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CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 730-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE International Development Committee
Making Trade Work for Development: the WTO Hong Kong Ministerial
Thursday 1 December 2005 RT HON HILARY BENN MP, IAN PEARSON MP, MR CARLTON EVANS and MISS AMANDA BROOKS Evidence heard in Public Questions 75 - 135
USE OF THE TRANSCRIPT
Oral Evidence Taken before the International Development Committee on Thursday 1 December 2005 Members present Malcolm Bruce, in the Chair John Battle Hugh Bayley John Bercow Richard Burden Mr Quentin Davies Mr Jeremy Hunt Ann McKechin Joan Ruddock Mr Marsha Singh ________________ Witnesses: Rt Hon Hilary Benn, a Member of the House, Secretary of State for International Development, Ian Pearson, a Member of the House, Minister of State for Trade, Investment and Foreign Affairs, Mr Carlton Evans, International Trade Department, Department for International Development (DFID), and Miss Amanda Brooks, Director, Trade Negotiation and Development, Department of Trade and Industry (DTI), gave evidence. Q75 Chairman: Can I bid you all good afternoon, Secretary of State, Minister and your colleagues. I understand, Secretary of State, you have a plane to catch and we will do our best to get through the agenda as briskly as we can. I wonder if I could start. You have written to the Financial Times setting out how this should be a development round and why it will be a development round[1]. Peter Mandelson yesterday produced a six-point plan from the EU as to the development priorities, although on first glance it looks like the things that the EU think the Americans should do to some extent deliver that outcome[2]. What is your take at the moment - given that those of us who are going are going there in ten days' time - on the likely outcome in development terms? In parenthesis, I can say that for those of us who are wrestling with this agenda there are times when we are never quite sure whether it is an agricultural round, a services round, a manufacturing round or a development round. We were told from the outset that it should be a development round. How satisfied are you, Secretary of State, that it will be? How do you think we will get to grips with modalities or will we get to grips on modalities? Hilary Benn: It has to be a development round if it is going to be regarded as a success, and particularly by developing countries who have invested a great deal of hope in the process which is now coming to its denouement with a very short period of time to go. I set out in that letter to the Financial Times what I regard as the tests which we should apply to allow us either to say, "Yes, it is a development round" or not. As to how things are going currently, I think they are pretty difficult really. It is not for the want of time because everyone has known that Hong Kong was coming. It is this very difficult situation: how you turn the professed will - because if you listen to the speeches that just about everybody makes about these trade negotiations everybody says, "Yes, we want it to be a development round" - into negotiations that have the capacity to deliver it. There are two things, of course, that are going on. You have the big issues being negotiated up here, as I think were touched on previously by the US, the EU, Brazil, India and others, and then you have developing countries. I talked to Dipak Patel, who leads for the LDC group, and developing countries feel that the things they are really passionate about are not really getting a look in at the moment. Without a deal on the big things you are not going to be able to make progress on the others and there is very little time in which to sort this out. In essence, that is where I think we are. Ian Pearson: I do think the clue is in the title; it is a Doha Development Agenda that we are pursuing and we do want to see a pro-development outcome to the Round. What we have to do at the very minimum is kick open the door of the developed world so that the poorest countries can actually trade with us. That is what we mean when we talk about duty and quota free access. Where we are in the negotiations I think is quite a difficult point. What I do want to say, however, is that the EU has made a serious offer. Commissioner Mandelson's second offer proposes a 39 % average tariff reduction in agriculture. I think it has a lot to recommend it. As part of the offer we have been asking countries like Brazil and India to make movement on other elements of the dossier such as Non Agricultural Market Access (NAMA) and services. We do hope that we can see progress being made in those areas. The offer of 39 % is more than the average reduction in tariffs in the Uruguay Round. I know there has been a lot of talk about sensitive products and the eight per cent sensitive products which people have been portraying as a get out clause so that Europe does not have to do anything. I would simply point out on that that if you look at the high scale of the tariffs, even if you were classifying them as sensitive products, you would still require a 20 to 40 % tariff cut. So this is a serious offer that the Commission has put on the table and, as Presidency, we have been supporting Commissioner Mandelson in his negotiating strategy. I think the UK's views on this are very well known. Q76 John Battle: I am under the impression that Commissioner Mandelson's offer of the 39 % tariff reduction is totally conditional on the opening up of services. Is that true and is the British Government supporting that? Ian Pearson: The negotiating mandate that the Commissioner has is based on securing a balanced outcome to the negotiations and that involves movement on agriculture, but it also involves movement on NAMA and services as well. I think that is the answer to your question, Mr Battle. We do need to see movement in all those areas. Q77 Chairman: Is part of the problem that by definition the World Trade Organization is an organisation designed to reduce trade barriers and all the Member States who are members of it have signed up on that understanding, yet we are committed to a development round which basically acknowledges that they do not have the capacity to respond to that degree of liberalisation other than within certain conditions and timeframes? That is what they are trying to negotiate. Take agriculture, for example, many of the poorest countries are importers of food products for whom the agricultural issue by itself could make things worse. They need the opportunity to diversify their economies before they open them up just the way we did and the way Korea and Japan did, as was suggested in the evidence we had on Tuesday. Why should they not be allowed to do that and why should they not be entitled to expect a negotiation and recognise that? Ian Pearson: I think you have just outlined the UK position. We do not believe in forcing countries to liberalise. We do think that trade can benefit the poorest countries, but we want to certainly make sure that these developing countries have duty and quota-free access to our markets and we want to see them develop their economies in accordance with their own poverty reduction strategies. Q78 Chairman: Does that suggest a slight division of view between the UK position and the EU position in spite of the fact that it is a British commissioner who is leading the EU at the moment? Ian Pearson: Let me be clear about this. There is a European commissioner who is leading the negotiations. We have a UK position and the UK, as Presidency going into Hong Kong, will seek to ensure that all Member States are fully informed and try to ensure that there is consensus around the Commission's negotiating position which is within the mandate that has been determined through successive European Council conclusions. That is really the position. What the mandate of the Commission actually says is very clear. The Commission has been very clear in terms of the package that Peter Mandelson has put forward to help the poorest countries and we believe that that will be a big step forward. Hilary Benn: Clearly there is a deal on special and differential treatment which recognises that changes in the world trade rules are going to affect countries in different ways. They start from different places; they need time and space to adjust and that is what they want. They have put some proposals forward. I made the earlier point about not a lot of attention currently being paid to that because people are concentrating on negotiating on other things, but it is important if they are going to feel - if they can get to the point of agreeing a deal - that they get out of this an agreement which acknowledges that very important fact. The truth is that the changes are going to affect different countries in different ways. It is very clear when one looks at the different negotiating positions of different developing countries which are themselves at different stages in development; each country in the end is going to judge what is on offer according to their assessment of what the impact is going to be - not surprisingly - on their own country and their prospects. Q79 Hugh Bayley: Ian Pearson's answer to John Battle leaves me rather uneasy. The UK has hitherto taken a liberal, free market approach to trade negotiations and yet the shift of position now to one where it is a bargain - we will give you something on agriculture if you give us something on services or manufacturing - is a slip back to the old mercantilism which we have said is no way forward. If this is going to be a development round first and foremost, we have to address the issue of market access for agricultural produce and to make progress on that field conditional on NAMA or GATS will destroy the Round. Ian Pearson: I think it is important not to confuse the UK's very clear position on this area with the EU's position. Certainly the EU's negotiating position has always said it wanted to see a balanced outcome to the Doha Round and that meant - and still means - progress not just in agriculture but in NAMA and services and trade facilitation as well. The simple reality is that we have an EU of 25 Member States who all want to get something out of this Round and we all in the end have to take home any deal that is finally reached and justify it to our electorates. Other EU Member States clearly do want to see progress in opening up access when it comes to industrial goods and delivering services as well. A large part of the progress that we want to see made is opening up developed country markets such as the United States, which has some very high tariffs indeed. This is clearly part of the mandate that the Commission has and is negotiating on. Q80 John Bercow: When the choice has to be made, Minister, which is more important: observing the constitutional propriety that this country, holding the Presidency, should reflect the general view of the European Union or the moral imperative of making an offer on agriculture which is unconditional? Ian Pearson: I think it is a false choice you are trying to get me to make. Let me just try to explain what I think the situation is. We are, as you rightly hint at, as Presidency, in a particular position where we are asked to deal with consensus and it is right that we should do so. The other thing is that the Commission operates within a negotiation mandate and there are some Member States who have concerns about the mandate and whether the Commission has gone beyond it already. There are other Member States - I do not think it is any secret to say who - like the UK, who would like to see the Commission go further than the existing mandate. In the end the Commission has to stick within its mandate or has to secure a fresh mandate to which all 25 Member States have to agree to. That is the position we are in at the moment. Q81 Hugh Bayley: When we were talking to the US Trade Representatives Department in Washington they took a line very similar to the UK which was that there would be no deal until there was a deal on everything. My knowledge of negotiations is that you do not reach agreements if you try to go for Utopia; you reach agreement by taking incremental steps forward. My view is that if the G8 countries - the EU, the United States, Japan and so on - go for everything they want, then nothing will be agreed unless there is agreement right the way across the agenda and I do not think there will be an agreement. I think the Doha Development Round will flounder because I do not think Congress will extend its negotiating mandate and that is a very real danger. When you say, Minister, that we want to deal with US protectionism of steel for instance, yes, we do, but that is our northern agenda; that is not a development agenda. The priority of this Round for very clear geo-political reasons after the 9/11 attack was pledged to be a development round. If we make progress on agriculture dependent on us getting the market access we want into the US market, we will be betraying that commitment that we and the rest of the developed world made and the Round will be destroyed as a result of it. I do not particularly ask for an answer, but I just ask our team to reflect on that and to argue as hard as you possibly can to ensure that the development priorities are settled in Hong Kong. Ian Pearson: I hope you are wrong in terms of your assessment of the prospects of the Round. The Round has always been billed as a single undertaking; nothing is agreed until everything is agreed. That is a feature of the Round that all participants in it clearly understand. I can assure you that we are pushing very strongly indeed for a pro-development outcome. It has been a key feature of our Presidency and our work with the Commission and we will do everything we can to ensure a pro-poor outcome to the Doha negotiations. Hilary Benn: We certainly agree with that. We talk about "we" here, the truth is what we are grappling with is that we have the UK view and negotiations on behalf of 25 Member States being undertaken by the Commission. I think it would be hard to find, in all honesty, a Member State that had pushed and continues to push harder on the development case for this Round and agreements which would benefit developing countries than the UK. However, we are also - as Mr Bercow's question drew attention to - talking about 25 Member States who have differences of views; there are internal debates and arguments. That is what we are grappling with here. In the end, you have to find a deal which everybody is capable of signing up to. You are absolutely right, Mr Bayley, that the test will be: does the outcome benefit developing countries or not? That is why people signed up in the first place to make this a development round. The challenge we face now is to turn that commitment and the fine speeches into numbers, deals, agreements and changes in policy which deliver that. You are right about time because eventually the fast track procedure in the United States may well run out and then we will be in a much more difficult position than I think we are in already. Hugh Bayley: I think it is clear to most people in this country that the UK has been the most progressive on agriculture reform within the European Union and has exerted the greatest pressure to keep the focus on development for EU states. What we are saying as a Committee is that we see EU policy slipping away from that and we would want the UK Government to continue to advocate the development essentials for the Round and to make it clear that that is what they are doing. Q82 Richard Burden: You just drew three positions: one is the UK view, the second is the EU position and the third is the negotiation mandate of the Commission. Would it be fair to say that you still see the UK view as entirely compatible with the EU negotiating mandate? Ian Pearson: The UK view is the UK view. The negotiation mandate that the Commission has is based on a series of European Council conclusions. That is the collective view of the 25 Member States. Of course the UK has fed into and led the debate in successive European Council meetings on the DDA[3]. We pushed incredibly strongly on Common Agricultural Policy (CAP) reform a couple of years ago precisely because we wanted a change in agriculture and to have a high level ambition for the Doha Round to help the world's poorest. Q83 Richard Burden: I entirely understand and I think none of the questions so far have been suggesting anything other than that the UK has been in the lead in pushing that agenda. The issue is, as we are now almost into Hong Kong, hypothetically, if the other EU countries said, "You've actually got a point and we've all moved a bit further" is that constrained by the mandate? If it is constrained by the mandate, there is nothing more to talk about. Ian Pearson: I do not like to get into hypothetical situations. It is an interesting point of debate about whether the mandate is sufficient to secure the level of ambition that we want to see for the Round as a whole. Certainly the view of Commissioner Mandelson, as far as agriculture is concerned, is that he is pretty much at the edge of his negotiating mandate and he needs to see progress in other areas such as NAMA and services. It is clear if you talk to Brazil, India, Australia or the United States they think that the Commission should go further on agricultural reform and should break its mandate. This is a very difficult decision indeed and it is something that future discussions will probably be held on. What you have to do is to ask yourself the question: is there an appetite in Europe to go further on agriculture? This is the big debate that I think we are having at the moment. Q84 Richard Burden: If the UK is successful in what is left of the run-up to the handover to Hong Kong in shifting the agenda of the EU a bit more towards our view, do you recognise there is a problem of changes being made at the last minute and getting to a kind of Cancún situation? Ian Pearson: As the Presidency, Britain is in a fairly pivotal position about how that is handled. We have said consistently all the way through this that we did not want to get to Hong Kong leaving too much to do. We would have liked to have seen far more progress than has actually been achieved to date. It is disappointing. We have seen the Round move forward. The American offer, and the EU offer represented progress but not nearly as much as we would have liked. There is a very real danger that too much gets left to be done, not just in Hong Kong but in 2006. As you rightly pointed out, Chairman, there is an end point to this; we do need to close out the Round in 2006. While the Commission is at the edge of its negotiating mandate when it comes to its market access offer on agriculture, there is still room for negotiation, particularly on special and differential treatment. The draft Ministerial declaration on special and differential treatment has in it: "We reaffirm that provisions for special and differential treatments are an integral part of the WTO agreements. We renew our determination to fulfil the mandate contained in paragraph 44 of the Doha Ministerial Declaration.[4]" What we need to do is to build on that and to put some specific bones on it which deliver for the developing world. That is one of the things that I am sure will be an important focus at Hong Kong. Hilary Benn: As one has watched the Round develop, it has been pretty slow to get down to the specifics and here we are a very short time away. I suppose one of the ways of looking at the question that you have asked, Mr Burden, is that if you find people are in a room and, doing X would unlock Y and results in a deal being made, then you can ask people if they are prepared to do that in those circumstances. When you get to the final stage of any negotiation, then the dynamics are rather different from those in the run-up to the negotiation itself. Who is to say what would happen in those circumstances? In the end you have got to get everybody to sign up and you have to get an EU view. Q85 Chairman: My concern is that the EU would seem to be the architect of failure at Cancún; we do not want to see that being what we are landed with again. Hilary Benn: I could not agree more. Richard Burden: The developing countries also need time to react to the negotiations. Q86 Mr Davies: You are going to get two different steers this afternoon from the Committee because I think the Commission's mandate is right and what is described as the UK position is wrong. Apart from there not being a moral imperative to make unilateral, unconditional concessions, it seems to me to be morally irresponsible to do so because you then lose all your leverage and influence in the future and your chance of moving towards a genuinely more free trade world. Irrespective of my view or your view - we could argue about it all afternoon - the fact is there are two completely different positions. You cannot at the same time adopt both. You have said to us this afternoon, Mr Pearson, that, as the UK Presidency, you are trying to build a consensus around the mandate. That was your phrase just now. How can you build a consensus around something when you do not want to support the consensus yourself? You are in a position of fundamental contradiction with yourself as we go forward to this trade round. Is that not the case? Ian Pearson: Firstly, I do not think it is necessarily the case of the Committee having two views as much as the Conservative Party having two views on these issues. Members of Parliament have different views on these issues. I do not believe that there is an inevitable contradiction between the development agenda and the trade agenda and the fact that some EU Member States want to see movement in NAMA and services. Both of those, I think, can be reconciled, but we have to recognise that what we are trying to do here is to get a deal involving 149 member countries. I think it is perfectly possible to achieve a deal with a high level of ambition that really delivers for the poorest people in the world but also has something in it as well for the developed countries by reducing barriers and stimulating trade between the countries. Q87 Mr Davies: You are answering questions that I have not put to you. I put to you the question of the contradiction of your own position. You cannot build a consensus around something if you yourself do not approve of it or go round saying you do not agree with the thing around which that consensus is being built. Therefore, I am afraid you will not have a very successful Presidency if you try to build consensus around something which you say you yourself do not agree with. That is the point I put to you. I think you had better perhaps think about it if you have not already done so. Can I ask Mr Benn something? You wrote a very interesting article in the Financial Times the other day in which you said, and I quote: "Sub-Saharan Africa stands to gain most from agricultural liberalisation, with real income gains of 43 % by 2015 according to World Bank analysis"[5]. On what assumptions would the sub-Saharan African countries gain supplemental real income gains of 43 % by 2015? Hilary Benn: As your question implies, that is in the World Bank research and I quoted in that letter the figure that they had produced. I have in front of me the "World Bank Linkage Model Simulations" which I would be very happy to let you have[6]. Q88 Mr Davies: Am I not right? If you look down, you will see they are based on the assumption of full agricultural liberalisation. Hilary Benn: Indeed, and they are making the point that developing countries have a lot to gain. Clearly, if we went for full liberalisation, then you would be talking about a gain of the proportion that I described in the letter. Q89 Mr Davies: Yes but no-one is talking about full liberalisation. Hilary Benn: No, they are not currently. Q90 Mr Davies: Is it not a little bit unfair of you to hold out the prospect of 43 % real income gains for these countries on an assumption which you have just acknowledged to me is not realistic? Hilary Benn: I do not think it is unfair. It is based on the World Bank model. The World Bank model was predicated on the simulations that it contained there and it shows what you could achieve if you got to that point. We are not currently looking as if we are going to get to that point, but the underlying issue here is the gains the developing countries themselves could make from greater access to our markets for agricultural products. Q91 Mr Davies: Would it not have been fairer to have used the adjective I just used, "fairer", in the sense of making it less likely that people would be disappointed, would be misinformed and would have unrealistic expectations arise if you had said, "If there were full agricultural liberalisation, which nobody is talking about, it would theoretically be possible to gain 43 % on the World Bank's assumption". You say that "sub-Saharan Africa stands to gain". Sub-Saharan Africa does not stand to gain at the moment anything like 43 % because there is no prospect of full agricultural liberalisation. Is that right? Hilary Benn: That is a fair point. Q92 Mr Davies: Thank you, Secretary of State. If in fact the mandate were changed - as you and Mr Pearson told us you would quite like to see - more towards the British position, and if there were a much greater degree of unilateral concession made in the agricultural field to less developed countries on a non-conditional basis, would that involve re-opening the agreement on farm support which the European Union reached two years ago? Would that therefore invalidate the letters that I understand have been sent out in this country to all registered farmers promising them that the new individual payment scheme will last until 2013? Would that invalidate the undertaking that has been given by another branch of Her Majesty's Government, Defra, to British farmers? Ian Pearson: There are a lot of "ifs" in that question. Q93 Mr Davies: No, there is only one "if". If, in fact, you got rid of the mandate and you adopted the policy that you have advocated this afternoon of unconditional agricultural liberalisation, would that involve going back on the promise you have made to British farmers, the promise, I take it, that other EU governments have made to their farmers? Ian Pearson: I think you are misrepresenting our position. Let me make our position very clear to you. What we are continuing to question is whether it is right to spend over 40 % of the EU budget on five per cent of its people and accounting for only two per cent of EU GNP. Q94 Mr Davies: Maybe that is right, maybe that is wrong, Mr Pearson. We are not arguing about that this afternoon. We are arguing about whether or not the British Government has sent out a whole lot of letters to farmers which would be invalidated if, in fact, you then changed your policy on agricultural liberalisation. Ian Pearson: You are asking me a direct question on CAP reform and what I am saying to you is that I do not think it is forward facing to have a position that says that we should continue to spend over 40 % of the EU budget on agriculture. Q95 Mr Davies: The EU agreed that you can spend that amount - it will be a falling amount, but at the moment it is 40 % - two years ago. If you change that and the EU spend, it follows that farmers will get less, but farmers have received letters promising a given set of payments, increasing between the coming year and 2013. Will those promises be invalidated and no longer be able to be delivered if, in fact, the UK Government got its way and made unilateral agricultural concessions going in advance of the mandate? Ian Pearson: We are getting back into using quite a lot of "ifs" again here and talking about a highly speculative situation. I attended the CAP mid-term review negotiations in Luxembourg and I understand how difficult it was to achieve a deal there. I think it was a major success and a lot of it was down to Margaret Beckett negotiating on our behalf. Mr Davies: You have not even begun to answer my question. Chairman: I think you have made your point. Q96 Mr Davies: I will put it one final way. A lot of our constituents have received letters from the Government promising a certain level of payments. Can they count on receiving those payments irrespective of what happens in the Round? Yes or no? Ian Pearson: I cannot speak for Defra and maybe you want to ask that in a written question to them. What I can say is that nobody is talking at the moment about that. Q97 Mr Davies: I am. Ian Pearson: I do not get the sense that you have a lot of support elsewhere when it comes to this issue. Let us be clear. The Government would like to see further CAP reform, but we are under no illusions that this is anything other than a hugely difficult task. If we are serious about securing Britain's future prosperity, then our future has to depend on Europe's future prosperity; it has to be based on innovation, on good knowledge and science, and having over 40 % of your budget being spent on agriculture does not strike me as being a sensible way forward. Q98 Joan Ruddock: I was trying to follow the first set of questions that my colleague raised which I thought were more central to our agenda. That was on the 43 %. I would like to ask the Secretary of State whether there is any estimate of what might be the real income gain if the Round came out according to the EU mandate. If we were successful in getting everything that we wanted, have we any idea what would be the percentage of real income gains for sub-Saharan Africa? Hilary Benn: I have not seen such a figure, so I do not know. Joan Ruddock: I think it would be most useful if we could have some idea of what we might have achieved if we had got the position that we hoped to. I say it in that way because I sense we will not get all that we are asking for. Q99 Chairman: On the very back of that is this World Bank report[7]. Is it not the case, Secretary of State, that what the authors are saying is that things could get worse before they get better because of the point I made earlier on. What they have said is that "the authors find that merely introducing these modest exemptions for a maximum of two per cent of the industrial tariff lines in agriculture virtually eliminates the poverty impacts of a Doha agreement." I am not suggesting you are misrepresenting. What you are saying is that a full liberal outcome might achieve that, but on the road to that things could get worse. Hilary Benn: That is indeed what the report says. Q100 John Battle: I am beginning to really enjoy this Committee, having been on it for five years now. The reason is that I think we are really getting towards the heart of some 21st Century questions and looking forward and not back. I think the position of Quentin Davies and John Bercow and the way the distinction is drawn between them in a way is quite helpful. I think the big issue is around two concepts: fair and free. Free trade and fair trade. I am quite encouraged by the fact that the Financial Times is starting to fill up with letters by Secretaries of State. I think at the end of the day the person who said that we will make poverty history through fair trade was amended by a Conservative member, who is not in this group, to say that we will do it by free trade, by opening up the debate again. I think we have to be in the heart of that debate but go to specifics and details. When Hilary said that we need to get nearer the detail, I think that is what has been missing from this Round. We have rushed into this Round, as one of our witnesses, Sheila Page, said, without the detail being analysed and teased through. I would just like to go back to the letter and take the next sentence to the one that Quentin read. Hilary, you wrote after that: "But we must not force liberalisation on developing countries." A welcome statement. "All World Trade Organization agreements must include flexibility so that trade reforms can be built into the countries' own development plans." We might have a difference there about fair and free: intervention versus holding back. However, I think that is where the debate should be. Just let me press you a little bit because even if we take tariffs it sounds good: lift the tariffs and all will be well. I want to ask the obverse of John's question about the benefits: what about the downside? A lot of the tariffs are between African countries themselves, not necessarily between Africa and Europe and Africa and America. Imagine they are in sub-Saharan Africa, between two countries in sub-Saharan Africa, you drop your tariff barriers and what happens? You lose tariff revenues. You have to raise taxes somewhere else; you have no money to match DFID's money to spend on health and education. Where do you get the money if you reduce their income? I can see a downside happening and that is why I worry as well on the trade off between agriculture and services and pushing on industry. I think there is a debate to be had about the industrial sectors that are fragile and only emerging. One of our correspondents in the Financial Times, Professor Robert Wade, who also gave evidence to us, came out with the remark: "The alternative to an inefficient industrial sector is often not an efficient one, but none at all which is generally worse"[8]. I just wonder whether there is any real analysis going into that. As someone said, we need to protect fledgling industry. Is that your view? Are you supporting this view or are you challenging it? Where is the evidence? Does the Government accept that adjustment costs will be massive if tariff revenues are lost as a result of pressing for liberalisation? What is the view of the Government? Hilary Benn: There are a number of questions there, Mr Battle. The Government's view is that we should not be enforcing liberalisation. In relation to our own policy, the change in our approach to conditionality - which you have discussed in the Select Committee before - you know where our position is. In relation to services - I do not know whether we are going to come on to that during the course of the discussion - our view is very clear. It is important that developing countries continue to be able to make their own decisions about when they choose to open up their services. On tariffs, you are absolutely right; about 70 % of the tariffs developing countries face are tariffs that are paid to other developing countries. The answer to the question is that it depends, if you are reducing the tariffs between those countries, to what extent are improved economic activity, greater opportunity for export and so on going to be able to produce revenue by other means, or replace the tariff revenue that is lost. One of the most important things in these negotiations is, of course, assisting developing countries to understand what the consequences of them are, which is the basis on which your whole question was predicated. Yes, there does need to be support for adjustment but also to help developing countries to take advantage of the greater opportunities for trade. That is what the work we have been doing on Aid for Trade is all about. That is why we announced last week that we are going to increase our annual expenditure as the UK alone on Aid for Trade from the £30 million a year, that was the last figure recorded by the DAC, to £100 million a year by 2010. That is why at the General Affairs Council last week I was trying to persuade my European colleagues out of the increased aid that we are all committed to give, as a result of last May's agreement, on increase funding for Aid for Trade so that we might get to a figure reasonably of about a billion euros a year by 2010 to match the billion euros a year that the Commission is committed to. On protection, I think it depends. So far as industries are concerned, I think the evidence is pretty mixed and we are not entirely convinced that in the long term that that is the right road down which to go. In relation to particular agricultural industries and products that developing countries are heavily dependent on, the Special Safeguard Mechanism is something that they have been strongly arguing for and I think there is a case in those circumstances. That is why we support the idea of a Special Safeguard Mechanism for allowing them to cope in those circumstances, in particular if there is a sudden surge in imports that would otherwise disrupt their market. Q101 John Battle: Can you just say something about that Safeguard? You have said something about Aid for Trade and that is welcome on that side, but what about that money to help adjust? Can you say a bit more about the Safeguard Mechanism? What will it deliver in practice to developing countries? Hilary Benn: Part of the existing framework that we have got is the integrated framework and you know that brings together the World Bank, the IMF, the WTO, the UNDP, I think it is 17 donors in all in the European Commission and the LDCs. That is about trying to get countries to think about the consequences of changes in trade, to think about the opportunities in trade and to integrate them into their plans and their poverty reduction strategy plans, so that the international community, through the aid that we give, can help support them in providing additional financial assistance. We are going to see increased aid flows over the next few years, provided countries honour the commitments that they have entered into. In relation to the Special Safeguard Mechanism, the LDCs have made some proposals which their current complaint is alongside special and differential treatment and not getting sufficient negotiating attention because all the attention is on the things that we were discussing earlier. Q102 Ann McKechin: On the question of non-agricultural industrial tariffs, the EU want the Swiss Formula. The African, Caribbean and Pacific (ACP) countries proposed an adaptation of that called "Swiss Formula Plus" to give more flexibility for poorer countries. Why is it the EU has rejected the ACP proposal and why is it maintaining to allow uniform cuts and tariffs down to a medium level? Ian Pearson: Nothing has been agreed when it comes to non-agricultural market access. When you look at the draft ministerial text on the negotiations, NAMA, I am afraid, only rates a paragraph in the text so far. There has been, I think, a growing consensus around a Swiss Formula, looking at tariff cuts with either a single or a double co-efficient. There have been debates on what sort of values you would want to put into a one co-efficient or a two co-efficient model. That is something that we are still very much discussing within the EU at the moment and as an active part of the negotiations in Geneva. The overall principle that the Commission is following is that we do want to see reductions in tariffs in developed countries and we want to see that the principle of less than full reciprocity comes to developing countries. Q103 Mr Singh: It is quite clear, whatever comes out of DDA, that some poor countries are going to get poorer. I am very pleased to see that we trebled our Aid for Trade to £100 million by 2010, but can I ask you some specific questions about that. Is that going to be sufficient to help those countries adjust? Will it be limited only to the Least Developed Countries or will middle-income or developing countries also benefit? How will these funds be released? What is the criteria for releasing these funds? Hilary Benn: Is it enough? It will be treble what it was. Is it ever enough is another question. One of the issues here is where exactly is the dividing line between what constitutes Aid for Trade and, for example, investment in infrastructure? Part of what is needed, for example, is not only reform to port procedures, but enabling ports to work more effectively so goods get cleared more quickly. We have supported, for example, a programme in Mozambique which has had the effect of helping Mozambique to clear goods more quickly and that helps facilitate trade. It has also enabled them to increase their revenues. It is another example of the point Mr Battle was raising a moment ago. The money will go across the countries that we are working in - because this is the UK - so there will be a predominant focus on low income countries because we are committed overall, as you know, that 90 % of our bilateral aid should go to low income countries by the end of this year. It will cover a range of things: technical assistance, helping them to change their procedures, some aspect of infrastructure. Then separately from that there is all the funding that is going to come through the World Bank, the African Development Bank, the European Commission for Infrastructure Investment more generally which is, in the case of Africa, one of the things that the Commission for Africa identified as being really important. One of the obstacles for economic activity in Africa is the poor transport infrastructure and, as a result, the very high cost of moving goods. If you can bring down the high cost of moving goods, then you can generate more economic activity, more trade and even if you have reduced the tariffs, then you might be able to make up the income you would otherwise lose. Q104 Mr Singh: So this is mainly for infrastructure budgets to help trade? Hilary Benn: No, not solely infrastructure budgets because it is also about technical assistance to help countries in ways that they themselves identify to be helpful to enable them to take advantage of existing trading opportunities and the trading opportunities we hope will come out of this Round. Q105 Mr Singh: Where there is investment in infrastructure, is there any danger of running into trouble with IMF fiscal restraints that may be in force in some of these countries? Hilary Benn: As far as I am aware, not in relation to infrastructure investment at all, no, unless there is a consequent impact as far as maintenance is concerned, which would then have to form part of a budget. One of the big problems, certainly in Africa, in infrastructure has been, up until now, the African Development Bank in particular, which has been a bit slow in spending the money it has already got. Donald Kaberuka's arrival as the new president of the African Development Bank is, I think, an extremely good thing because one of the things he is really focused on is shifting that money quicker to meet priorities which Africa itself has identified. Q106 Mr Singh: Are your strategies to give this money in the form of grants reciprocated by the EU and other leading developed countries? Hilary Benn: It will vary from country to country and institution to institution, but yes, you are absolutely right; in our case, it is in the form of grants. Q107 Mr Singh: In the same article that has been referred to in the Financial Times, you said that by 2007 our Government is getting at least €250 million a year for the ACP sugar producers which is very welcome, but from my understanding we were committed to getting €40 million for 2006 which has not yet been identified. How realistic is this proposal? Hilary Benn: That is what we would like. It really goes back to the original discussion we were having about the UK position and the European position. Having met some of the sugar producers in Malta last week, they are obviously very excited about the changes in the sugar regime and support for helping them to restructure as a result of the necessary changes that have to be made. The €40 million is what it looks as if we are going to be able to achieve in Europe currently. I do not think it is sufficient, but it is what we have been able to agree in Europe, recognising there are 25 Member States and not just the United Kingdom. I think the sum needs to be greater because some of those countries are facing very substantial adjustments as a result of the changes to the sugar regime. It looks now as if we are going to secure the €40 million; they are still arguing about where it should come from, but put that on one side. When it comes to agreeing any sums for future years - that is just for 2006 - nothing is going to be determined until the financial perspectives are sorted out. All of that is on hold. What I was setting out there is what we, the UK, would regard as a much more appropriate figure, but that does not guarantee that we are going to get it because 24 other Member States have a view. Q108 Chairman: Does the problem with the sugar regime indicate the danger of economic partnership arrangements? They are fine when they are set up, but when you try to dismantle them you have a lot of losers and a lot of need to compensate. Hilary Benn: It is a consequence of change in the system and in relation to sugar the system does have to change. There are some developing countries that will do well out of this and some will be very badly hit. Some countries are never going to plant sugar again; others are trying to make adjustment by moving into other types of products. Nobody can guarantee the world is going to stay as it always was, but I think the test for developing countries is that when change comes, what assistance do we give them in helping them to cope with the transition. That is why the sum of money matters so much. Q109 Chairman: My point was, should we be seeking to build another network of arrangements that would have to be re-negotiated at a later date? Hilary Benn: In my experience, at some point or another all sets of things that have been agreed come round to be negotiated again because circumstances change. Q110 Ann McKechin: Some of the poorest people in the world - or a large section of them - live in either India, China or Brazil and yet in these talks we do seem to be differentiating our negotiating techniques between countries which have developed, developing and less developed/developing groups. What is the rationale behind the classification and the negotiations, and do you consider that to be pro-development? Ian Pearson: There is no classification as such in the negotiations other than Least Developed Countries and developing countries. We do not seek to segment developing countries, but I think we have to recognise that countries like China, India and Brazil are in a different position to some other developing countries. China has made huge strides over the last 20 years; it has taken something approaching a third of a billion people out of extreme poverty largely as a result of trade. It is now the world's sixth largest economy. Most independent forecasters are predicting it is going to be the world's second or third largest economy within ten to fifteen years. In those circumstances, I do not think it is unreasonable to expect China to play an active part in the negotiations. I am very pleased that China at the Millennium Development Summit, agreed that it wants to open its market for most products to the Least Developed Countries. I think that is a welcome sign of progress. Q111 Ann McKechin: On a developed basis, these countries are facing massive transition. Professor Kaplinski of the Institute of Development Studies (IDS) this week stated that fewer people in China are now employed than they were ten years ago despite the rise in economic growth. Given the fact that we really have not taken into account the transitional effects of these countries in terms of how they have moved from an agricultural base to an industrial base, is there not some rationale behind considering them on a little bit of a different basis than we do our competitors in the USA or Australia? Ian Pearson: We do regard them in a different light. When we talk about less than full reciprocity, that applies to China, India, Brazil and other countries as well. Yes, China has huge challenges as it rapidly industrialises, we all know that; similarly with India and Brazil. However, I do not think it is unreasonable to expect them to make steps when it comes to industrial goods and services. Indeed, I think that both China and India have a lot to gain from seeing the liberalisation of services. India in particular already provides substantial amounts of services which the UK and other EU countries benefit significantly from. I think the opening up of financial services and legal services in China would benefit China as well as perhaps some UK companies because we have massive expertise in the financial services sector. Q112 Mr Hunt: Is there a danger in the case of sub-Saharan Africa of exaggerating somewhat the benefits of making big changes in the tariff regime? In particular I am thinking about the experience that I had when I visited a village in Kenya where really the issue was not about international trade, it was about agriculture for domestic use and it was to do with the use of fertilisers, irrigation and all those issues. If we are successful in this Round, does DFID have a strategy in place to help sub-Saharan African countries with their agricultural strategies when they may be faced with having to compete much more openly with more efficient agricultural producers than they currently have to do? Hilary Benn: The truth is that the different countries, as I indicated earlier, are going to be affected in different ways; they are going to have different opportunities. You are absolutely right, Mr Hunt, that for a lot of people the absolute priority at the moment is just to be able to grow enough to eat. That is the issue in Ethiopia, Zimbabwe, Zambia, Lesotho, Swaziland and Malawi currently in particular because of the droughts in the case of Southern Africa. We have just published our new agriculture policy statement which sets out in some detail how we are supporting agriculture. I would also say that there are some real opportunities. If you are facing a tariff - going back to the earlier point - of 200 % on fruits and nuts that you are trying to export to the US or up to 300 % for meat that you are trying to send into the EU, then there are real potential benefits in those circumstances. You are right, unless you get the infrastructure right, you can water the crops and irrigate them and look after yourself, it is going to be more difficult to then take advantage of opportunities that may open up. It may also be a question of which industries particular countries then decide they are going to go into. If one thinks of the floriculture in Kenya, for example, there is an example of a very successful industry where Kenya is participating in the global market. They grow the flowers, they are cut, they are put on the jumbo jets, they come overnight and we buy them in Sainsbury, Tesco and Asda. I think they have already demonstrated in some cases their capacity and ultimately it will be for each country to decide what it is they want to grow and what markets they want to take advantage of. It is important then in the support that we give that we respond to the priorities that they themselves have set and the opportunities they themselves see. Q113 John Bercow: Secretary of State, how does the Government reconcile its support for the designation of special and sensitive products when, in the verdict of the World Bank, these are likely to reduce very substantially the poverty impact of a Doha Agreement? Hilary Benn: If too many things are designated as special and sensitive products, then that will indeed be the case. I think we recognise the argument about the principle; the question is the degree. Q114 John Bercow: That raises the rather crucial question of what constitutes too many. Let us pursue this a little further. I quoted the verdict of the World Bank but I did not quote it in full and you now entice me to do so. The World Bank claims that if even two per cent of products in developed countries and four per cent for developing countries are deemed special or sensitive products this, and I quote: "virtually eliminates the poverty impacts of a Doha agreement". The analyst responsible for this verdict goes on to say, and I quote: "to have a significant poverty impact, the DDA must not only have ambitious numerical targets", so it is not only a question of how many, "it must also seek to limit - indeed eliminate - the use of sensitive and special product exemptions". Do you agree? Ian Pearson: The second EU offer contains, as part of it, eight per cent sensitive products. Within that offer it says that for sensitive products we will reduce tariffs by either one third or two thirds of the total average so that for top tariff lines, let us say, at 60 %, you would still see a reduction in tariffs, either a 20 or a 40 % reduction. The issue is whether the eight per cent goes down or whether it stays at eight per cent. The other thing is what is contained in the eight per cent and that is something that would have to be agreed at an EU level. The research that you are quoting from makes various assumptions about what will be in the eight per cent which may or may not turn out to be true. Certainly the US offer talked about one per cent sensitive products from developed countries and this is something that is very much in the field of negotiation. The EU has made an offer; the US has made a different offer and that is what negotiations are about. Q115 John Bercow: I accept that, but it does not mean that I am sanguine about it. I accepted as your answer in terms of a statement of what is, Minister, but I am afraid I certainly do not accept it as a statement of what ought to be. Yes, one needs to be hard-headed about negotiation and one needs to be politically realistic, but if we abandon or indeed lose any sense of idealism in the approach to the Development Round, then frankly there would be very little purpose of the existence of negotiations or indeed of the inquiry by this Committee. Can I put it to you that what is on the table is still a very unsatisfactory position from the vantage point of developing countries? I suppose what I would like to ask you and the Secretary of State is this, can you identify any example of a product that the European Union could legitimately regard as special or sensitive other than for reasons of health or safety - which I would want explained - and can you do the same in respect of the United States? Ian Pearson: The first thing to say about this is that the UK view is that we would like to see substantially fewer sensitive products than the eight per cent that is part of the second EU offer. As far as the UK is concerned, certainly Defra would be best placed to advise on what areas they would regard as being sensitive. The normal categorisation of that would be areas where they thought that if tariffs were reduced substantially, there would be significant employment impacts. Q116 John Bercow: So it is about employment; it is not really about the safety of the country. Ian Pearson: My understanding is that the UK has very few areas where it would want to take advantage of a sensitive product category. Q117 John Bercow: I was not referring only to Britain because, after all, as you reminded us poignantly and at some reasonable length in your earlier exchanges, we are part of an EU trade policy and there is the negotiating mandate, the Commission position and so on. What I want to establish is this: what, so far as the European Union as a whole is concerned and so far as the opinion of the United Kingdom Government is concerned, would legitimately be considered Europe-wide a sensitive or special product? Frankly I am not interested in the observation that we think there should be substantially fewer, as you suggested. I am trying to establish what at all within the EU could legitimately be regarded as a sensitive or special product in respect of which the retention of treatment that is damaging to the developing world could possibly be justified. I await an answer. Ian Pearson: As far as I am aware, we have not had that direct discussion with other EU Member States. Certainly I am aware that different countries have very different views indeed as well as to what are sensitive products. Q118 John Bercow: Minister, let me just try to tease this out of you. Notwithstanding the normal requirements of diplomacy not least with other Member States; there is also an obligation so far as candour is concerned in front of this Committee, would you not think that if Members of the EU had in mind to designate sensitive or special products - products for which there was a very strong case to be so designated - they would be advertising the arguments? Does the fact that you have not yet been provided with such a list suggest that it is going to be cobbled together on the basis of the differential power and vociferousness of various lobbies in individual Member States within the EU? That is not a very satisfactory basis, is it, on which to justify the position? Ian Pearson: I can certainly agree with you on that, but just to repeat, I do not think there has been a substantive discussion - certainly not at ministerial level - as to what each country views as sensitive or special products Chairman: John Battle has just pointed out to me that Italy insists that tomatoes should be so treated and Spain wants pineapple processing. Q119 John Bercow: I regard that as supremely unpersuasive. Ian Pearson: Could I just add that the French are very interested in tomatoes. Q120 John Bercow: I personally could not care less about that. This is supposed to be a development round; I could not give a tinker's cuss about the fascinating fact served to us by the Clerk. Forgive me, Mr Pearson, I interrupted your answer. Ian Pearson: I was just saying that there has not been a ministerial discussion about this. Again, this is a level of detail that we will have to come back to as part of the negotiations. Q121 John Bercow: I am sure you will, not least in expectation of the next appearance before the International Development Select Committee when we will be literally waiting with bated breath and beads of sweat upon our brows to question you upon this very matter. I wonder if I could just ask the Secretary of State before I am cut off, how likely it is that the 2010 end date for EU agricultural subsidies will be achieved? Hilary Benn: I do not know is the straight answer. It is the position the UK has been arguing for. It was in the framework agreement reached on 31 July 2004, and it was historic in the European context, that all Member States agreed that an end date should be set. In one sense that is the easy bit but it still took some doing. It remains to be seen where other EU countries will come out and finally reach an agreement on when that end date should be, but the UK position is extremely clear indeed. Q122 John Bercow: Is the United States likely to agree to a similar date to that of the European Union and, if so, do you believe that will be subject to conditions and, if so, what? Hilary Benn: My understanding is that that is the proposal which they have put forward. Ian Pearson: The United States put forward 2010 as an end date for export subsidies as part of their offer. It is probably relatively easy for them to do so because they do not do much in the way of export subsidies. I think getting agreement with the United States on an end date will not be a problem. Q123 John Bercow: That is conditional on EU agreement, presumably. Ian Pearson: The US offer was conditional on a number of other things. It was asking for 60 % agricultural market access rate. Q124 Joan Ruddock: I was going to ask ministers about NAMA, but it has been touched on as we have heard in other answers. As Mr Pearson said, it is only a paragraph, but can the Minister just confirm that it is nonetheless very important to the EU? You spoke earlier about the balanced outcome and I believe in one of your answers you may have included India. I wonder if India is there in respect of services rather than NAMA and if you could indicate whether there is any place at all for any kind of selective protectionism for infant industries in any of the non-LDC countries. Ian Pearson: Firstly, NAMA is an important part of the negotiations and we do want to see progress in the form of tariff reductions. We believe that as part of the negotiations we should agree less than full reciprocity and therefore developing countries should not be required to do so much. Certainly the Least Developed Countries should not be required to do anything in terms of their position. You mentioned India; India has some of the highest tariffs to be found anywhere in the world. It has enormous tariffs on things like Scotch whisky which we do not think it is unreasonable to ask India to do something about. You are right to point out that it has very strong offensive interests in areas like services. It has great strength in the service industries. What we want to do is to encourage India to make progress on NAMA as indeed we want to see Brazil and others do so, but also we want to see progress on services. That is the balanced outcome that we all hope we can achieve from the Round. Q125 Joan Ruddock: So on NAMA, as distinct from services, is the EU saying there is one position and that all tariffs have to be dealt with equally? Take LDCs out of the picture; is it middle-income countries? It is not clear from your answer which countries. Ian Pearson: My understanding of what we want to see is that we want to see all tariffs reduced, but we do not expect all countries to reduce them by the same amount. That is what we mean when we talk about less than full reciprocity. In the proposals that the Commission has put forward we want to see substantial tariff reductions from the United States, but there is a different situation when it comes to developing countries. Q126 Joan Ruddock: Can it be different goods in different countries? You give a good example with the whisky, but I am not sure that that is entirely the norm. Ian Pearson: It is probably one of the UK's few offensive interests. It is also important to bear in mind the special and differential treatment provisions because that should be part of the NAMA negotiations and, therefore, we should be expecting a lot less of developing countries. We believe we should take full account of those special and differential treatment provisions and, again, there needs to be more discussion and work on the nature of those as part of the negotiations. We hope that that will be one of the things we will look at at Hong Kong. Q127 Joan Ruddock: So there could be selective protectionism for some fledgling industries in some middle-income countries? Ian Pearson: In all developing countries, yes. Q128 Mr Davies: Mr Pearson, you have just said that the United States does not go in very much for agricultural export subsidies but, as I am sure you are aware, they have regularly offered Ex-Im[9] Bank credits to their grain exporters. I do hope that the Government and the Commission will be very robust in looking at and analysing the effective element of subsidy in those credits. By definition, any credit lasting more than a year is a subsidy because it would not be available on a commercial basis. My question to you is this: if we increase market access to developing countries in agricultural products in the EU either as a result of unilateral concession, as you would like, or as a result of balanced negotiation and agreement, is it the intention that those developing country exporters and producers of agricultural products will be subject to the same regime of health and safety, of animal welfare, of environmental regulations which EU-based producers have to bear? Let me give you an example. If we have regulations, as we do in the EU, about how you can keep pigs and you allow people to sell pigs, whether in China or sub-Saharan Africa, which were not subject to those regulations, you will not only undermine the business that exists in the EU in pig production but you will do a very bad day's work for pig welfare because you will find the business shifts from a regime where pigs are protected here to a regime where pigs are not so protected. It is an important point. The same thing applies, of course, to other areas where we have compliance costs which would not be borne by producers outside the EU unless we insist on that. Ian Pearson: On the first point of your question which related to Ex-Im Bank, we are very aware of the situation. The UK and other Member States have concerns that there should be a level playing field when it comes to export support. That applies to other export credit agencies equally as it applies to Ex-Im Bank. As regards the second part of your question, the best way I can answer is to point out the importance of sanitary and phyto-sanitary standards to the EU when it comes to products, but also to say that there are very real difficulties with some developing countries when we start to talk about animal welfare and environment considerations whose response is that we are trying to put up barriers to trade. I think we have to continue the dialogue with developing countries about this because at the moment a lot of them just say to us, "This is you and the European Union trying to keep us out". Mr Davies: Of course there must be a dialogue; the question is what line the British Government - or in this case the EU Commission - is going to take in that dialogue. Are we going to insist on them bearing the same compliance costs as our own producers or at least being subject to the same rules? Chairman: I think, to be honest, the Minister has answered your question. I am conscious of the time. Q129 Hugh Bayley: What is the Government's position on benchmarking within the GATS? What representations is our Government making to the EU about their position on benchmarking? Ian Pearson: The UK, along with all the other EU Member States, had a long discussion about benchmarking and 24 Member States wanted to proceed with benchmarking and for that to be part of the EU's negotiating position. One Member State that has not been keen on benchmarking has been the United Kingdom. As Presidency we have gone along with benchmarking, but we believe that the current request and offer process when it comes to services should be allowed to continue. Q130 Hugh Bayley: I congratulate the Government for flying this flag. Can I press a little bit further about whether there is scope for movement? The capacity of the poorest countries to develop realistic offers and to identify what request offer packages would benefit poor people in their countries simply is not there to enable them to put forward serious offers. Is there any prospect that we could get the EU at least to exempt the Least Developed Countries from having to put in a certain offer, and what support would we give other low income countries to participate with clear sight about what they are doing and whether it is in their interest to participate in this type of negotiation? Hilary Benn: The Least Developed Countries are being excluded anyway from the proposal. Pascal Lamy has made clear in the document that has just been produced that there is "a divergence of view". He is not talking about Europe; he is talking about the others who have looked at this proposal. I would be very surprised if he got anywhere because other countries are not going to want to make that part of the deal. I think it is really important that putting effort into benchmarking of services should not become a kind of investment in competition obstacle to all of the other things that need to be negotiated. Our view is very clear. In the end it is for countries themselves to determine whether they want to open up their services or not. A lot of developing countries have looked at the requests that have been made and said, "No thanks" and some have agreed them. They are the ones who should take this. That is why we were not in favour of an artificial process of trying to up the numbers; I do not think it is appropriate. Will you please excuse me now? I need to catch a plane. Chairman: I quite understand; you gave us notice of that. Q131 Hugh Bayley: Could I just ask the Minister whether he has anything to add about trade facilitation support which middle income states need if they were burdened with a benchmark? What capacity building help would they need to get more out of the services side of the negotiations? Ian Pearson: It is my understanding that the UK Government, through the Department of International Development, has been providing some support to some developing countries to help them to develop services offers under the request offer process. We have not done anything so far as benchmarking is concerned. Q132 Chairman: I think both John Bercow and John Battle indicated the difficulties of achieving a development round, within the context of what we are debating and the need for some raising of a little bit more than just commercial bargaining to idealism plus security. Those were the issues. We had evidence on Tuesday which was suggesting that the WTO even in promising a delivery round has put something onto the architecture which it does not look as if it is going to be able to sustain. You said earlier on, "I know that is what is agreed; nothing's agreed until everything is agreed" and then we start talking about animal welfare or whisky tariffs or agricultural subsidies, none of which are anything to do with a development round. Is it possible to deliver a development round against the background of saying that it has to be agreed in a liberalising trade organisation where nothing is agreed until everything is agreed? Have we been misled? Have we been deceived by the concept that it is possible to have a development round? Ian Pearson: No, I do not think people have been misled about this. We have very much led the way when it comes to wanting to see a pro-development outcome and we will continue to do this. You probably know about Commissioner Mandelson's six-point package to help the Least Developed Countries. We think we can make real progress on that at Hong Kong, but it should be seen as a down payment not as a final deal. We hope, therefore, that we can demonstrate at Hong Kong that the concerns of developing countries are being taken into account and that there will be a tangible outcome for them. We believe that is very important. I think it is also important to be real about this and say, "Well, it always was a trade round and countries will have mercantilist interests". The UK is probably the only country that would sign up to a one sided deal that focused purely on development and opening up agricultural markets. I do not think other countries would have that similar position. Q133 John Battle: I do not look all that confidently to the negotiations, if I am honest, and the more I hear the less confident I am of a successful outcome. I suspect there will be blame thrown around afterwards whether it is Britain, Europe or America in this trade round. I worry that what will really happen - it is already happening - that people will say the WTO itself is a waste of time. Where will we go if we rubbish the WTO? Bilateral agreements that will really finish off the lot; it really will be dog eat dog. I am in favour of idealism, but I was told the other day that it was totally romantic; we live in post-idealistic techno-managerial world. Is there any chance, aside from the Round, that you, as Trade Minister, can re-inject some vision of why we need a WTO and the reason we need it is to have a fairer and more just world? Is there any space to do that? Is it even on the agenda? Who is asking what is the point of the WTO and can we take it further in a more constructive way? Ian Pearson: The first thing I would want to say is that I do not think we should be under any misapprehension about this being a development round. It is a development round, but equally we need to be clear that developing countries stand to gain from agriculture, from non-agricultural market access and improvements there, and from services as well and, indeed, the work on trade facilitation and removing trade barriers. When we talk about the development agenda, I think it is important to recognise that there is something in it for developing countries in all the different parts of the dossier; it is not just about agriculture. I think it is important that we recognise that. You were asking me about WTO and its standing, and I could not agree with you more in the sense that I think there are real dangers to our world trading system if this Round is to fail. What I think you are likely to see is a continuation of the trend that we are already seeing to some extent at the moment of bilateral trade arrangements and who loses out most in that? It is the poorest countries. Without talking out of turn, the United States, for example, is an 800lb gorilla; it is easier for it to take on and do a deal with a smaller creature. Having a multilateral deal, I think, offers the best prospects for developing countries and that is why we are so keen in the UK to see a successful outcome and we will do all we can at Hong Kong to make sure that we continue to make progress. Q134 Ann McKechin: I have had some discussions with WTO officials about the problem of the Least Developed Countries and they indicated to me that they would like to take the G90 group, roughly speaking, out of the negotiations and offer them a separate deal so that we could at least keep the issue of development alive. They advise that the main blockage to this was the United States of America. We are about to start, I believe, the inter-blame game about who is going to be at fault if Hong Kong does not work. Is there any possibility that to break the logjam rather than a proposal by Commissioner Mandelson which states, "Here is what we want America to do but not very much of it is what we want to do", we could try and suggest that we have one deal at the very minimum that involves the G90 group and gives their priorities and preferences and then try to sort out some kind of deal amongst the other countries about issues such as NAMA, tariffs and the rest of it. If we do not agree that then our prospects of having a multilateral treaty in the next decade are virtually impossible. Ian Pearson: I actually think that 'Everything but the Arms' initiative, which is about giving quota and duty free access to the Least Developed Counties, is something that is very much along the same lines as the comments that you have made. Certainly the six-point offer that Commissioner Mandelson has made as well is seeking to benefit the poorest countries in the world. I think we all need to remember that in July 2004 in the framework agreement there was an agreement that LDCs would benefit, would have duty and quota free access; everybody signed up to that agreement in July 2004. The fact that some countries now seem to be resiling from it, I find unacceptable and I think we need to point out to those countries that they are not helping the world's poorest by not moving forward on that agenda. The agreement in July 2004 said that all developed countries and the most advanced developing countries should sign up to having duty and quota free access to LDCs. We have countries like China saying they are quite prepared to do this; we have countries like Chile that I understand are quite prepared to make similar offers. Europe has said it is going to do so. It really should be the case that the United States should have no problems with it. Q135 Joan Ruddock: I think Ann McKechin has really made the points that I would want to make because I am left now with the lasting impression that if we do not get a deal and help the very poorest countries in terms of the African countries in their agriculture, it will be because we could not get India to lower its tariff on Scotch whisky. I am afraid that is utterly, utterly unacceptable. That is the impression we are going to be left with and I really wonder how we will all be able to explain this to our constituents. Ian Pearson: I do not want you to be left with that impression and I certainly do not think that Scotch whisky, much as I enjoy it myself, is going to be the deal-breaker when it comes to Hong Kong. I do believe it is possible to have negotiations that will see the Least Developed Countries benefit from this. We will also see developing countries secure significant gains. Brazil perhaps has the most to gain from a successful Round and most to lose if the Round does not proceed. China and India will benefit enormously and other developing countries as well if we have a successful Round. It is not just because of agricultural market access; it will be because of progress in other areas. I do not want to see a squabble between developed countries get in the way of a deal that is going to help the world's poorest. As I say, kicking open the door so that the poorest countries can trade with us is vitally important and it is something that I think we can do through the WTO. Of course, there are things that we cannot do through the WTO that we can do through Aid for Trade and through the investment in supporting the infrastructure of these countries so that they can go from the field to our table. Chairman: Thank you, Minister. I think you get the mood of the Committee. We do not want to see the WTO collapse, but we do want to see a development deal struck. We would hate to think that the legitimate trade issues got in the way of such a deal. I made a comment about Scotch whisky, but I do not want that deal to be at the expense of poor countries or a development round and I am happy to say so in my own constituency on that basis. Three members of this Committee will be Hong Kong with you. You have expressed your hope that you will be able to come back with a development agreement. We genuinely wish you success and we will be right beside you trying to ensure your success. Thank you very much indeed. [1] "In order to make poverty history, we must make trade work for the poorest", Letter from the Rt Hon Hilary Benn MP, Secretary of State for International Development, Financial Times, 23 November 2005 [2] Speech by the Rt Hon Peter Mandelson, EU Trade Commissioner, Doha and Development, 30 November 2005: http://europa-eu-un.org/articles/en/article_5380_en.htm [3] Doha Development Agenda [4] Reference to follow [5] Op. cit. footnote 1. Letter, FT, November 2005 [6] Kym Anderson, Will Martin and Dominique van der Mensbrugghe, Would Multilateral Trade Reform Benefit Sub-Saharan Africans?, Centre for International Economic Studies Discussion Paper No.0518, August 2005 [7] Ibid [8] Letters to the Editor, Financial Times, 11 July 2005 [9] Export-Import |