Memorandum submitted by Colin Kirkpatrick
and Clive George, Institute for Development Policy and Management
(IDPM), University of Manchester
ABOUT IDPM
The Institute for Development Policy and Management
(IDPM) is a multi-disciplinary centre in the School of Environment
and Development at the University of Manchester, specialising
in research, postgraduate education and consultancy work in the
field of international development policy. The Institute, which
was established in 1958, currently hosts two major Research Centres
for the UK Department for International Development, in Regulation
and Competition and in Chronic Poverty, and an Impact Assessment
Research Centre (IARC), working on the impacts on sustainable
development of national, regional and international policies.
Since 1999 IDPM has played a leading role in
the European Commission's programme for Sustainability Impact
Assessment (SIA) of trade negotiations and agreements. In association
with numerous partner organisations[127],
IDPM has been the lead institution for developing the SIA methodology
for global and regional trade agreements[128],
for subsequent SIA studies carried out for DG Trade on the WTO
negotiations, and for the SIA of the Euro-Mediterranean Free Trade
Area (EMFTA) being undertaken for DG EuropeAid.
THE WTO AND
SUSTAINABLE DEVELOPMENT
At the recent WTO Symposium on Trade and Sustainable
Development (10-11 October 2005), The WTO Director General, Pascal
Lamy, stated that "we must remember that sustainable development
is itself the end-goal of this institution. It is enshrined in
page 1, paragraph 1, of the Agreement that establishes the WTO".
He went on to say:
"So what does all this mean for the WTO?
It means that while the WTO has the capacity to open borders—and
to thereby switch on an important engine of growth—for the
benefits of that growth to show, Members will need "accompanying
policies". On the social side, these will be needed to ensure
that a fair and equitable distribution of the benefits of trade
takes place. On the environmental side, they will be needed to
ensure that trade—which has the capacity to help the environment—does
not end up going the other way."
THE IMPACTS
ON SUSTAINABLE
DEVELOPMENT OF
THE WTO DOHA
DEVELOPMENT AGENDA
1. It is widely agreed that international
trade can make a major contribution to the economic development
of developing countries. This is borne out by the Sustainability
Impact Assessment (SIA) studies that have been carried out for
the European Commission. However, these studies also show that
the actual effects of specific trade liberalisation measures depend
on the details of the agreements that are made, and vary significantly
between countries. In those countries where an economic gain can
be expected, it may be accompanied by adverse social and environmental
effects. For consistency with sustainable development and the
achievement of the Millennium Development Goals, these factors
must be taken into account in the forthcoming Ministerial conference
in Hong Kong, in the detailed implementation of its conclusions,
in corresponding domestic policy measures in individual countries,
and in the development of parallel global mechanisms for social
and environmental governance.
2. The SIA process combines public debate
with technical analysis, to provide information on the likely
impacts of potential trade agreements on sustainable development,
both in the EU and for its trading partners. The process gathers
different views and evaluates them in the light of available evidence,
to provide objective information that is intended to inform the
negotiations and contribute to the design of national and international
measures to enhance beneficial impacts and mitigate adverse ones.
3. A preliminary overview SIA has been carried
out for the entire WTO Doha agenda[129],
along with more detailed sectoral SIAs for specific aspects of
the WTO negotiations[130].
The following discussion is based on a review of these studies,
with further information from regional SIA studies[131].
The European Commission has itself published position papers on
several of the sectoral studies, describing how the findings have
been or will be taken into account[132].
GENERAL FINDINGS
OF THE
SIA STUDIES
4. The studies have assessed the economic,
social and environmental impacts of a postulated scenario based
on the strongest probable implementation of the trade liberalisation
agenda agreed at the Doha Ministerial, in the absence of parallel
measures for mitigation or enhancement. Potential measures are
then identified which may be necessary to avoid or minimise adverse
impacts and enhance beneficial ones.
5. Economic impacts differ between
countries, and between short-term, medium-term and long-term effects.
Short to medium term impacts in a country arise primarily from
increased imports of some goods or services and increased exports
of others, with labour and other resources moving between sectors,
without significant changes in production technology. Longer term
impacts result from changes in investment and productivity that
may be stimulated by changed market opportunities and greater
exposure to international competition.
6. For most developing countries the short
to medium-term economic benefits are relatively small compared
with those occurring through existing rates of economic growth.
In some countries the impact is negative, but also relatively
small. Greater increases in economic welfare may occur in the
longer term, through productivity improvements and accelerated
growth. These are, however, strongly dependent on other factors
which influence a country's economic development processes. The
trade liberalisation measures defined in the Doha agenda are not
in themselves sufficient to accelerate long term growth in most
developing countries.
7. Most developing countries experience
beneficial social impacts for some sections of society,
but significant adverse short-term impacts on others, as employment
moves between sectors. During the transitional period, the overall
effect on employment is negative in most countries. The adverse
effects will be particularly severe in countries with high initial
levels of protection and little or no comparative advantage in
sectors where other countries' markets become more open. Most
of the adverse effects are likely to be short-to medium-term,
but may be highly significant if liberalisation is rapid or not
accompanied by effective social policies. These impacts may continue
into the longer term in the absence of appropriate policies to
facilitate the creation of new employment opportunities. Countries
with high initial protection also experience a significant loss
of tariff revenues, with consequent social impacts through reduced
expenditure on health, education and social support programmes.
Women tend to be among the most vulnerable to adverse impacts,
although opportunities also arise for higher skilled jobs and
improved working conditions.
8. Environmental impacts in developing
countries are found to be negative in many cases, although with
some positive effects. Environmental regulation in these countries
tends to be insufficiently strong to counter the adverse effects
automatically. Local effects occur for water, air and soil quality,
water quantity, soil erosion and biodiversity, and are particularly
significant in areas of high existing stress.
9. The impacts on climate change
and global biodiversity are adverse overall, arising
primarily through increased transport and pressures for increased
agricultural production in biologically sensitive areas. Both
of these scale effects, resulting from increased trade and increased
production, can in principle be countered by technology or regulatory
effects. In itself however, the trade negotiation scenario that
has been assessed does not include measures which will strengthen
these positive effects sufficiently to counter the adverse ones.
The studies do however indicate an overall global economic gain,
part of which could be directed towards parallel actions to achieve
global environmental sustainability.
IMPACTS ON
THE MILLENNIUM
DEVELOPMENT GOALS
10. Impacts on the Millennium Development
Goals (MDGs) are mixed. Trade liberalisation through the WTO can
in principle contribute positively to the long term goal of eradicating
extreme poverty and hunger (Goal 1), but with potential for significant
adverse impacts in the short to medium term. Impacts for Goals
2 to 6 (primary education, gender equality and empowerment, child
mortality, maternal health, and combating major diseases) include
some that are beneficial, but with potential adverse effects resulting
mainly from lower government revenues and expenditure. In the
absence of effective regulatory measures, the overall impact on
achieving environmental sustainability (Goal 7) is negative. The
contribution to Goal 8 (developing a global partnership for development)
is in principle positive, although developed country partners
carry more weight in the WTO negotiating mechanisms than developing
ones.
THE NEED
FOR INCLUSION
OF FLANKING
MEASURES IN
THE WTO NEGOTIATIONS
11. The SIA analyses are consistent in showing
that WTO trade liberalisation alone is unlikely to result in "win-win-win"
outcomes for sustainable development in the developing and least
developed countries. Trade liberalisation needs to be accompanied
by realistic commitments on the adoption, funding and implementation
of effective flanking measures which can mitigate negative impacts
(and enhance positive effects) on sustainable development. Flanking
measures should be an integral part of the trade negotiations.
Failure to give consideration to the implications of WTO-led trade
liberalisation for the three pillars of sustainable development
in the developing and least developed countries will mean that
progress in achieving the DDA trade liberalisation targets will
continue to be slow, that progress in advancing the WTO's goal
of sustainable development will be retarded, and that the likelihood
of meeting the MDGs by 2015 becomes more uncertain.
SPECIFIC POINTS
RAISED IN
THE INQUIRY
ANNOUNCEMENT
12. The implications of differentiation
between developing countries for the outcomes of the Ministerial.
The impacts of Special and Differential Treatment are assessed
in the preliminary overview SIA[133].
The study finds that strengthening SDT provisions can make a major
contribution to enhancing the development of all developing countries,
and by inference, that their removal or reduction would have the
opposite effect.
13. To whom should Special and Differential
Treatment be applied? The Doha Development Agenda (reinforced
by the General Council Decision of August 2004) sought to strengthen
SDT provisions for all developing countries, rather than reduce
them. In doing so, it placed particular emphasis on the needs
of the least developed countries. In accordance with the Declaration,
SDT provisions should continue to be applied to all developing
countries, with no reduction of the existing provisions, but with
differentiation in favour of all LDCs in actions to strengthen
them.
14. The extent to which tariff escalation
and outdated rules of origin harm prospects for industrial development.
The impacts of tariff escalation are assessed in the SIA on non-agricultural
market access and in the preliminary overview SIA[134].
The studies find that the reduction or elimination of tariff escalation
in high income countries would have significant positive impacts
in developing countries, by giving greater freedom to move up
the value chain in processing agricultural and other products
in which they have comparative advantages. Rules of origin are
assessed in the SIA on non-agricultural market access[135].
The study finds that failure to provide for cumulation under rules
of origin means that countries exporting to the EU or US frequently
can use raw materials originating only from the target country
or region, and not from third countries. This limits their ability
to develop manufacturing industries.
15. The degree to which liberalisation of
industrial and manufacturing sectors threatens to undermine development.
The impacts of industrial trade liberalisation are assessed in
the SIA on non-agricultural market access and in the preliminary
overview SIA.[136]
The studies find that the poorest countries (especially in sub-Saharan
Africa and small island states) are likely to be net losers for
the Doha scenario, while the more industrialised developing countries
(particularly in East Asia) should gain. Most countries will experience
gains to consumers and potential efficiency gains to the economy,
but adjustment costs can be high. Many of the poorer countries
have limited capacity to benefit from increased market access
internationally, and domestic producers are likely to succumb
to competition from imports, with consequent impacts on employment.
Additionally, the loss of tariff revenues may lead to significant
adverse social impacts through a reduction in social expenditure.
16. What aspects of the Non-Agricultural
Market Access negotiations would benefit developing countries?
As discussed above, reductions in tariff escalation would benefit
developing countries.
17. The benefit of including GATS Mode IV,
the temporary movement of labour, in the services negotiations
for developing countries. The impacts of GATS Mode IV liberalisation
are assessed in the preliminary overview SIA[137].
The study finds that developing countries would in general benefit
economically and socially from greater liberalisation by developed
countries, particularly for low-skilled labour. However, the extent
of developed countries' GATS commitments is limited primarily
by domestic social concerns. It is not expected that more ambitious
offers by developing countries would have a significant influence
on this aspect of the services negotiations.
18. Whether or not developing countries
should be making more "ambitious" offers in the services
sector. The impacts of services are assessed in the SIAs on environmental
services, distribution services, and the preliminary overview[138].
The studies find that services liberalisation would deliver economic
benefits to developing countries, but with potential economic
costs, and with a range of social and environmental impacts that
are both positive and negative, varying according to the nature
of the service. To achieve the intended benefits of many aspects
of services liberalisation and avoid adverse social and environmental
impacts, appropriate policy and regulatory frameworks need to
be in place.
19. The extent to which developing countries
will gain from agricultural trade liberalisation. The impacts
of agricultural liberalisation are assessed in the SIAs of agriculture
in general and of major food crops[139].
The studies find that LDCs and other low income developing
countries derive few if any direct benefits from agricultural
liberalisation, and some may lose, particularly in the short to
medium term. In the longer term, domestic agriculture may benefit
if producers can respond, but some LDCs are net food importers
for structural reasons, with no domestic capability for food self-sufficiency.
Most major exporting developing countries (such as Argentina,
Brazil and Uruguay) are net economic beneficiaries, although the
welfare gain is small. The impact may be adverse in countries
that are significant exporters of specific products for which
trade preferences are lost. Highly protected developing countries
(such as India and Egypt) face mixed impacts. Domestic policy
measures may be required in all countries to avoid adverse social
and environmental effects.
20. The Committee proposes to examine these
aspects of the negotiations with particular reference to case
studies of trade in coffee, cotton, sugar and textiles and welcomes
submissions which address these commodities. The impacts of liberalisation
for coffee, cotton and sugar are assessed in the SIA for agriculture,
and for textiles in the SIA for non-agricultural market access[140].
21. The direct effect of the agricultural
negotiations on coffee production is small. Greater potential
benefits to developing countries may arise in the non-agricultural
negotiations, through possible reductions in tariff escalation.
22. Cotton production will increase in less
protected developing countries in East Asia, Latin America, and
several West and Central African LDCs, which will gain economically.
Textile producing developing countries that import cotton (including
many Mediterranean ones) will lose. Domestic measures may be needed
in many developing countries to avoid adverse social and environmental
effects.
23. Some of the most important effects for
sugar come from reform of the EU-ACP Sugar Protocol to meet existing
WTO rules. The additional effect of any further liberalisation
agreed under the Doha negotiations is expected to be small in
comparison.
24. The textiles and clothing sector is
experiencing major changes due to the end of the Multifibre Arrangement
(MFA) in January 2005, and China's accession to the WTO. The elimination
of MFA quotas has benefited exports from countries such as China
and India, with a corresponding decline in market share in countries
such as Bangladesh, Mauritius and many African and Middle Eastern
producers. The tariff reductions currently being negotiated in
the WTO will benefit some developing countries but disadvantage
others, particularly least developed country exporters, whose
preferential access to EU and US markets will be reduced in relative
terms compared with India, China and other East Asian countries.
Bangladesh is expected to be among the biggest losers. India and
China both have highly competitive labour costs for textiles and
clothing, but both will be under pressure to increase their productivity.
Domestic policy measures will be needed in most developing countries
to avoid adverse social and environmental impacts.
November 2005
REFERENCES EC
(2005a) Presentation of the SIA process: the case of Market
Access, Environmental Services and Competition in the WTO negotiations.
http://trade-info.cec.eu.int/doclib/docs/2005/february/tradoc_121428.doc
EC (2005b) European Commission Position: Sustainability
Impact Assessment of DDA negotiations: Sectoral study on Market
Access: Pharmaceuticals, Non-ferrous metals, Textiles and Clothing.
http://trade-info.cec.eu.int/doclib/docs/2005/february/tradoc_121429.doc
EC (2005c) European Commission Position: Sustainability
Impact Assessment of DDA negotiations: Sectoral study on Environmental
Services. http://trade-info.cec.eu.int/doclib/docs/2005/february/tradoc_121431.doc
EC (2005d) European Commission Position: Sustainability
Impact Assessment of DDA negotiations: Sectoral study on Competition.
http://trade-info.cec.eu.int/doclib/docs/2005/february/tradoc_121432.doc
George C and Kirkpatrick C (2003) Sustainability
Impact Assessment of Proposed WTO Negotiations: Preliminary Overview
of Potential Impacts of the Doha Agenda, Institute for Development
Policy and Management, University of Manchester.
IARC (2003) Sustainability Impact Assessment
of Proposed WTO Negotiations: Sector Studies for Market Access
(Pharmaceuticals, Non-Ferrous Metals and Textiles), Environmental
Services (Water and Waste Management), Competition. Impact
Assessment Research Centre, Institute for Development Policy and
Management, University of Manchester.
IARC (2005a) Sustainability Impact Assessment
of Proposed WTO Negotiations: Sector Studies for Agriculture,
Distribution Services and Forests. Impact Assessment Research
Centre, Institute for Development Policy and Management, University
of Manchester.
IARC (2005b) Sustainability Impacts of the
Euro-Mediterranean Free Trade Area: Final Report on Phase
2 of the SIA-EMFTA Project. Impact Assessment Research Centre,
Institute for Development Policy and Management, University of
Manchester.
Kirkpatrick C, Lee N and Morrissey O (1999)
WTO New Round: Sustainability Impact Assessment Study,
University of Manchester.
Kirkpatrick C and Lee N (2002) Further Development
of the Methodology for a Sustainability Impact Assessment of Proposed
WTO Negotiations, University of Manchester.
Maltais A, Nilsson M, Persson A and Segnestam
L (2002) Sustainability Impact Assessment of WTO Negotiations
in the Major Food Crops Sector. Stockholm Environment Institute,
Stockholm.
127 The following people and organisations have contributed
to the SIA studies on which this submission is based: Halima Noor
Abdi, Balsam Ahmad, Sergio Alessandrini, Julian Arkell, C. Azzoni,
Ron Bisset, Carol Chouchani Cherfane, Julian Clarke, Raymond Colley,
Annie Dufey, Simon Evenett, Doug Flint, Ian Gillson, Kevin Gray,
Maryanne Grieg-Gran, J. Guilhoto, E. Haddad, Rainer Herret, Michael
Johnson, Marko Katila, Georges Landau, Maria Lima, Diana Mitlin,
Oliver Morrissey, Elibaric Msuya, Rachid Nafti, Mdoe Ntengua,
Lydia Richardson, F. Silveira, Markku Simula, Rejane Sales Stens,
Dirk Willem te Velde, Kenneth Westlake, Steve Wiggins, BMT Cordah
Ltd, Bocconi University, British Institute of International and
Comparative Law, Centre International des Technologies de l'Environnement
de Tunis, CUTS-CITEE India, Deloitte & Touche, Fipe Brazil,
International Institute for Environment and Development, International
Trade and Services Policy, Malaysian-German Chamber of Commerce
and Industry, Overseas Development Institute, Prismax Consulting
Brazil, Savcor Indufor Oy, Sokoine University of Agriculture,
Trades Centre in Kenya, Tripleline Consulting, University of Newcastle,
University of Nottingham, UN Economic and Social Commission for
Western Asia, Westlake Associates, World Trade Institute. Back
128
Kirkpatrick, Lee and Morrissey (1999), Kirkpatrick and Lee (2002). Back
129
George and Kirkpatrick (2003). Back
130
IARC (2003), IARC (2005a), Maltais, Nilsson, Persson and Segnestam
(2002). Back
131
IARC (2005b). Back
132
EC (2005a,b,c,d). Back
133
George and Kirkpatrick (2003). Back
134
IARC (2003), George and Kirkpatrick (2003). Back
135
IARC (2003). Back
136
IARC (2003), George and Kirkpatrick (2003). Back
137
George and Kirkpatrick (2003). Back
138
IARC (2003), IARC (2005a), George and Kirkpatrick (2003). Back
139
IARC (2005a), Maltais et al (2002). Back
140
IARC (2003), IARC (2005a). Back
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