we were 60% of the way to the conclusion
of the Round. It may be 65, but that is roughly where we are.
If you look at the year 2006, quite a bit of time of which has
elapsed, and assuming that the end of the negotiation takes place
at the end of this year or the very beginning of next year, which
is necessary for reasons which have to do with the US constitution,
the year 2006 has been sequenced. It has been sequenced with one
goal post at the end of April, one goal post at the end of July,
one goal post at the end of the year. Let us leave the second
part of the year aside because it should be mostly devoted to
refining, drafting, taking legal precautions, making the necessary
verification. The bulk of the negotiation and all these sort of
important nuts which have to be cracked have to be cracked before
July, and this starts with a triangle, which is the one which
all members are now working on for the end of April, with three
bits of the triangle, agricultural market access, agricultural
domestic support and industrial tariffs. This is within this triangle
of three topics—that is where the key to this April goal
post is—and it happens that each of the three topics has
a specific sponsor. The EU has to move on agricultural market
access, the US have to move on agricultural domestic support and
the G20, which is the offensive part of developing countries,
emerging countries, like Brazil, India, China, South Africa, Indonesia,
for instance, have to move on industrial tariffs, not that services
are not important but they are in a different sequence, and, of
course, this is very important for developing countries. In order
to address precisely your question, where are the topics which
are the most important for developing countries most offensively
and defensively, I repeat, there are for developing countries,
a mix of offensive and defensive, which we have to get right at
the end, for instance, for the G20, who is usually more on the
offensive, and the G90, who is usually more on the defensive;
the G90 being African countries and least developed countries,
the G20, as I said, being more emerging countries who feel better
with a trade opening and globalisation. On the offensive agricultural
market access both north-wise, and that is mostly the EU, Japan,
Switzerland, Norway, of course, and then the US, and on further
disciplines on domestic subsidies in agriculture, it is mostly
the US which has the biggest effort to make, but also the European
Union—they are more flexible on that—and, again, Japan,
Switzerland and Norway. Those are the two main offensives for
developing countries in agriculture. Let us mention en passant
that the offensives of many developing countries are not only
vis-a"-vis northern reach markets, there is also an
important south-south trade dimension which is appearing. Markets
like the Brazilian market, the Indian market, the Chinese market,
with their scope and dynamism, are, of course, now important targets
for developing countries themselves. That is the number one offensive.
In manufactured goods they have a big offensive on tariff peaks
and tariff escalation, but that is already on the table because
the way we structure, the way we compute and operate the tariff
reduction on manufactured goods ensures that tariff peaks and
tariff escalation, which is the biggest offensive of developing
countries, will be addressed, and this is mostly a question for
the US—somehow for the European Union and Japan, but mostly
for the US—and so that is the biggest offensive. Developing
countries also have defensives in this triangle of market access
in agriculture, domestic support and manufactured goods. They
do not have a big defensive on domestic support because they do
not provide much domestic support as they did not have a big defensive
on export subsidies but which is now something which is reasonably
in shape, but they have defensives in agricultural market access
because a number of countries, like India, like Indonesia, for
instance, have maintained that they would have to do less than
developed countries with a variety of technical devices in terms
of opening their own markets, so we will maintain an asymmetry
between these two, and in manufactured goods we also have defensives,
and it is clear that developing countries will want to make sure
that they have to do less than developed countries, although (and
we may come back to that) it is a bit more complex discussion
because of the difference in many developing counties between
bound rates, which is what they have permitted within the WTO
system, and their applied rates, which are usually lower. That
is number one and that is for April. Post April we have services
where, as I said, a number of developing countries have offensive
interest, notably in Mode IV, which is the provisional transfer
of professionals in areas like information technology, construction
services, accountancy and the rest. It is not a big number of
developing countries but it is a sufficient number for this to
be an important condition. Then we have the aid for trade package
which I mentioned, which is the middle or second part of this,
and then you are addressing these defensives which I mentioned
on preference erosion or on the specificity of small economies
which, in my view, can only seriously be addressed after the big
numbers in agriculture and in manufactured goods can be addressed.
How much of this is there for the moment on the table? I would
say the same sort of proportion as overall—60, 65% of that
is on the table—but there remains 30 to 35% to be on the
table, and, obviously, to go back to this triangle I mentioned
between agricultural market access, agricultural domestic support
and manufactured goods, what is on the table from the EU, from
the US and from the G20 for the moment is not enough for a deal
to catalyse. Between now and the end of April, and we have tested
this a bit in London in the meeting which took place last weekend
under the Chairmanship of Peter Mandelson, the EU has to up its
offer, the US has to top up its offer and the G20 has to top up
its offer. That is the most critical thing in order to reach this
goal post of April and then open the way for other issues to fall
in place.
Chairman: Thank you very much. That was
actually a detailed exposé but it certainly gives us a
much clearer picture. I will not press you on that because other
colleagues are anxious to ask certain questions. I am now going
to bring in, first of all, my colleague, Ann McKechin.
Q204 Ann McKechin: Hello, Mr Lamy.
I think those of us who were in Hong Kong in December felt very
frustrated about what appeared to be a continual battle between
the EU on the one hand and the USA on the other. I wonder if you
could comment about the formation of the G110 group. You mentioned
earlier today that the G20 are offensive in their negotiations
and that the G90 are defensive. It does appear to be a very odd
combination. Does that reflect a continuing frustration by developing
nations at the real lack of progress in the last few years?
Mr Lamy: I think this sort of
four-cornered picture to describe simply, in terms of the game
theory, the whole Doha Development Agenda is a good approximation.
You have got four corners—the EU, the US, the G20, the G90.
That is the sort of permanent structure of the negotiations. Of
course, then the next question is: but where is Japan? Japan,
for a variety of reasons, is very much in the EU corner. Where
is Australia and New Zealand? For a variety of reasons Australia
and New Zealand are more on the US corner. Is there something
like a G110? Trade-wise I think the reality is that there is a
G20 and a G90, but sometimes it is useful for them to trade-unionise
between themselves and have a confederation between the G20 and
the G90, but, in reality, I think most of the G20 objectives are
offensive with, of course, nuances, because India, for instance,
who is a part of the G20, is not that offensive on agricultural,
for obvious reasons. They have 600 million farmers and they believe
that they cannot do much in terms of market opening, and most
of the G90 countries are defensive because they know they do not
have a lot to pay in this negotiation because they do not have,
basically, the means to pay. Of course they are offensive on things
like export subsidies or domestic subsidies, which are things
where others are doing the running for them, so I think it is
a rather balanced structure. As to the difference between the
two, you can see numbers. Look at the rate of growth of exports
of countries like Brazil, India, China as compared to most African
countries or to countries like Bangladesh or Cambodia, for instance,
to take two LDC members. That is a reality. It does not mean that
the game is EU/US on the one side and G20/G90 on the other side;
it is sometimes G20/EU against the US on domestic support, for
instance; sometimes it is US/G20 against the European Union on
things like market access; and sometimes it is EU/G90, for instance,
on the question of preferences, against the G20 and the US. So,
depending on the topic, coalitions and alliances can change, but,
basically, I think this description is a good approximation if
one wants to understand the developments of this negotiation.
Q205 Ann McKechin: Clearly in the
last couple of years in the WTO there has been increasing use
of these negotiating blocks which we have been talking about—the
G20 and the G90—but there has still been some criticism
about the manner in which the conferences were conducted about
Chairs presenting their own texts, for example, in the service
negotiations, the use of informal and unminuted meetings to try
and reach a so-called passive consensus. Given the very severe
constraints, particularly on G90 members and negotiating capacity,
can you perhaps indicate if there are any other steps your secretariat
is taking to improve the transparency of the negotiating process
in general?
Mr Lamy: It is an eternal problem
we have in the WTO, and sometimes elsewhere, but maybe it is more
visible in WTO, which is the sort of tension between efficiency
and legitimacy in an organisation where 150 members have to agree
by consensus on 25 topics. The ideal of the situation is that
it is a permanent sit-in of 150 ministers who are negotiating
numbers and drafting text on 25 formidably technical issues. We
all know this will not happen because we are in real life and
not in a dream life; so there need to be a number of devices,
informal mechanisms, coalitions, reporting systems, which address
this problem. I personally think that developments in the last,
let us say, six or seven years have led to a structuring of the
membership in between the formal of 150 members and the informal
"green room", which should not be named because it is
informal but which we all know exists and which is a sort of group,
let us say, of 20 to 25 countries, which is a sort of representation
of this quartet, this four-cornered game, and it is represented
by representatives of all these four corners which are now much
more than previously mandated by their groups. The G20 ,G90, the
African group, the least developed country group, ACP group, GRULAC[1],
which groups Latin American countries, the ASEAN[2]
group, which groups countries from the ten ASEAN states, the G33,
which is a thematic group led by Indonesia on questions of defensive
market access for agriculture, not to speak of the G25, which
is the name they sometimes give to the European Union, but you
will appreciate my diplomatic prudence on that, all these groupings
do play a role in between the sort of 150 members floor and this
testing room, which is the "green room", where a number
of compromises can be not decided but tested and then referred
to the various groups. So, if the various representatives of the
various group in the "green room" can live with a compromise,
then the odds that this compromise can work for the whole membership
are obviously increased: because if you speak for 90 countries,
or if you speak for 20 countries, plus the US, plus the European
Union, plus Japan and, of course, you do not only have one representative
of the G20 in the "green room", you usually have Brazil,
India, China, plus a few others, you do not have only one representative
of the G90, and that is the way it works. Of course, I am always
very sensitive to this critique, because, at the end of the day,
the members have to decide, but I think it is progressing in the
right direction in terms of finding the right pragmatic compromise
between legitimacy, transparency and efficiency. On top of that,
as the Director-General of the WTO, I and the people in the secretariat
consider—and I have been saying this publicly and privately
internally—we have a role which is to try and help the weakest
in the system to cope with a number of necessities and difficulties
of the negotiation. It is obvious that if you take the Ghana representation
to the European Union the number of people they have, the number
of trained negotiators they have is very small as compared to
the US, EU, Japan or even China. There are days in the WTO where
you need to have ten people following ten different negotiating
groups who are meeting at the same time, and it is sometimes very
important. Obviously Ghana cannot do that. The solution is first
to co-align, and that is what they do, and they spend quite a
lot of time discussing between themselves so that they can have
one representative here and one representative there. Secondly,
the Secretariat and myself, spend time informing them, in briefing
them, sometimes in advising them, more time than with Europe,
the US or Japan, and this is what we do. We also contribute to
rebalance this asymmetry in capacity, in information, in access
to the key issues of the negotiation. All in all, I think there
is been progress. I think if you ask them, which I think is the
right sort of thing to do if you want the truth, this is now much
more widely recognised, but, of course, it is a consensus system
and a consensus system is not a unanimity system, as we all know,
and the point can be made, I think (and I am quite sensitive to
that) that if it is one small African developing country who has
a single problem it will have less impact at the end of the day
than if it is the US who has a problem, which is why these coalitions
are so important: because we now are in a situation where I do
not think any developing country who would have a big problem
in a consensus which it would have to oppose would then bear the
whole brunt of putting sand in the machine. I cannot think of
a topic or a country where they would be isolated. They have basically
trade-unionised within the system, and I think it is a positive
development.
Chairman: Thank you for that. You have
already mentioned that an agreement on agriculture is absolutely
central, and I am going to ask my colleague Hugh Bayley to put
some questions on that.
Q206 Hugh Bayley: You have mentioned
that the European Union needs to move further on agricultural
market access and the United States on agricultural domestic support.
If they each were to make further offers, what new proposals would
need to be included in those two offers to provide for developing
countries the market access that they need and therefore to pay
pave the way for a solution at least on this part of the agenda?
Mr Lamy: Let me try and answer
this question without numbers. The WTO DG does not have the authority
to put the numbers on the table for the consideration of members
except in very exceptional circumstances, which you can see commented
in the press, including the British press, from time to time.
The system is member driven and it is the members who have to
table a number of compromises. Without entering into numbers,
let me answer your two questions on the EU side and then the US
side. I am sorry that we have to get into a bit of technicality.
The market access in agriculture will result from the application
of a formula with bands, with high tariffs on a band, roughly
middle tariffs on a band, low tariffs on a band and maybe a very
low tariff or a very high tariff in a specific band so that the
principle according to which the highest tariffs will be reduced
by the biggest percentage is applied. That is one part of the
way we are going to work. On top of this reduction, which will
stem from the implementation of cuts within each band of the tariff
structure of the European Union, the European Union got in 2004
the possibility to do less than these formula cuts on a specific
category of products which is called "sensitive products".
These sensitive products will be subject to less than the formula
cut, that is that their tariff will be reduced less than the cut
resulting from the formula, but, as a compensation for that, these
products will have to offer increased market access under the
form of increased tariff rate quotas; so whichever treatment it
is, it has to be substantial, it has to result in substantial
market access, no product can be shielded from a substantial increase
in market access, and so this is the way it works. The European
Union, as a result of Common Agricultural Policy reform in 1992,
1999, 2003, all these reforms have gone in the same direction,
which is the reduction of internal prices which, by definition,
are nearer now from the world price, which means that the previous
tariff protection which was necessary to control imports so that
this would not impact on internal prices, the decrease of internal
prices creates a situation where the EU has a margin of manoeuvre
in the decrease of its external tariffs. Where the European Union
has to move is first, in terms of the formula, to accept numbers,
whether it is the thresholds in the band, whether it is the cuts
in each of the bands which are higher than what they favoured
last October and/or—and, of course, it is a combination
because these are communicating boxes—a smaller number of
sensitive products and a higher market access offered on these
sensitive products. Let me take one more example without getting
too much into technicalities. To take the example of these sensitive
products, the European Union has proposed a box which is sensitive
products for eight per cent of the EU tariff lines. If you look
at the US proposal, the US proposal on this is one per cent of
tariff lines, which, of course, makes a big difference. That is
not the only difference, because whichever the number is, the
treatment of these sensitive products can be done in various ways.
Basically you have three models on the table in order to measure,
to benchmark the fact that you provide more market access if you
provide the tariff rate quota. You can calculate the tariff rate
quota as a percentage of existing tariff rate quotas, or you can
calculate the increased tariff rate quota as a percentage of existing
imports, or you can calculate the percentage of increase of the
quota as a percentage of domestic consumption. These three ways
of increasing quotas give widely different market access, and,
of course, this is something which has to be discussed so that
the treatment of sensitive products cannot be isolated from the
number of sensitive products, and, of course, the overall impact
for the European Union in terms of increased market access is
the combination of the formula: we have got the number of sensitive
products and the treatment of sensitive products. On each of these
parameters or on one more than the other, the European Union will
have to move. We all know it is very complex and that the European
negotiators, Peter Mandelson and Mariann Fischer Boel, have to
convince the Member States that this tariff reduction, this increased
market access, if we understand well, has to remain within the
limits of the reform of the Common Agricultural Policy, and that
will be my final point on this market access. What the does "remaining
within the limits of the reform of the Common Agricultural Policy"
mean? Take the example of beef. What is the allowed reduction
in external tariff protection of EU beef? What is allowed by the
Common Agricultural Policy reform? In order answer to your question
you have to make a judgment on what in 2013—which is the
end of a probable five years' implementation of the Round—is
going to be the internal production of the European Union as a
result of the behaviour of beef farmers or beef growers confronted
with decoupling? What are going to be the quantities produced?
What is going to be the internal consumption of beef in 2013 in
the European Union? What is going to be the world price of beef?
What is going to be the relationship between the dollar and the
euro in 2013? I am not entering into too many details, but it
is for you to be sure to understand that it is a very complex
question. There is no single solution. Some experts will tell
you with a reduction of X you can do it, and others will tell
you with a reduction of Y, which is lower than X, it explodes
the EU beef market. That is the EU problem, but they know, and
everybody knows, they will have to move as compared to what they
have tabled at present. On the US side and on domestic support,
it is slightly simpler because the number of parameters that you
play with are smaller. It has to do with the reduction of overall
trade distorting domestic support. The reduction of the amber
box, which is the most trade distorting domestic support, and
the reduction of flexibilities such as de minimis which
were a sort of box which the US got the possibility to use as
a result of the Uruguay and which now will have to be shrunk because
it gives them too much margin of manoeuvre. This, of course, has
to do with the reform of the funding. The difference between the
EU and the US is that the EU has done its reform and is implementing
it. The US still has to do the reform of the funding, but whether
it is about the overall gap, whether it is about the most trade
distorting part of subsidies, whether it is also in the structure
of what we call the blue box, which is a sort of pure category
in between very trade distorting subsidies and the green box,
which is less trade distorting subsidies, whether it is in the
treatment of the de minimis, the US have to table numbers
which are more ambitious than the one they have tabled for the
moment. They know that, and it is a question for them of finding
the right synergy, of course the right proportions, the right
synergy with the discussion of the Farm Bill, which we all know
is as sensitive in Congress in terms of domestic support as market
access is sensitive before the Council of Ministers at the European
Union.
Q207 Hugh Bayley: In your opening
remarks you said with some irony that tariff peaks and tariff
escalation just so happened, coincidentally, to bite where developing
countries have the greatest comparative advantage. Is there not
a danger that the designation of sensitive products will end up
with the same solution? What would your strategy be to ensure
that developed countries do not designate as sensitive those products
for which developing countries have the greatest comparative advantage?
Mr Lamy: First, sensitive products
are not free. Sensitive products are not a free right. Sensitive
products have to provide substantial market access. They simply
have to do that in another way than tariff cuts which are corresponding
to the formula. Sensitive products are not shielded. They are
less impacted but they are not shielded. Second, of course, it
all depends on the percentage of sensitive products which are
allowed, hence the big fight on this, and obviously developing
countries and the US are pushing extremely hard on that, but it
is also true that for Europe, given the zones of latitude where
you can farm in Europe, you have to make a distinction in European
imports between two categories of imports. You have got what economists
would call fatal imports, things which the EU has to import because
it does not produce them. It does not produce many pineapples,
it does not produce many nuts or peanuts, it does not produce
a lot of palm oil, to take just three examples. That is not the
problem. On this developing countries will always have a comparative
advantage because there is no production in the European Union.
The problem is mainly where there is a competition between what
the European Union produces and what developing countries produce,
which is basically cereals, beef, poultry, things like substitutes
to cereals like Soya, some sort of vegetal oil and, in some proportions,
dairy, although you do not stock dairy in the same way as you
can stock meat or cereal, and, of course, you can also mention
things like cut flowers, where there is competition. This is where
the balance will have to take place. I should have mentioned sugar
in this category, which is a rather important product, but you
can be sure that countries like Brazil are watching carefully
poultry or sugar, that countries like Argentina are watching carefully
beef, that countries like Costa Rica or Colombia, or Ecuador,
or Kenya are watching carefully cut flowers. There is a whole
group which they have to face and this is to be part of the final
compromise, but there are a variety of stakeholders in developing
countries who, in my view, will make sure that the fact that it
results in substantial increased market access, including in sensitive
products, is the result, and how, when, what is the number, is
for the European negotiators to put their tactic right.
Q208 John Barrett: I would like to
turn to the issue of non-agricultural market access. New research
indicates that job losses, as a result of the current demands
being made of advanced developed countries, could lead to high
levels of job losses in the car industry in Brazil, in India and
in China. Should developed country WTO members rethink their demands
on market access in the light of this research?
Mr Lamy: What research are you
alluding to?
Q209 John Barrett: ActionAid have
said that new research from UNCTAD and Tufts University indicates
that these relatively high levels of job losses are at risk.
Mr Lamy: It is UNCTAD research
quoted by ActionAid.
John Barrett: Yes[3].
Mr Lamy: I will have to look at
this research, but if you take manufacturing, in most of these
areas developing countries have a comparative advantage which
they want to exploit, notably in things like textiles and clothing.
In terms of macro-economics, the result of more trade opening
in manufactured goods, in my view, in terms of job losses, which,
of course, have to be compared to job creations in other areas,
is bigger in developed countries than in developing countries.
It is also true that developed countries, basically the US, EU,
Japan, want the industrial goods tariff reduction to result in
improved market access for them in industries like cars, for instance,
or car parts, in industries like consumer goods, in industries
like electronics, whereas China, or India, or even Brazil would
have more offensive interests in footwear, textiles, clothing,
or commodities, IT products such as chips, for instance; so there
will have to be a compromise there. It is, of course, complex
because there is a difference between not only the level of tariffs
north and south. The average bound tariff of EU or US in industry
is in the order of magnitude of five to six per cent, the average
bound tariff for a country like Brazil is 35%, the average bound
tariff for a country like China must be approximately of the magnitude
20%. This is where the negotiation takes place, but there is a
difference between bound tariffs, which is the maximum which they
cannot cross when they have committed this as a result of the
last round, and the applied tariffs, but this difference, of course,
is smaller in the north than it is in the south. Take India, for
instance. In many manufactured products India will have a bound
tariff of 40/50% and an applied tariff of, let us say, eight or
9%. In this negotiation India would say we are negotiating about
bound tariffs, so if I use my bound tariff—let us say it
is 40% by 50% it is 20% and you should be pleased that I have
removed what they call "the water", a part of the water
between bound tariffs and applied tariffs, and then the US and
the EU will say, "Fine, but what is the result in terms of
increased market access for our industries?" If your applied
tariff is low and you do not bite into this applied tariff with
your reduction, then how can I go back home in saying that is
a good deal for me? There will have to be a compromise on this,
it being reminded that the negotiation is about bound tariffs
and not applied tariffs and that there will remain an asymmetry.
All in all the risk of manufactured goods tariff reduction impacting
on more jobs in the south than in the north does not seem to me
something which is in the negotiation. If there is a risk in terms
of job losses in these sectors, it is probably the other way round.
Q210 Mr Singh: Mr Lamy, we would
all agree that developing countries desperately need to build
up their industrial sectors and they obviously need policy space
or industrial policy to be able to do that. Are you satisfied
that within the World Trade Organization developing countries
do have sufficient policy space to make decisions about appropriate
industrial policy, including tariff levels, and will NAMA agreements
reflect this?
Mr Lamy: My own take, and again
I am not a negotiator in this system, is, yes, developing countries
need policy space in agriculture, in industry, in services, not
that policy space is always used for good policies—we have
got many examples of policy space being used for not good policies—but,
as a matter of principle, I agree that developing countries have
to keep policy space. How is this policy space provided? It is
provided in three ways. First, the remaining asymmetry between
tariffs in developing countries and tariffs in developed countries.
If India reduces its bound tariffs of 40% by 50%, that is 20.
If the US reduces its bound tariffs of 6% by 50%, this is three.
There will remain a difference between three and 20, so there
mains an asymmetry in protection. Second, there will remain more
differences between bound tariffs and applied tariff in developing
countries than in developed countries—and I will not take
the reasoning which I made in answering the previous question—and
this difference between bound and applied is precisely policy
space. It means that you can move up your tariff, whether it is
in agriculture or in industry, if you have a specific reason to
do that. Third, developing countries have flexibilities which
developed countries do not have. On top of the difference in tariff,
in top of the difference between bound and applied, developing
countries, whether it is in agriculture with special products
which they can add to sensitive products, they have their own
categories of sensitivities which are, of course, special products,
whether it is with a special set-up clause which they have in
agriculture, the terms of which will need to be negotiated but
the principal is there, whether it is by the flexibilities they
have in industry—because in industry they have also a flexibility
which is comparable to the one we were discussing previously about
the European Union in sensitive products—they have a box
in which they can put tariffs which will be shielded from the
full formula cut. There remain these differences. I think the
notion that in the end result there will remain asymmetry and
that there will be special and differential treatment will remain
in the system finally. This does not change the fact that most
developing countries outside the negotiation, outside the multilateral
negotiation, either unilaterally or bilaterally with regional
trade agreements, keep decreasing their tariff protection. Take
the example of India. For the last few years, every year a two
or 2.5 reduction of industrial tariffs has been done because this
is part of the macro-economic policy which the previous government
and the present government have put together because they believe
this is good for the Indian economy. We have had many more examples
in the last five or ten years of developing countries taking autonomously
a decision to reduce their tariffs than going the other way round.
Again, coming back to this policy space, I think it is a necessary
protection, I think it is something which needs to exist, but,
to be frank, they have not been using that a lot because, basically,
their choice has been that they are going to move it the other
way round. I am not talking there about the number of specific
cases (on which I will not comment unless I am questioned, and
I am not asking for a question) where, as a result of IMF or World
Bank programmes, as a result of the conditionality for financial
support, a number of developing countries have had to reduce unilaterally,
although with agreements with the IMF and the World Bank to get
the funds they needed. That is another story, but, on the whole,
that is my answer.
Q211 Richard Burden: Could we turn
to services, which you referred in your post April agenda. Obviously
developed countries have got quite a lot to gain from the services
negotiations. Some developing countries have as well, particularly
on perhaps liberalisation of unskilled labour intensive services,
but the argument is sometimes made that there has been not sufficient
time and not sufficient space for the research to be done to allow
developing countries to engage with that agenda properly. What
is your view of that? Should the services have been included in
the development agenda and where do you think that argument about
research goes to now? What kind of space could be given to allow
developing countries that space to conduct the research and what
assistance can be given?
Mr Lamy: Services are included
in the development agenda. The world has changed since ten years
and services, which was a northern offensive ten years ago, is
now both a northern and a southern offensive. Why is it so? Because
a number of developing countries have given out specific comparative
advantages in areas like information technology, accountancy,
construction services, and so on. The services negotiations do
not work the same way as the agricultural or industrial tariffs.
You do not have a tariff in services, you do not have a protection
under the form of a tariff. The only protection you have in services
is the decision to open your market to foreign competitors, and
this mostly has to do with your domestic regulation. That is the
first difference. The second difference is that opening markets
and services is not done the way it is done in industry with the
sort of number that is applied to everybody about all the numbers
of your tariff structure. It is done sector by sector and mode
by mode. What I mean by "sector by sector" is that you
negotiate telecoms in a different silo as you negotiate distribution,
in a different silo as you negotiate financial services, in a
different silo as you negotiate accountancy services, and it is
also negotiated according to modes because you negotiate in accountancy
services either cross-border services provision, or freedom of
establishment, or provisional transfer of professionals. The reality
is that the services negotiation takes place between 30 and 40
members of WTO, which are the markets where making an effort vis-a"-vis
a partner in the negotiation is significant and can explain why
you are making an effort even if this effort may not been in the
same sector. If Europe wants Indonesia to open certain markets
and Indonesia wants Europe to open its construction services,
they can make a deal. Of course, then what Europe will have offered
and what Indonesia will have offered will be open to the whole
members because it is a multilateral system. The reality is that
it is a negotiation between, let us say, one fifth, may be one
quarter of the membership and that many developing countries whose
potential services markets are not attractive for many competitive
operators are, for the moment, not part of this negotiation. As
to the last part of the question on qualifications, I am not sure
it is right to start from the principle that in the services negotiations
developing countries have to offer unskilled labour and developed
countries have to offer skilled labour. If you look at the request
which developing countries have tabled after Hong Kong and as
the result of the methodology we agreed on in Hong Kong, if you
look at the request which developing countries have tabled to
developed countries (and it is, I think, public, at least I suppose
it is public), it is mostly about skilled labour and not unskilled
labour. It is mostly about in engineering, IT services and, of
course, India is pulling a big part of this negotiation and is
bringing other developing countries on board as a result, by the
way, of these coalitions which they have with others, which can
also help moving countries, like Brazil for instance, who might
not be pushing much, to accompany India in this effort. All in
all, there is no obligation. Each country, or group of countries,
with these table requests, will receive offers and these will
be adjusted, but it is a negotiation which is much more flexible
and much less prescriptive than other negotiations, and this will
not change this time.
Q212 Mr Davies: Just a brief comment
and a brief question, if I might. On the question you were asked
earlier about the potential impact on employment in, say, the
automotive sector in Brazil as a result of tariff reduction, I
would have hoped that the answer would be that, insofar as tariff
reduction exposes in any country or any sector that their current
activity does not enjoy a comparative advantage, then that is
the whole object of the operation, and that the resulting reallocation
of resources will lead to better specialisation, more efficiency
in the use of resources and a more rapid increase in wealth over
the future. That is precisely the purpose of this trade round.
I want to ask a specific question about greater market access
in the EU for agricultural products, and we all agree that is
one of the essential issues we are addressing. Is there general
agreement that, though tariffs should certainly be reduced, it
would not be right to allow agricultural products to come into
the European Union which are produced to lower standards of health
and consumer protection, animal welfare or environmental protection
standards: because, if we were to do that, we would have just
replaced one distortion by another and we would have given a handicap
to producers in the European Union which has nothing whatever
to do with comparative advantage and counteracts and disguises
comparative advantages. We, therefore, would have done a bad day's
work economically, and we would also have done a bad day's work
for animal welfare, human health or environmental protection because
you simply would have shifted production to areas where those
standards are less well respected. Is that a general understanding
of the present state of negotiations?
Mr Lamy: On the first part of
the question, Quentin, the question was overall what is the impact
of tariff reduction on manufactured goods in developing countries.
My answer was that I think overall in the manufacturing sector
the end balance in terms of job losses is more on the side of
developed countries than on the side of developing countries,
which, by the way, can be easily compensated for by increases
in services for instance or increases in the size of the market
which trade opening creates, and of course that can offset productivity
and differences in costs of labour. To your second question, the
market access negotiation in agriculture for the moment is focused
on tariffs, and you do not protect consumer health or animal welfare
with tariffs. You protect consumer health or animal welfare or
the environmental impact of agriculture through either subsidies,
which are there to compensate for a handicap which you would impose
on your farmers as a result of an extra level of constraint, or
you do that through non-tariff barriers, that is with standards.
So it is not with tariffs. Subsidies and non-tariff barriers are
also part of the negotiation. The sort of concerns that you are
mentioning, like animal welfare for instance, are for the Green
Box. That is for subsidies which are there to offset a competitive
disadvantage without impacting on the level of production so that
the more subsidies you give the more farmers produce. You in Europe—and
I have to say you in Europe now from where I am—want to
have hens which are happy. The European Union, by the way, does
have a regulation about the average space which a hen is entitled
to have in order to lay "happy" eggs. For sure, many
other countries on this planet will not have this specific regulation
and they will have less happy hens and less happy eggs. True,
a happy hen and a happy egg is more costly to produce. Now if
you wanted the European Union to offset this and say "we
will give a flat premium to egg producers to compensate for the
fact that we want happy eggs", that is fine with the WTO,
provided of course it is not a subsidy per egg, which then would
create an incentive to produce more. On non-tariff barriers, there
are negotiations but not negotiations that would lead to breaching
the general principles which are enshrined in the WTO Charter,
that each and every member has the right to protect the health
or the safety of his population and that this right can trump
trade opening. There is either legislation in the WTO or the work
of the sanitary and phyto-sanitary measures or case law like the
asbestos case, for instance, between the European Union and Canada,
to take this example, which show that these principles are recognised.
So the notion that trade opening could result in dumping whichever
standard a country or a grouping like the European Union deems
necessary for the protection of its population does not float.
Of course, this has to be done in a way which is not disguised
protection. If a European country were to say, "I have a
maximum pesticide residue standard for flowers which is X but
for African flowers it is going to be Y" (Y being higher
than X) then of course it will not work. The European Union has
the ability to determine in all sovereignty the right level of
pesticide residues in cut flowers which the European Union deems
necessary for the protection of its population.
Chairman: Just before we get to the end,
I have got one quick question from John Battle.
Q213 John Battle: Just a quick question
for information on services because at Hong Kong it was agreed
that there could be plurilateral requests by the end of February
or thereabouts. I thought that only developed countries had put
in requests but I think I heard you say that some developing countries
had put in requests. Could you tell us which ones, just for information?
Mr Lamy: Well, many developing
countries have tabled important requests in the direction of developed
countries. Let me give examples—India, Egypt, Brazil, South
Africa, I am sure China also did in some areas—so mostly
these sorts of emerging competitive countries, and in various
sectors, not only Mode Four which is a provision for the transfer
of personnel, as I said, on skilled labour, but also in things
like maritime services, construction services or energy services.
That is roughly the sort of example I have in mind. I do not know
whether these plurilateral requests have been made public by the
members who have tabled them. I suppose so, but that is roughly
my sort of example.
Q214 Chairman: Thank you very much,
that is very helpful. Can I say that you personally were congratulated
at Hong Kong for the arrangements, for the facilitation and for
the high degree of transparency, and I think you have demonstrated
to us this afternoon why that was because you have been very clear
about a very complex area. You have acknowledged that of course
it is a multinational organisation in which the members decide—which
puts you in a rather invidious position as facilitator. I really
want to press you on this and I think I can say this on behalf
of the Committee we want to see a concluded round which will benefit
developing countries. We are fearful that if negotiations go on
for too long they will break up to bilaterals, which we know will
be against the interests of developing countries. You said that
65 % approximately of what needs to be on the table for April-July
is on the table, which implies that 35% is not. I am really asking
you on a personal basis, and I am not holding you accountable
because we cannot for this because ultimately the members decide,
but what is your gut feeling about how things are going that there
is a chance of what you described in the first answer to me as
a development round being concluded within the timetable? It is
a very simple question but it is absolutely fundamental to what
we are interested in.
Mr Lamy: Well, of course, it is
always difficult for me to answer such a precise question in public,
but my sense is that ministers and the constituencies to which
they refer—and they all have what we call in our jargon
an authorising environment, which is committees like yours, parliaments,
senates—have in mind that the window of opportunity for
concluding this round closes at the end of this year, and conventional
wisdom in the system is that the Trade Permission Authority, which
allows the US Government to negotiate trade agreements with specific
authorisation by Congress, will not be renewed next year, so there
is this time factor. Secondly, there is the consideration of what
is on the table. What is on the table is probably 60 to 65% of
the final package, but at some stage of the negotiation—and
we all know that in life, as in business or in politics, a negotiation
is different whether you are thinking of what is not on the table
or whether you are starting to think about what is already on
the table, which of course needs to be topped up, but the consequence
that if the negotiation breaks down what is already on the table
will disappear is a sort of wisdom and negotiating enhancing factor.
I think we are reaching the stage where people really are serious
about removing some of the extremely subtle tactics which they
have and they are all stuffed full of extremely clever tacticians
who always want to invent combinations where at the end of the
day you are going to pay less and get more, as if this was rational
behaviour around the table. It is not rational behaviour because
everybody around the table has the sort of view that at the end
of the day it is a win/win game and that concessions will have
to be dumped. That is the first part of my answer. The second
part of my answer—and I thank you for doing the job you
do as a sort of flanking support for developing countries in this
round—is I think for developing countries and for those
of you who are looking at this negotiation from this angle, there
is a reality that will not change, and this reality is that for
developing countries a multilateral negotiation is, by construction,
better than a bilateral negotiation. This systemic factor is hugely
important for development. If you are a developing country, if
you are poor, if you are weak, if you are small, getting a small
bit of the EU market or of the US market or of the potential Chinese
market is so important for you that you will concede things which
you would not concede around a multi-lateral table. We always
thought for a long time that these bilateral negotiations being
mainly in the hands of the EU or the US. China today is negotiating
27 bilateral trade agreements. 27! So if we want to make sure
that we rebalance the system, not only the multilateral system
but the whole trade system, in favour of the developing countries,
there is no way that you can do that but through the multilateral
table, plus the aid for trade pillar (which is slowly, I believe,
coming into place in the minds and in the numbers) which is going
the extra step, which is very important for developing countries
and is fine for getting market opening but it remains the theory
if I cannot transform this into trade flows which will then boost
my growth, and then I will need to reduce poverty, provided I
have the right domestic politics in terms of redistribution. I
think if we can move this part of the negotiation so that at the
end of the day, different to the previous round, a number of developing
countries have the necessary confidence and comfort from the World
Bank, the IMF, the regional development banks, bilateral donors,
Europe, European countries, the US, and we refocus part of what
they do in terms of international development assistance to always
addressing these problems, I think if we succeed in doing that,
then we will have taken two steps instead of one, not only rebalancing
the rules but also making sure that the benefit of these rules
fuel more rapidly into trade and growth. I will finish with a
very simple example which is trade facilitation. On trade facilitation,
which is a totally obscure part of this negotiation which will
never catch the headlines, if you want to move a container from
a port to your final client, the average time for most African
countries is 100 days. If you want to move the container in Europe
from a port to your final consumer, the average is in the order
of magnitude of five days. The cost for the end consumer (because
the end consumer pays for the difference in the cost) of such
a difference is much more important than 90% of the tariffs which
exist. These problems, which are basically procedural, red tape,
signatures, the necessity to go to 20 authorities before your
container is cleared, are hugely important, both in terms of negotiation
(and this is about negotiation) but also in terms of providing
for the necessary customs clearance, which with electronics today
is not rocket science. I am sorry to finish on an example but
speaking to an English audience is not usually with hugely romantic
speeches, but that is a very clear case where for developing countries
addressing the nitty-gritty and providing for the necessary port
can make a huge difference. I think we should make sure that these
huge differences, although they may be politically less visible
(and maybe because they are politically less visible) should also
happen, and I would be very grateful for your support on that.
Q215 Chairman: Thank you very much,
Mr Lamy. I may say that we had very practical examples of that
when we were in Southern Africa just in the last two weeks. That
is absolutely right. I thank you very much for giving this evidence.
We are intending to produce a report that makes a contribution
to the process in which you are engaged rather than coming after
the event, so your willingness to engage with us is extremely
helpful. I wish I could say the same, I have to say, for the European
Commissioner on Trade, who has not had the same time to speak
to the Committee, but your input is much appreciated. We value
very much your frankness and engagement. We hope that our report
will reach you in good time to help you, or at least help you
to help the members come to the right conclusion for development.
Mr Lamy: I am sure it will and
I thank you for your attention. Goodbye.
1 Group of Latin American and Caribbean Countries. Back
2
Association of Southeast Asian Nations. Back
3
Trade ministers must not sell out world's poorest people, ActionAid
News release, Wednesday 8 March 2006. Back
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