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CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 730-iv House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE INTERNATIONAL DEVELOPMENT COMMITTEE
MAKING TRADE WORK FOR DEVELOPMENT: THE WTO HONG KONG MINISTERIAL
Wednesday 25 January 2006 IAN PEARSON MP and MR OLIVER GRIFFITHS MS SHEILA PAGE Evidence heard in Public Questions 160 - 203
USE OF THE TRANSCRIPT
Oral Evidence Taken before the International Development Committee on Wednesday 25 January 2006 Members present Malcolm Bruce, in the Chair John Battle John Bercow Mr Jeremy Hunt Ann McKechin Joan Ruddock Mr Marsha Singh ________________
Examination of Witnesses
Witnesses: Ian Pearson, a Member of the House, Minister of State for Trade, Investment and Foreign Affairs, and Mr Oliver Griffiths, Head of Multilateral Trade Negotiations, Department of Trade and Industry, gave evidence. Q160 Chairman: Good morning, Minister, nice to see you here with your colleague. I think the last time some of us saw you, you were pounding the corridors of Hong Kong. I think this meeting is really a follow-up to that and where we go from here. I just wonder if I could perhaps kick off. At that time, the UK held the Presidency of the European Union and the Presidency of the G8 and the Government had set out its objectives to secure agreement at the Hong Kong development round. Indeed, I think we had some bullish quotes from yourself earlier in the year. Clearly we got an agreement but it fell a long way short of the earlier hopes and rhetoric. So in retrospect, was our joint Presidency really able to achieve anything that would not have been achieved anyway? Ian Pearson: I think the UK Presidency achieved a great deal in a number of areas but let's focus specifically on the WTO and Hong Kong. We went into Hong Kong with lowered expectations, as you know, from the session that we had before the Hong Kong Ministerial meeting. Originally, the expectation was that we would get two-thirds of the way there at Hong Kong to a successful conclusion of the round. Pascal Lamy said at the Hong Kong Ministerial that he thought we were over halfway towards a successful completion of the round, and we have made it clear that we thought that Hong Kong was disappointing and would have liked to have seen more progress made there. I think the real task for us now is to redouble our efforts over the coming months to keep up the level of ambition for the round as a whole and to ensure that we do all we can as a UK Government to deliver a pro-development round as a whole. Q161 Chairman: But given the relative optimism and then the disappointment of December, when the Committee was in Washington, for example, I think the phrase that was used was that "expectations in Hong Kong were being recalibrated" - at what point did that happen as far as the UK Government was concerned, and what particular events or developments led the Government to recognise that the hopes of June were not going to be realised in December? Ian Pearson: We have all along wanted to push for a high level of ambition, as I say, overall for the round and to make as much progress as possible at Hong Kong. I think it became clear that there was a log-jam and that the second EU offer had not produced anything in return in terms of movement from countries such as Brazil and India on industrial goods, NAMA, or on services and so the round was unbalanced. The UK was one of those that was most reluctant to recalibrate ambitions, but we had to accept the situation as it evolved in the run-up to the Hong Kong Ministerial meeting in December and, as I say, the key thing now I think is to focus on the future and to ensure that we have a successful round. Q162 Chairman: To be honest, I think that is what most of this Committee is about other than just establishing that sort of point, but I suppose it was interesting for us as invited 'flies on the wall' to be in the British delegation and to see what was happening. The impression one got was that the British Government had a view that was probably shared by the Committee but it was not same as the EU position, so you and your colleagues were able to make the kind of speeches we could all applaud but in reality the negotiating position that we were leading did not accord with that. What was the strategy at that point? You may tell us that it was all going on behind the scenes but what was being done by the UK Government to try and minimise the damage and maximise the possibility of agreement? Ian Pearson: Of course the UK is only one of 25 Member States and all other Member States have their own particular views and positions when it comes to the different areas of the negotiations. It is commonplace really to say that the UK's position on agriculture is very different to that of France or Ireland or Hungary or Poland. What I said at the previous session and what I would say again is that the EU negotiate on our behalf, so Commissioner Mandelson negotiates on the basis of a mandate that is agreed by all the 25 Member States, but we would like the mandate to be a little bit different to what it is, and we argue our case very strongly within the EU and we will continue to do so. I think that there was progress in terms of a shifting of the EU position towards the direction that we want to see as a result of the Hong Kong negotiations. I just cite a couple of examples. Firstly, the dropping of numerical targets when it comes to services, so there has been a movement towards acceptance of the UK view that we should not be forcing liberalisation when it comes to services, this should be purely voluntary. I think that is reflected in the decision of Hong Kong and also in the area of NAMA where the Commission line was in favour of a single coefficient. It seems to have been accepted that there would be two coefficients, which would be different for developing and developed countries, and that accepts the principle of less than full reciprocity, which is something that we have been arguing for very strongly for a long period of time. So I think in those two areas in particular we have as a result of Hong Kong got some traction and movement towards the UK position. Q163 Chairman: You believe that the UK Government was influential in that? Is that your belief, is that your claim? Ian Pearson: I think we were influential in it. I also think that the other countries that were involved in the negotiations were influential in this, in particular the developing and least developed countries. Chairman: We might want to explore that. Q164 Mr Singh: Minister, forgive me, but in your response on agriculture there seemed to be a resigned air about you and a complete lack of ambition in terms of further progress on agriculture. Given that it is such a key to the success of the round, does the Government now believe that no further progress can be made on the question of agriculture? Ian Pearson: I hope I have not given the impression that I am resigned on agriculture at all. Quite the contrary, agriculture is, as we all know, the key to the round and, as I explained previously, the EU made two offers and the second offer included a proposal to improve market access by reducing tariffs in the region of 39 %. We believe that that was a serious offer, and the trouble with the round is that we have not got equivalent progress in areas like NAMA and services, but when it comes to our ambitions we do want to see further progress on agriculture. We would have liked an earlier end date for the ending of export subsidies but we got something at Hong Kong and we would like to go further on agricultural reform. The way I see it the whole design of the Common Agricultural Policy took place more than 50 years ago, it came into effect in 1957, but its design was taking place before then and those circumstances post-war where countries were most concerned with how to feed their people are very different from the circumstances in which we find ourselves today. That is why we need CAP reform and it is already happening and the Mid-Term Review of the Common Agricultural Policy, I think, is a fundamental step forward so are some of the other reforms that are being introduced such as sugar reform. I have got no doubt that we can and should go further on agricultural reform but it is difficult to play that into the WTO negotiations. The other thing that I would want to stress on this is that I think there is a strong feeling within the EU that we have done a lot of agricultural reform and it is being pocketed and we have not had any credit for it when it comes to the negotiations, so there is a very strong reluctance indeed on the part of virtually every other Member State to even consider moving further on agriculture without seeing progress in other areas of the negotiations. Q165 Chairman: Do other members not appreciate that the whole point about a development round is that is what developing countries do; they pocket it and it should not be conditional on anything? Is that not part of the problem? Ian Pearson: I am just trying to explain how I think other Member States have reacted to the negotiations so far. I do think what I have said is a fair summary of the feelings of other Member States. The UK does stand out in terms of the way in which we very strongly argue the pro-development agenda and we do not have particularly offensive interests when it comes to agriculture. Other EU Member States are in a very different position and we have to recognise that as part of the negotiations. Q166 Mr Singh: Given that we held the Presidency and failed to make the breakthrough that needed to be made, is everything else you say not pie-in-the-sky now - that we are still arguing our corner, still going to do that - I accept that we are - but surely you do not really expect any further progress in this area? Ian Pearson: I do not think it is pie-in-the-sky to say that we think there can be further progress. We do however need to see progress in areas like industrial goods and services from countries such as India and Brazil. I was in India last week talking to the Commerce Minister Kamal Nath stressing the need to make progress in the negotiations and to make progress in exactly those areas. I am going to Brazil next week and I will be talking to Celso Amorim about exactly the same issues and the need for Brazil to come up with a credible offer on industrial goods. So we are working hard at trying to encourage progress across all the dossiers and I would certainly want to argue that we can and should at the right time in the EU go further when it comes to the agricultural dossier but I do not see any prospect of getting other EU Member States to agree to go further without seeing some progress first in the other areas. Q167 Mr Singh: So basically the development round will progress no further unless the developing countries give the West quite a lot more? Ian Pearson: No, I do not see it like that at all and I think it is a fundamental misconception to see the development round as being solely focused on agriculture. There are interests for developing countries when it comes to manufactured goods and when it comes to services as well. One of the most powerful developing economies is India which has a hugely strong service sector. You will see Indian service sector companies coming here, particularly in the areas of IT and software support, and doing a great deal of work already. I welcome that and India has got a great deal to gain through the services part of the negotiations, so it is not just focused on agriculture. We have not mentioned it so far so let me just mention it now as well. The agreement that was reached on duty and quota free access for least developed countries is very much to be welcomed. It did not go far enough. 97 % does, I think, give too much room for manoeuvre for developed countries that want to block certain tariff lines, but the fact that we have got some sort of deal for LDCs is to be welcomed and I have got no doubt that the LDCs will want to continue to push their agenda with regards to this in the future as well. Again it is one of the areas where the EU has been leading the way. We have granted 100 % duty and quota free access to LDCs for a considerable period of time and we still hope that we can encourage further countries to move further and get higher up than the 97 % that we managed to secure in Hong Kong. Q168 Mr Hunt: I just wonder whether I could ask you to look into a crystal ball for a moment and say whether you think there is a deal there that would make this a development round? Is there a middle ground that could happen between now and April which covers NAMA and covers agriculture and covers services? If there is a middle ground there, could you possibly just outline what you think that might be and perhaps give some indication of our percentage chance of getting there? Ian Pearson: I am afraid I do not have a crystal ball but I do believe that a deal is possible. I hope that an ambitious deal is possible, one that really does open markets and opportunities for the Least Developed Countries and developing countries as well. I cannot guarantee that that will happen but I think the sort of deal that ought to be possible would involve agreement on NAMA with two coefficients so that developing countries will have to do less than developed countries. I would like to see a deal where there are some good requests and offers agreed on services that again provide opportunities for developing countries. I think on agriculture there is a deal that would involve the EU going further than we have gone so far but the United States doing more as well, and we need to be making progress towards that sort of deal over the next coming months if we really are going to complete this round. In Hong Kong the declarations said that they wanted to achieve modalities on agriculture and NAMA by the end of April and on services by July. We are not that far away from those dates, and my understanding is that there will be discussions taking place in Davos around the World Economic Forum and there will a range of bilateral and mini ministerial meetings taking place over the coming weeks. I think what we can do sensibly as the UK is to try and use our influence with the Commission to encourage them to participate in negotiations and to use our influence with other countries, which is one of the reasons why I have been to India and I am going to Brazil to stress the trade message and the importance of having a successful conclusion to the round. Q169 Ann McKechin: If I could just go back to the underlying philosophy, Minister, about what is 'balance' because many people thought that the Doha Round was to try and cure the imbalance in the Uruguay Round which did not benefit developing nations and as 70 % of the world's poorest people are in agriculture and as the EU has only to date offered a five per cent cut in its total subsidies (because export subsidies are a very small proportion of the total amount) and yet in turn we are saying we are not reviewing CAP, we might look at it in 2008 but 2013 is still the official deadline, realistically should this series of talks not be about placing a much, much more sizable emphasis on agriculture and in fact the EU came to Hong Kong with very little and that is why you had to spend so much time talking about all the other parts of the negotiations which are not of the same degree of benefit to the world's poorest? Ian Pearson: I think the EU made a credible offer on agriculture. As I say, I think that in the right circumstances the EU can go further and certainly the UK will be one of those countries at the right time pushing for us to go further on agriculture, but I come back to the fact that we are one of 25 here and when it comes to the other countries some of them believe that the Commission has already gone as far as it should go when it comes to agriculture and that we should not be opening up markets further. There is also an argument that actually says that when you do reduce agricultural tariffs further what you do is you benefit a very small number of more powerful developing countries and you actually potentially disadvantage some of the poorer developing countries because of preference erosion, and other Member States argue that very strongly. The UK view is very strongly that we want to see open markets, we want to see further agricultural reform, we want to see agricultural tariffs reduced, and we think that is in the best long-term interests of developing countries and in the best long-term interests of the EU as a whole and we are arguing our corner on this but --- Q170 Ann McKechin: Can I just take this bit about arguing your corner because you said earlier in your evidence today that you wanted to ensure in services that requests by the Least Developed countries were actually voluntary in nature and that they were not forced. The World Development Movement has passed us a note about negotiations issued by your department on 10 June last year which states: "We would like the WTO Secretariat, in co-ordination with other international organisations, to ensure that at the Hong Kong Ministerial all WTO delegations, including Least Developed Countries, have tabled offers.[1]" That would suggest that although you see it as voluntary you have an expectation in terms of negotiations that everyone will have made an offer. That seems to contradict your comments earlier on about it because 'voluntary' suggests people have the right to say no and you will respect that right. Ian Pearson: And we will respect that right and the UK does, but I do not think it is unreasonable to say that developing countries should make offers. It is up to them. Ann McKechin: If you are asking the Secretariat to ensure that all people have offers, what steps are you taking to make sure that they have the right not to make offers? Chairman: I will ask John Battle to come in on the back of that. Q171 John Battle: We are the Development Committee not the Trade Committee and our focus is on development and we want to know can we switch the Uruguay Round and the end of the Doha Round onto focusing on the poorest and development for the poor. That means we need to give way more than they do because we are in such a powerful position and they are so poor. The impression we got from you last time was - and I think you used the phrase - that it would be "focused purely on development", yet the notes going between the DTI and the European Commission suggest a conditionality that "if you do not open up your markets then we will not give way". Was that the position because it seems that in the DTI notes back in June and in July going between here and Brussels they were suggesting that very strongly and undermining that open-endedness? In other words, there is a conditionality built in and that I would lose faith if I was on the other side of the table and I would say, "They are coming in hard here." Do you think that is what happened? Ian Pearson: There is no conditionality built in. The UK view has always been very strongly that the request and offer process is voluntary. Yes, we want countries to participate in it because we see that there are benefits for developing, and Least Developed Countries as well, but we have always been at great pains to stress that this is a voluntary process and at Hong Kong as well when you look at annex C, which is the relevant annex on services, it reinforces the voluntary nature of the request-offer approach as the primary method of moving forward on services and it also has some text on a plurilateral approach as well which is voluntary. Q172 John Battle: You use the word 'voluntary' but I understand it to be Hobson's Choice; take it or leave it really, is it not? Ian Pearson: No, it is not. In the sense that they can leave it, yes, that is true. They do not have to give anything on services and we have been very clear about that. The Commission has not necessarily always wanted a purely voluntary approach and certainly that has been one of the areas where we have had disagreements with the Commission at the line that the Commission have taken. Again at Hong Kong I think progress was made in stressing the voluntary nature of the services element of the negotiations, and we very much welcome that. Just to finish on that. You will, I am sure, recollect that the Commission had an approach on benchmarking and on numeric targets which would be requiring certain things of developing countries. We were not happy with that approach and that is why we are pleased with the outcome of Hong Kong because it does reinforce the voluntary nature of the services dossier. Q173 John Bercow: Certainly to me, Minister, so far it seems that the commitment to a development round is very much rhetorical, it is not real, it is a description of a process but it does not really reflect, as I think is very evident from the answers that you have given us, the feelings of most Member States of the EU. On this question of voluntaryism, I think we are in danger of getting into a semantic quibble here, but when you say it is voluntary that concessions be made by developing countries on access, I think the response is: "Up to a point, Lord Copper," because it is voluntary in the sense they are not obliged to do it but they are being told, "If you do not do it and make us richer we will not do anything to stop you continuing to be desperately poor." The word 'blackmail' could have been invented to describe that state of affairs. I would like, if I may Minister, to press you on two points that I think are important. Firstly, you said a few moments ago that you thought the EU offer, about which Britain has reservations and would have preferred to be stronger, was nevertheless a credible offer. I think it is quite important that in polite society we do not become so preoccupied with our own language as to be and to show ourselves to be very complacent. I do not agree with the offer. I think it is a pitifully inadequate offer which will have only the most minimal impact in terms of tackling poverty and offering a prospect of development. Can I put it to you that if you want more to be done a good starting point would be to acknowledge that the commitment on export subsidies, even if effectively and timeously implemented, will cover only about 3.5 % or thereabouts of trade distorting subsidy. Can I ask you first: what does Britain intend to do to make progress on domestic agricultural support, very significant parts of which are themselves causes of dumping and therefore damaging to poor countries? I simply do not see, forgive me, how one can call an offer 'credible' when it ignores that mass of distorting subsidies. That is the first point and then very briefly, Chairman, the second is on duty free quota free access. You said a few moments ago that you would like to see more done on that point although I did notice at one point, Minister, you talked about how developing countries on this issue would no doubt wish to pursue their agenda. It was a slightly unfortunate slip, if I may put it that way --- Ian Pearson: No, it was not. It is their agenda. It is important to them. We share their agenda but they are the ones that are driving it. Q174 John Bercow: Okay, I take the view that it should be referred to as 'our' agenda, it should be a British agenda as well, and insofar as Britain is in a position to exert any influence over the United States what I would like to know is what exactly does Britain intend to do to try to persuade both the United States (in respect of textiles) and Japan (in respect of rice and leather products) to shift their positions, because you yourself made the point, Minister, that the three per cent still leaves lots of product lines untouched. The important point of course and the rather obvious point is that the product lines it leaves untouched are the product lines about which the United States and Japan care, the ones where they want to cosset their own domestic producers. For example, is Britain going to do anything to illustrate, perhaps in concert with Bangladesh and other affected countries (in respect of rice, Cambodia) for the Americans and the Japanese in a campaigning form to indicate precisely what the damage is to production, to living standards, to employment in those countries? Would it not be possible to encapsulate it on one side of A4 and to make a serious campaign out of it? Ian Pearson: Are you done? Q175 John Bercow: I am done, yes. As you know, I have a preference for hobby horses! Ian Pearson: Let me come back to you on language because language is important in this. We believe very passionately in the UK that this should be a development round. It says it is the Doha development agenda and that 'D' for development is absolutely vital as far as we are concerned. I have to say, though, that as I travel the world other countries do not necessarily see things the same way as we do and they say it is a trade round and they focus more on the 'T' than they do on the 'D' and we just have to recognise that that is the reality and it is a negotiation that we are in and we want to achieve the best possible development outcome. I do not accept at all your description and your language using the word 'blackmail' when it comes to the services negotiations. This is a voluntary process and we have been going to great lengths in the UK to try and ensure that the voluntary nature of the services dossier is kept as part of the negotiations. Q176 John Bercow: Minister, very briefly can I just come back at you on that because you obviously disagree. Would I be right in saying that the attitude of EU Member States is, "If you, developing countries, concede something on market access, we might be able to go on to offer more on agriculture, but if you do not we will not?" Ian Pearson: I assume you are referring to market access for industrial goods at the moment? John Bercow: Yes. Ian Pearson: And there is a strong view within the European Union that countries like Brazil and India ought to be offering something. Q177 Chairman: Is that the UK Government position? Ian Pearson: Let me answer the question, then if you want to ask another one I am more than happy to answer that one as well. There is a strong view within the European Union that countries like Brazil and India do need to offer something when it comes to industrial market access if there is going to be a balanced round and they have to offer something not just to the EU but to other developing and Least Developed Countries as well because countries like China, India and Brazil are fast becoming economic power houses. They do have very strongly growing and competitive agricultural and industrial sectors and --- Q178 John Bercow: Minister, I was waiting to see whether you would demonstrate, because I am always ready to admit error if appropriate, if I had got it wrong, but it does seem to me (in the nicest possible way) that what I described as 'blackmail' I was right to so describe, it is just that within Whitehall, Sir Humphrey, if I may say so, would not for one moment advise a minister to use such language. I appreciate that ministers do not ordinarily use such language but I am a humble backbencher (or a backbencher that ought to be humble) and I was ready to be persuaded that I had somehow got it wrong. Forgive me, but I think the position which I put to you and which you have effectively acknowledged is an accurate characterisation of the position. Ian Pearson: Let me complete my answer and then see if you think that I am saying what you think I am saying. Brazil and India are in completely different positions economically from some other developing countries. They have, again, large numbers of poor people that we want to help them to take out of poverty but it has in the case of Brazil a hugely competitive agricultural sector and in the case of India a hugely competitive service sector, and they are not like some other developing countries which we can talk about but I will not name. I think that has to be reflected in negotiations and that those advanced developing countries that have the ability to do so ought to be giving something back as well in terms of helping the Least Developed Countries, and that is part of what we believe to be the mandate for the round as a whole. You mentioned domestic agricultural support and I think you got it completely wrong. I do not believe that with the reforms of the Common Agricultural Policy that are taking place domestic agricultural support in the EU is trade distorting. In technical terms it is 'green box'. Through decoupling we have broken the link between support and production which would have been trade distorting but I do not believe that it is now. You mentioned duty free quota free access and what influence we might have over the United States. We have regularly engaged the United States on this as an issue. I am tempted to say that I think the US has been pathetically conservative but perhaps I had better not! However, I do think that they ought to be going further and that a country of the size and standing of the United States should be able to open its markets to countries like Bangladesh and it should not be worried. Q179 John Bercow: Have you any idea of the scale of production? Ian Pearson: You make a good point about what further we can do to produce evidence and that is something that I would like to take away and to discuss particularly with colleagues in DFID because I know that they have done some research in this sort of area and it might be that we could come up with better arguments about how opportunities are being lost as a result of markets not opening which we could put to countries like the US. Q180 John Bercow: Might you be prepared to write to us about that perhaps? Ian Pearson: I am more than happy to write to the Committee about that[2] but, as I say, I think the lead on this would normally be DFID and that might be something that the Committee wants to take up with them as well. Q181 Joan Ruddock: I think, Minister, you confirmed to us that the EU is still seeking the 'grand bargain' and there really is nothing else on the table. You said you had been to India and you are going to Brazil to try to move this agenda forward. What are the arguments that have been put to you by India, for example, for not moving in the direction that you seek them to move? Ian Pearson: If you talk to Kamal Nath about the negotiations, Kamal will say, "Yes, I accept the fact that we need to have a balanced round when it comes to the end and India is prepared to contribute when it comes to areas like NAMA", but he says quite openly, "We are really not bothered about the UK or even the EU when it comes to industrial goods," and he says, "Ian, I would negotiate a bilateral trade agreement with the UK tomorrow; what we are worried about is China," and so they have a reluctance to reduce their tariff levels because they think that it will lead to a flood of Chinese imports and that influences their judgments on what they think they want to see achieved as a result of the round. Q182 Joan Ruddock: And is that not realistic given the EU's response to the 'Bra Wars'? Is India not just being realistic? Ian Pearson: Yes, India is doing what it thinks is in its best interests, which is what most of the countries that are involved in these negotiations are doing. I am sure it is right to have concerns about the effect of Chinese imports on its economy in the short term. I still happen to believe in the law of comparative advantage. I see benefits through countries that have competitive advantage producing goods and then selling them to other countries, and that system of market economics I think actually works and should be encouraged. I think that tariff barriers get in the way of this. Just for completeness, Brazil - and we will have to see what happens in discussions next week - has been playing hard ball and it has just been saying, "Well, we are not prepared to contemplate making an offer on NAMA unless you go much further on agriculture", and sooner or later that has to change if we are going to get a successful conclusion to this round. One of the things that I want to say next week is that time is running out here and some progress on industrial goods (and it is very easy for Brazil to be able to do this because technically it has applied tariffs considerably lower than its bound tariffs) will help make further progress in the round. As I say, that is what I hope we all want to see. Q183 Chairman: Can I ask you one quick question on sensitive products which flies on the back of that. The EU is offering eight per cent of products to be sensitive and at the same time criticising America for holding out for three per cent, which seems a little inconsistent. Oxfam were saying that three per cent comprises 330 tariff lines and 20 to 25 tariff lines currently account for some two-thirds of Bangladesh's total exports, so what we are actually saying to people who do not know anything about it is that 97 or 96 or 99 % access to the market sounds great but in reality what you are saying is, "You can have access to markets for anything except anything that is actually competitive with our home products." Is that not the reality? Ian Pearson: First let's be clear on our percentages. The eight per cent in the EU offer relates to agriculture and agricultural tariff lines. The three per cent relates to the agreement in terms of duty and quota free access across all tariff lines, so it is not just agriculture, it is all industrial goods as well, and what was agreed in Hong Kong was there would be progress from 97 % to 100 % but there was no agreement on a timetable. Oxfam are absolutely right that the three per cent enables countries like the United States to exclude the major tariff lines that a country like Bangladesh wants to export, and we do not believe that that is right or sustainable, which is why we would want to see a timetable and rapid progress towards 100 %. We could cope with 100 % in the EU at the moment when it comes to the importation of textiles from Bangladesh; I do not see why the United States cannot. Q184 Chairman: Just one last question really which is that we have discussed all of this, you have been optimistic, you have not persuaded the Committee that the parameters are deliverable, so what is your belief about achieving an April 2006 deadline in terms of delivering the modalities on this? We seem a heck of a long way from it. Perhaps on the back of that is there going to be a Ministerial and if there isn't how can it be agreed otherwise? Ian Pearson: At the moment I think there is going to be a range of bilateral and mini ministerial meetings that will be taking place. I would expect to see a lot of activity in Geneva over the next few months. I do not think there is necessarily a full-blown ministerial planned at the moment and I think the expectation and hope is that we will make some progress first and then an appropriate date will be found for a ministerial meeting, but I think what we have to do is to stay focused, to stay ambitious, and to use what influence we have to try and negotiate a successful, appropriate outcome to the round. I cannot guarantee that we are going to be successful in this. Trying to get 150 different Member States to agree to something is an enormously difficult task and any one country could pull this down. It will be a 'grand bargain' in the end and I do not really want to speculate, but I just get a feeling that if we are going to successfully conclude this we are all going to have to agree to jump together. Q185 Chairman: By April? Ian Pearson: Well, you are never going to get a minister to say we are not going to hit deadlines, and those are deadlines that we need to work to because, as I said to the Committee last time, fast-track authority in the United States runs out next year and we have got to make progress. As I say, the agreement reached in Hong Kong was an agreement on modalities on agriculture and on industrial goods by April and the completion of the round by the end of December, and that is what we need to work towards. I do not think it is helpful to start speculating that we might miss some deadlines. Trade rounds do take a long time and in some ways so far this has been one of the shorter ones, but it needs to come to a conclusion in 2006; I think everybody is agreed on that. Q186 Chairman: The Committee is having some difficulty tying down Mr Mandelson and Mr Lamy to give evidence to us. We are not sure whether that should be taken as a sign that they are working so hard to meet the deadline, but at some point or other we hope that we may be able to be able to test what you said against what they are doing, perhaps by video conference. I thank you both for coming in. The Committee is obviously taking some persuading that this is a development round but thank you anyway for both before and since in giving us this opportunity to question you. We will be in touch. Ian Pearson: Thank you for the opportunity. I am always happy to appear before the Committee and answer questions on this area, and certainly I just wanted to finish by assuring you that as far as the UK is concerned this most definitely is a development round. Examination of Witness
Witness: Ms Sheila Page, Senior Research Associate, Overseas Development Institute, gave evidence. Q187 Chairman: Thank you, Sheila Page, for coming in and seeing us again. You heard the Minister's evidence and the questions that went with it, so in a sense you can give a comment to us. We tried to press the Minister in terms of what the British Government is doing relation to what the EU was doing with mixed information. From your point of view what was your verdict on what the British Government was doing in the run-up to Hong Kong? What could they learn from it? The Minister's parting shot was that we are standing up for this and of course we are members of the EU and they will not deliver, which could of course be hiding behind the EU or could be real. What is your view of how the British Government have played it? Ms Page: I think that they were not sufficiently ready for the extent of opposition from other member countries to what is the UK position, and what I think is probably this Committee's position on things like development and agriculture. My impression was that they were surprised when initially they were in a very small minority of about five countries pressing the EU to go further on agriculture. They perhaps had not spent enough time lobbying both within the other member country capitals and publicly. The suggestion made by Mr Bercow in the last session that the UK Government should actually publicise the possible effects of a duty free quota free system overseas is an interesting idea. I have been slightly surprised at how little attempt the UK Government has made to sell the benefits of trade. He stated at the end that he was in favour of them and recognised them, and that is very helpful, but with the greatest of respect to the Committee it would be helpful if he said it in other fora as well. Whether it is most useful at this point to be visiting India and Brazil rather than perhaps countries rather nearer than that, I do not know. I think that possibly is a matter on which the Committee might --- Q188 Chairman: France? Ms Page: It is a mistake just to say France. My understanding is that initially there were 20 countries in opposition to the UK's position and about five in favour of it, so it is not just France. It is important that the UK Government realise that if it actually wants to make the development agenda its own and not just the agenda of developing countries, then it has to do something about it and not just at the ministerial meeting but before it, after it and now. Q189 Chairman: The position seemed to be very inflexible. For those of us - John Bercow, Ann McKechin and myself - who were in Hong Kong we saw that you had a 'pass the parcel' going on where the EU and the US were trying to blame each other for it. But what more could have been done? We had the Minister claim that it was a generous agricultural package but it did not really address the core issues, so what do you think could have been done to actually break the deadlock and make the negotiation real? Ms Page: I think it is a mistake to sell the package as being more inflexible than it is. I was struck earlier this week when the Trade Commissioner gave a speech[3]. There is usually a press release summarising the speech and the press release was almost more aggressive about how little we could do and how important it was that other people do something than the speech itself. The speech itself said, effectively, that "unless somebody else goes first (meaning Brazil and India) we will not". The press release more or less said "we will not". I think even the real position is a little flexible because, as we all know, in the WTO you can make offers that are conditional offers. "Nothing is decided until everything is decided" is the cliché and it is perfectly possible for a country to say, "If we secure better access for our goods into India, this is what our agricultural offer would look like," rather than saying, "If you offer us something more then you will see what we have to offer". It is a negotiating tactic. It is one that failed for the EU last time at Cancún when it held out to the end on the Singapore issues which it was planning to give up. It is not clear that it is any more sensible to hold out until the last minute here because it is clear there is some more on the agricultural side. It has been discussed as to whether they can reduce the eight per cent on the sensitive products to something else, or they can perhaps alter the adjustment for sensitivity to less than what they want now, or they may be able to offer some more on subsidies. There is movement there but it is not being declared and it is very difficult for the other countries to make an assessment of whether it is worth making an offer if they do not have any idea of what they might get in return. That is, of course, if you assume that developing countries should be making an offer in return. Q190 Chairman: That assumption is the difficulty we are having. We have had the Government saying, "Of course we would go further but we cannot persuade our colleagues in the EU to go further." I was interested in what you said about the Minister (who is the Trade Minister after all) over-promoting the value of trade. It seems to me that we have lost sight of the fact that the whole idea of WTO, the whole background, was to say if tariffs dropped across the board everybody benefits, there may be winners and losers but everybody benefits, and there is a net gain which is a benefit, and yet actually the developed world, who created this great rhetoric, are the ones who are protecting their position more vigorously. Why should developing countries not say, "If you are so keen on free trade why do you not drop your tariffs?" or, "If you are so keen on protection why on earth should we not be?" Have we completely lost sight of what this whole process is supposed to be about? Ms Page: It is rather that we are confusing two issues. I agree with you and I agree with the Minister that free trade is beneficial and comparative advantage does have a lot to be said for it and all of the rest. I believe that and I will happily as a UK voter press the UK Government to do things which promote that. The question is whether the UK or the EU or other developed countries should be pressing developing countries to do this. They should be arguing with them, they should be trying to convince them that this is the right thing to do, yes, but that is quite different from saying, "If you do not do this we will not liberalise either". At the very least it is a silly argument. If we believe that liberalising the EU will benefit the EU, to say that we will not do it unless someone else does something first makes no economic sense. It certainly does not make development sense to tell developing countries, "You must do what we consider sensible or we will not help you in other ways". We can certainly say that we disagree with some of their policies but that is a different dialogue and it is quite important to keep the process of telling countries what we think is best for them separate from saying, "If you do not do what we say, we will take various actions that do not help you". Q191 Chairman: What about the argument that China and India have a very high proportion of the world's poor and yet they have fast growing economies? Is it reasonable and right to say we are so threatened by their economic development that we have to impose conditions on what they can do to help their poor? Ms Page: No. There are serious risks in trying to do things for other countries even when the other countries are not demanding it. It is the developed countries at least as much as the LDCs which are making the condition that China and India should open to the Least Developed Countries in order to make further progress. It is important not to lose sight of the fact that India has made an offer to open to the African countries. Brazil does have plans to open to the Least Developed Countries. India's tariffs, excluding that offer, are still quite high. Brazil's are not particularly high any more by the standards of the past or by the standards of India. China is in a position to offer more but it is slightly unrealistic to expect China to start importing cheap manufactures from other developing countries. It would be nice if it opened but let us not raise our hopes that the country we all fear as too competitive is going to start importing our goods. It is important to remember what we are trying to do in this round. There is certainly an element of hiding behind other countries not doing what we think they should do. It is right to say that. It is right to say what other countries should do and to point out the benefits. It is not right to say that you are going to make your own policies depend on good policies in other countries. Q192 Chairman: Does what was agreed in Hong Kong make any contribution towards Doha becoming a development round or being concluded as a development round? Ms Page: I looked back at the report that this Committee prepared before Cancún[4] and then it had two definitions of a development round, one based on outcome and one based on process. To the extent that the developing countries are taking much more active part in it, in the Minister's words Brazil is playing hard ball, that is a sign of a development round. It is slightly odd to complain that the negotiators who are negotiating against you are negotiating too hard. It is a compliment. A lot of the developing countries are now playing hard ball, not just the Brazils and the Indias but the Least Developed Countries as well were well organised before and at Hong Kong and got part of what they wanted because of that. In that sense, the organisation is a more developmental organisation. The outcome was more favourable than unfavourable to developing countries but that is about as far as I would go. The main element for development of a WTO round is better access to markets. As you pointed out, the 97 % is not worth a lot in real terms. It is worth something as a commitment and that is in a sense what the WTO is there for, to give commitments. The amount of access the EU is offering on agriculture is pitiful as one of your colleagues said. It is not very good but that is not to say that it is not better than nothing. Q193 Chairman: One of the things on agriculture that slightly concerned me was that the Minister was saying that the decoupling has, in a sense, made the CAP green box but if you are a poor subsistence farmer in sub-Saharan Africa and you are looking at farmers in the UK or anywhere else who are receiving cash payments from the Government for all practical purposes, simply to be on the land, cash payments which are beyond the dreams of a whole community, never mind one individual, do you really believe that you are in a situation where this is not trade distorting? Ms Page: Of course not. It is unfortunate that the settlement of the Uruguay round built in the phrase that subsidies in the green box are minimally trade distorting. To be fair, they did not say "not trade distorting". They may be less distorting than some of the forbidden subsidies. In that they still provide a fixed income to someone because he is a farmer and therefore reduce the costs of being a farmer, reduce the income which he needs to get from the prices he will get from his goods because he already has a cheque arriving once a year, obviously it increases the relative attractiveness of farming compared with other activities, which is distorting. It is distorting from the point of view of a farmer in a developing country and from the point of view of a tax payer or a consumer in the EU. It is almost as important to use the second set of arguments as the first because there is a bit of a risk of making the development round sound too much like a hair shirt round. A development friendly round would also be an EU friendly round. Q194 Chairman: In Hong Kong we did start to see the developing countries getting organised, the G110. The developing countries were saying, "This is a negotiation. We are being pushed around here so we are getting our act together." Do you think that was a positive achievement? In other words, it has turned the development round almost on its head. Instead of the developing countries sitting there waiting for concessions which either do not come or are so conditional as to be undesirable, they are saying, "We will play the same game." Do you think that is perhaps the main benefit that came out of Hong Kong? Ms Page: That is one of what I would see as the two main benefits. It was particularly important because the message of the G110 meeting was precisely that: we will not be pushed around and, perhaps as much, we will not be divided and ruled. There had been a lot of talk in the first couple of days of the conference and in the whole run up to the conference of the sort that we, the EU, are the friends of the Least Developed Countries. The major developing countries and the US are your enemies. Let us unite together: the US of course doing the same thing with the G20 but also to some extent with the LDCs. There was a lot of effort to divide the G20 and the G90 quite deliberately by the developed countries. There are a lot of different interests. There are probably 110 different interests at the G110. That does not mean that they want to be divided in that way and played off against each other. In the words of one Caribbean delegate, they did not want to be treated as pawns. Q195 Ann McKechin: Is this level of cohesion by developing nations one of the reasons why the Hong Kong talks did not end in collapse as they did in Cancún? There is a growing appreciation that if they stick together to some extent, eventually somewhere down the line they are going to get a deal which is going to make it worthwhile. Ms Page: That was one of the reasons. The other one was that at some point - I think it may have been during Hong Kong or before Hong Kong - there was a realisation that if this failed there would be serious damage to the WTO and, secondly, that this would be a bad thing. Even if the round is not going to produce very much, it would be very unfortunate if there were a failure of the WTO. The failure of the Doha round to produce as much as we hoped one can live with, but the WTO is useful to all of the countries for its rules, for its predictability, for its disputes procedure and all of the things which go on every day in Geneva. There was a sudden realisation, I think, partly because there was one extremely acrimonious discussion at Hong Kong on cotton and bananas, that frightened people which may have been good. Q196 Ann McKechin: Given that, do you think there is a realistic prospect of even a limited agreement before the US mandate expires next year on some of the key issues; or are we going to stagger on for another five years until we have a change in the US presidency? Ms Page: It would certainly be a mistake to stagger on and hope that something will turn up. One of the problems with this round is that it happened almost accidentally because we had to have ministerial meetings and therefore we had to do something. To carry on with a round which no one quite thinks is going anywhere does not help. There is a realistic possibility of a limited solution. If one reads the speech rather than the press release of the Trade Commissioner this week, one sees the beginnings of a bargain coming. One looks at the fact that people do not have time to come to this Committee, that there do seem to be meetings happening, that people are travelling around and talking to each other. We did reach something in Hong Kong. There was a refusal to fail there. That made me optimistic not that there would be a grand round and not that it would have much effect on the economics of anyone, but it would be helpful to get the agreement on trade facilitation in place. It would be helpful to get the agreement on export subsidies written in blood. It is worth having a small settlement. I think it can be done but only if all the deadlines are met. One can joke and we all know that all trade meetings and international institutions' meetings run over but there really is the deadline, as you point out, with the US which effectively means that the deadlines which start with February for services offers have to be respected. There is not a practical way of reaching a settlement without this. Q197 Chairman: Will the G110 hold together through this process? Ms Page: For its limited purpose of saying that there are some interests which all developing countries have, one of which is not to be pushed around, yes. In the sense of not opposing each other's central positions, yes, it will hold together. As a negotiating group, no. It was never intended to be that. Q198 Chairman: What you have said is that the importance of the WTO is it retains credibility in spite of the difficulties. One of the things we picked up was that there was a lot of praise for the organising facility that the WTO provided and the mechanisms were more open. The WTO you say, having passed through Hong Kong, is not at risk of disintegrating? Ms Page: The risk is still there but it is not quite as high a risk as it was pre-Hong Kong. In the last frenzied hours of the negotiations, if you remember, there were two countries which did express formal reservations and one which expressed reservations about needing a framework for negotiations. All the careful wording of getting the final countries that were not quite ready to accept it to accept it sufficiently that we could go ahead without losing the consensus required a little goodwill and certainly more goodwill than we saw at Cancun. Q199 Chairman: A successful conclusion, you think, is possible. You said it was desirable. Ms Page: It is possible. It is not guaranteed. Q200 Chairman: Is there a date? At what point would you say, if we have not got agreement now, we have really lost it? June? Ms Page: Probably the June General Council. Chairman: Thank you. You have made a number of interesting and helpful points and I appreciate you coming along. [1] Reference to follow [2] Letter received, dated 13 February 2006 [3] Speech by Rt Hon Peter Mandelson, EU Trade Commissioner, EU Trade Policy after Hong Kong, Berlin, 23 January 2006: http://www.delphl.cec.eu.int/docs/EUTradePolicyafterHK_PMandelson.pdf [4] International Development Committee, Seventh Report of Session 2002-03, Trade and Development at the WTO: Issues for Cancún, HC 400-I |