What is at stake?
69. Progress with the Doha Round has slowed down
since December. Ian Pearson told us he was planning to hold talks
with the Brazilian and Indian commerce ministers to help move
the Round forward.[68]
A meeting between President Lula de Silva of Brazil and the British
Prime Minister on 9 March produced a joint statement which said
that, 'current offers on the table fall well short of the deal
we want.'[69] A subsequent
meeting of the G6 — US, EU, Brazil, India, Japan and Australia
- produced no new outcomes and led some delegates to suggest that
Members were unlikely to be able to meet the end of April deadline
for agreeing numbers for tariff and subsidy cuts in agriculture
and non-agricultural market access (NAMA), and that their chances
of doing so were decreasing by the day.[70]
70. There may well be value in joint statements
with developing countries such as Brazil — demonstrating
that the Government shares the concerns of developing countries.
However, unless the EU position changes, and this requires changes
in member states positions, the April deadline will be missed.
The Government should therefore prioritise high level meetings
with its EU member state partners.
71. The Doha Round was labelled a development round
because there was a consensus that multilateral trade rules were
unbalanced in favour of developed countries. The intention, according
to Pascal Lamy, Director General of the WTO, was to address these
imbalances, particularly in agriculture and in industrial products
of interest to developing countries.[71]
Much has been made by the Government of the potential benefits
for developing countries of a successful round.[72]
72. New research has begun to express reservations
about the precise benefits of the Round for the developing countries,
especially if only minimal changes are made to existing rules.
Initial World Bank assessments about the value of trade liberalisation
were revised during 2005 to reveal that the gains would not be
as great as had originally been predicted. In 2003 the Bank had
predicted gains of US$539 billion to developing countries; in
2005 the gains for developing countries were now estimated at
US$90 billion. Much of this downgrading of the estimate was due
to the use of a different base year, 2001 instead of 1997, and
from incorporating trade agreements reached up to 2005 whose effects
can not be counted as resulting from the Round. Research from
the Centre for Global Development using a different data set,
produces even lower estimated gains for developing countries and
has also thrown into question the precise benefits of what is
on the table for developing countries.[73]
73. However, what both studies show is that 'gains
as a share of national income are higher in developing countries'[74]
and that roughly 60 per cent of the potential gains from free
trade come from liberalising agriculture, because that is where
the major distortions are. Developing countries' share of gains
from liberalisation are estimated at between 30-50 per cent depending
on whether countries such as Hong Kong, Korea, Singapore and Taiwan
are included.
74. An important caveat is that these gains assume
full liberalisation. Gains from a Doha scenario — limited
and qualified liberalisation — both reduce the benefits
and skew them toward the developed countries. The developing countries
which gain the most in a Doha scenario are competitive Latin American
exporters. A few lower income developing countries will lose because
of preference erosion and higher food prices. Some of these will
be able to compensate by moving factors of production but a few
will gain too little to compensate for the loss of preferences.
75. Current offers on the table for improved market
access fall far short of what is required for developing countries
to benefit. Agricultural liberalisation has to be better structured
so as to increase the benefits for developing countries. One aspect
of the EU offer is the potentially devastating consequences for
the Round if too many products are designated as sensitive by
the EU. Pascal Lamy indicated to the Committee that the areas
which the EU was likely to designate as sensitive would be so
deemed precisely because they were products which other non-EU
countries also produced, for example sugar. While these sectors
would not be immune from tariff reductions, the basis for the
reduction — for example, as a percentage of existing imports,
or of domestic consumption, or of the existing tariff rate quota,
— and the quota of imports allowed in, are as important
as the overall number of products. Peter Mandelson has indicated
to us that there may be some room for a reduction in the number
of sensitive products within the limits of CAP reform, provided
new commitments are forthcoming from other players. We would welcome
an offer to reduce the number of products which the EU designates
as sensitive, otherwise market access for developing countries
will be severely limited and Doha will not be a development round.
In making this offer conditional upon the actions of other states,
the EU is going against the spirit of the Round. This improved
offer should not, under any circumstances in this Round, be conditional
on actions by developing countries.
76. In industrial sectors, estimates of gains are
similarly heavily qualified and depend entirely on what formula
is used to reduce industrial tariffs. Most of the debate is, rightly
in our view, focused on allowing developing countries sufficient
policy space to tailor a country specific industrial policy. Joseph
Stiglitz in his recent book, Fair Trade for All, argues
that the Round has concentrated on the wrong things if the intention
is to promote development.[75]
In his view, a true development agenda should go beyond agriculture
and encourage industrial development, especially in the poorest
countries so that they are not consigned to producing primary
commodities for export. We agree with Stiglitz's recommendation
that the WTO needs to promote a culture of robust, impartial and
publicly available economic analysis of the effect of different
initiatives on different countries, and groups within countries,
if it is to effectively identify pro-development proposals and
promote them to the top of the agenda. Mechanisms must be found
to facilitate industrial diversification. We urge the Government
to ensure that the formula for tariff reductions in NAMA does
not discriminate against this.
77. In the book, Poverty and the WTO, World
Bank authors conclude somewhat pessimistically: 'the impact of
global trade reform on global poverty, as measured by the model
in this chapter, is modest.'[76]
This is partly because in many developing countries changes in
prices at the world market level do not always translate to the
household level. These internal blockages are significant but
they cannot be addressed by the WTO.
78. How then can the developed countries best ensure
that developing countries reap the benefits of liberalisation?
It should be noted that the existence of losses for some developing
countries in some areas should not be taken as evidence that reform
is not needed, but rather that more gradual liberalisation by
developing countries might help and/or that assistance is necessary
to help developing countries benefit from the reforms.
79. The idea of a more gradual approach to liberalisation
for developing countries is part of special and differential treatment
(SDT). The report by the previous Committee in the last Parliament,
Trade and Development at the WTO: Issues for Cancún,
proposed general principles to inform discussions about SDT.[77]
Since then, research by the ODI and the Swedish Ministry of Foreign
Affairs has indicated that it remains important to make SDT more
effective and to do so by agreeing a revised framework agreement
in the WTO.[78] While
Pascal Lamy's idea of a 'round for free' for the LDCs is a recognition
of the need to treat the poorest differently, questions about
who else should be eligible for SDT have made further discussion
difficult. This question is made more complicated by the fact
that some non-LDC countries in Africa, the Caribbean and the Pacific
will lose as the value of their preferences are eroded by multilateral
liberalisation.
80. There has been limited discussion of SDT in
the negotiations, despite a commitment to ensure that SDT would
be part of all areas of negotiation.[79]
To some extent this is to be expected, since SDT is usually agreement
specific and without numerical formulas it is impossible to calculate
what SDT might be in any given case. Nevertheless, recognition
of SDT is important, and the UK Government should work to ensure
that once numerical formulas are agreed for agriculture and NAMA,
effective SDT is possible according to the needs of developing
countries. Particular attention should be paid to the needs of
smaller, low income developing countries, especially those which
will lose because of preference erosion.
81. Some adjustment assistance will be necessary
in order to help developing countries benefit from trade liberalisation.
One aspect of the Commission's development package was enhancing
aid for trade. Aid for trade describes several categories of assistance,
only some of which are relevant to the WTO. According to Oxfam,
its objectives include: 'enhancing worker skills, modernizing
customs systems, building roads and ports, and improving agricultural
productivity and export diversification. Aid for trade should
also help developing countries to meet the adjustment costs of
implementing trade agreements, together with preference losses
and more expensive food imports.'[80]
This latter interpretation is the most important one in the current
WTO context — compensating developing countries for losses
incurred as a result of a new agreement. A wider pro-development
agenda would also include appropriate assistance for labour and
social security policies to enable developing countries to properly
tackle the social and developmental costs of rapid change in their
domestic economies, as well as trade facilitation.
82. Member states of the EU have promised to spend
almost €3 billion a year by 2010[81]
and the UK Government has £100 million per year by 2010.
However, this money is part of the Government's Gleneagles pledge
to increase aid. It is not new money. If the Government, or the
EU, enters into agreements which harm developing countries, for
example by eroding preferences, it should seek to compensate developing
countries for those losses. [82]The
reason for giving money — compensation — is distinct
from the reason development assistance in general is given.
The EU contribution is welcome. The WTO, should as a matter of
priority, turn its attention to how the aid for trade mechanism
will work and provide a clear mandate by the end of the year as
agreed in the Doha time line. This should be done with input from
potential beneficiaries in developing countries. There is also
the need to clarify the relationship between aid for trade assistance
and general development assistance. Aid for trade should be additional
to and not simply a diversion of aid monies already pledged. We
do not believe that the Government should consider aid for trade
as part of its general aid budget.
Making multilateralism work for
developing countries
83. One positive outcome of Hong Kong was that all
members agreed to keep negotiating, and not to walk away as they
had in Cancún. This is a success for the principle of multilateralism.
The multilateral system is particularly important for small developing
countries who can protect their interests better in a rules-based
rather than a power-based system. As Pascal Lamy told us, 'if
you are a developing country, if you are poor, if you are weak,
if you are small, getting a bit of the EU market or the US market
or of the potential Chinese market is so important for you that
you will concede things you would not concede around a multilateral
table.[83]
84. In addition, there are an increasing number of
bilateral and regional trade negotiations which are not always
in the best interests of developing countries, or of the multilateral
system. We were told, 'it is not obvious that the two things are
compatible and complementary, preferential trade agreements 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.'[84]
We consider the multilateral system to be important for
developing countries and are pleased that the Doha Round did not
collapse in Hong Kong. The Government should work to ensure that
the EU does not in any way prejudice a successful and timely conclusion
to the Doha Round.
85. Cancún saw the emergence of developing
country coalitions, capable and willing to exert pressure on the
developed countries. The collapse of the Cancún Ministerial
is attributed to coalitions of developing countries being unwilling
to accept the deal which was on the table. Hong Kong saw the continuation
of this practice. Of particular note was the formation, at the
request of Brazil, of the G110, combining the influential G20
and the group of poorer developing countries the G90. Whereas
the interests of the two groups are far from identical, the groups
came together because they felt the EU and the US were trying
to 'divide and rule' the developing countries. Certainly, as we
have said, the EU mandate does attempt to do so. It is not clear
whether, or for how long, such a coalition will last. However,
the formation of the G110 should not be seen as just a trade union,
as was suggested by Pascal Lamy, rather as a response to an attempt
by the developed countries to exert pressure on developing countries
to agree to things which they did not feel were in their interest.
The Commission should step back and ensure that it is not abusing
its position in the WTO.
86. One aspect of the process which gives us concern
is the practice of mini-ministerials, or meetings of select members
of the WTO. The London mini-ministerial was attended by only two
developing countries, Brazil and India. There were no representatives
from Africa. We accept that the use of smaller ministerial
meetings make for easier decision-making but consider this an
unrepresentative approach in an organisation which has facilitated
greater participation and ownership by developing countries than
its predecessor the GATT. It is not good from the point of view
of either transparency or accountability. The Government should
not condone such a practice, especially if a development agenda
is still the goal of the Doha Round.
87. In summary, whilst it is good news that the
Doha Round, and the principle of multilateralism, did not collapse
at Hong Kong, much remains to be done in order to bring the Round
to a successful conclusion. The minimum criteria for a successful
agreement would be one which does not differentially hurt developing
countries or provide disproportionate benefits for developed countries.
At present we have concerns that sufficient progress is not being
made.
88. Peter Mandelson says that any further margin
of manoeuvre in agriculture could only be considered if other
key players make offers in manufacturing trade and services.[85]
The Commission position must change, and there is good reason
for the Commission to act pre-emptively on this since, in the
WTO, nothing is agreed until everything is agreed. Such action
would demonstrate leadership and political commitment to a development
round. The developing countries have much to gain from an ambitious
outcome. The EU must not become the cause of failure.
89. The outcome of the development agenda is not
a forgone conclusion. Much work remains to be done now, and subsequently
after the formulas for tariff reductions are finally agreed. Despite
overall commitment to multilateralism, it is still not clear that
members will make ambitious new offers. A development round will
not be the result of a gradualist approach. While the LDCs have
secured a (limited) deal in market access, the remainder of developing
countries have not. There is no more time to lose. As a key player
within the EU, the UK has a major role to play. This role must
be to encourage the EU member states to put the interests of developing
countries first in this case. This will be the true test of a
development round.
68 Q 166 [Ian Pearson MP] Back
69
Joint Statement by President Lula and Tony Blair on trade, 9 March
2006. Available at: www.number10.gov.uk Back
70
ICTSD, Bridges Weekly Trade Digest, 16 March 2005. Available at:
www.ictsd.org Back
71
Q 202 [Mr Lamy] Back
72
Hilary Benn MP "In order to make poverty history, we must
make trade work for the poorest' Financial Times 23 November
2005. Back
73
For a detailed discussion of the different models and the basis
on which their assumptions are made in respect of agriculture
see, Kimberly Elliott, 'Looking for the Devil in the Doha Agricultural
Negotiations, CGD brief, December 2005. World Bank studies are
found in, K. Anderson and W. Martin (eds.) Agricultural Trade
Reform and the Doha Development Agenda, (Basingstoke and Washington,
2005), and T. Hertel and L. A. Winters (eds) Poverty and the WTO,
(Basingstoke and Washington, 2006). See also, W. Cline, Trade
Policy and Global Poverty, (Washington, 2004). For analysis of
the limits of these complex modelling exercises see, F. Ackerman,
"The shrinking gains for trade: a critical assessment of
Doha round projections" GDAE Working paper no 05-01, Tufts
University, (2005). Back
74
Kimberly Elliot, "Looking for the Devil" ibid
p 2. Back
75
J. Stiglitz and A. Charlton, Fair Trade for all? (Oxford,
2006). Back
76
T. Hertel and L.A. Winters, Poverty and the WTO, p 499. Back
77
International Development Committee, Trade and Development
at the WTO: Issues for Cancún, HC 400-I, para 145. Back
78
S. Page and P. Kleen, Special and Differential Treatment of Developing
Countries in the WTO, (Sweden, 2005) Back
79
Ev 60-61, paras 5 and 8 [DFID and DTI] Back
80
Oxfam, Scaling up Aid for Trade: how to support poor countries
to trade their way out of poverty, Briefing note, November 2005. Back
81
Ev 100 [Rt Hon Peter Mandelson, EU Commissioner for External Trade] Back
82
In Brussels we met with ACP Ambassadors who expressed concerns
about their loss of preference as a result of reform of the EU
sugar regime. The compensation which they have been promised will
not meet their adjustment costs. Back
83
Q 215 [Mr Lamy] Back
84
Q 70 [Prof Wade] Back
85
Ev 101 [Rt Hon Peter Mandelson] Back
