Examination of Witnesses (Questions 161-179)
DEPARTMENT OF
TRADE AND
INDUSTRY
6 DECEMBER 2005
Q161 Chairman: Mr Pearson, welcome. I
apologise again for the delay. I think you know the reasons for
it, circumstances well beyond our control. We have far too many
fire alarms in this building, I think elsewhere in the parliamentary
estate too. Crying wolf is the phrase that comes to mind! We know
who you are, but perhaps for our benefit and the benefit of the
record you could introduce your colleague.
Ian Pearson: I would like to introduce
Amanda Brooks who is the Director of Trade Negotiations and Development.
Q162 Chairman: At?
Ian Pearson: At the Department
of Trade and Industry.
Q163 Chairman: We know you wear two
hats, so we have to be very careful. We wanted to start by exploring
some of the benefits to the UK. UK businesses have told us that
they want this current Round to result in greater market access
for them, particularly the developed countries and the more advanced
developing countries. Alan Johnson, I think, told the Labour Party
conference, "We will do everything in our power to secure
an outcome that is pro development and pro poor." Do you
think that getting developing countries to open their industrial
and service markets is compatible with a pro development and pro
poor outcome?
Ian Pearson: We have said very
clearly, that is as the UK, that we do not believe in forced liberalisation,
and that remains our position. Certainly from my experience of
going to developing countries like China and India recently, which
are both growing enormously quickly at the moment, I think there
are benefits for China and for UK businesses if China is to increase
access when it comes to financial services and the insurance markets.
One of the things that Lloyd's of London managed to secure during
the China state visit was acceptance that Lloyd's could enter
the Chinese market. I think that is good business for Lloyd's.
Q164 Chairman: A bilateral deal.
Ian Pearson: Yes, indeed. That
is good business for Lloyd's, but I think it is good for China
as well, and I think when you look at some of the areas where
the UK has world leading expertise (and I am talking about our
financial services, our legal services, areas like insurance),
I think those can be of enormous benefit to developing countries,
but the point that I make stands that we should not be forcing
developing countries to liberalise their markets.
Q165 Chairman: So will you be telling
the Chancellor of the Exchequer to give that message to the IMF?
Ian Pearson: The UK's position
on this is extremely clear.
Q166 Chairman: The IMF is enforcing
liberalisation?
Ian Pearson: The IMF has changed
its stance over recent years and the UK view on aid conditionality
is the same approach that is now adopted by the International
Monetary Fund, so I think we have seen progress there.
Q167 Roger Berry: I was in Ghana
last week and the Ghanaian government explained that the reason
that the modest tariffs to protect the poultry industry domestically
were reversed—it was suffering from subsidised competition
from overseas—within weeks of the government introducing
them was precisely because the IMF told them to do it, and the
IMF's facility would have been reduced or withdrawn if they had
not gone ahead with trade liberalisation. We have witnesses who
have said this is not uncommon. Indeed, in my experience the IMF
is an extremely big player in the debate on trade liberalisation
by enforcing conditionality. Did the UK representative on the
IMF board support that strategy?
Ian Pearson: I do not have any
specific knowledge about that myself, Mr Berry.
Ms Brooks: I know a little bit
on this, although colleagues in the Treasury and International
Development lead on this. The UK Government published a policy
paper on its approach to aid conditionality, published by the
Treasury and the Department for International Development, in
which it made quite clear that it held the same view on aid conditionality
as it does on trade liberalisation. The Government has been lobbying
the IMF and the World Bank on this matter; but, as I say, it is
Treasury and the DFID colleagues who lead on that.
Q168 Roger Berry: Thank you. Back
on my theme for a moment, what does UK business have a right to
expect from this Round?
Ian Pearson: I am not sure whether
using the term "rights" is particularly appropriate
in these circumstances. It is clear that we want to achieve from
this Round an ambitious, pro poor outcome that will also help
Europe become more competitive. We think that if we can see a
reduction in developed country tariff barriers, if we can see
further movement on services in the global economy as well, there
can be benefits for UK companies as a result of that. There are
still significant barriers to trade when it comes to developed
countries. Many of the gains, as far as the UK is concerned, that
can be achieved from this Round can come from reducing tariffs
in the developed world.
Q169 Chairman: Can you put a bit
of flesh on that for us? What will that good outcome look like?
Ian Pearson: We estimate that
an ambitious outcome with regard to non-agricultural market access
could see global benefit to the tune of $50 billion. We think
Europe's share of that could be something in the region of $20
billion. That could mean around $2 billion as far as the UK's
share is concerned. These figures are always subject to estimation
and a number of caveats. That is the sort of range that we are
talking about.
Q170 Mr Hoyle: Obviously one big
topic is going to be agriculture and we are looking at agriculture.
We had a submission from Oxfam and it is interesting that they
are suggesting that negotiations might actually create the opportunities
for developed countries to expand their trade, thereby distorting
agricultural subsidies. On the other hand, there are claims that
the EU and the Americans themselves are exaggerating the payments
taking place in order that they can secure much more painful concessions
for developing countries. I do not know what your feeling is about
that, whether you accept the Oxfam view or you think there is
real pain or it is just crying `wolf'?
Ian Pearson: May I first make
clear the EU position and where the EU is now? As you know, Commissioner
Mandelson negotiates on behalf of 25 EU Member States within the
framework of a mandate that has been agreed by successive European
Council conclusions. Within that mandate he has made two offers.
The second offer that he has made includes increasing market access
by reducing average tariff levels by 39%. That is a bigger average
reduction than during the Uruguay Round. When you factor in on
top of that the fact that we have just really begun implementing
the CAP reform proposals, which are reducing dramatically what
is called the domestic support subsidies so that they are non-trade
distorting, then it is a serious offer that has been put on the
table by the European Union. There is payment in that in the sense
that, by reducing tariff barriers, this will have an effect on
various sectors of the agricultural industry. The fact that we
have seen such strong concerns from a number of EU countries,
I think clearly indicates the fact that they do think the offer,
as it stands, does have various consequences for their domestic
agricultural industry.
Q171 Mr Hoyle: I totally agree with
you that there are concessions on the table from the EU and that
the Americans are making some concessions, but does that mean
there are more painful concessions and more being given up by
developing countries in order to achieve this?
Ian Pearson: Nothing has really
been given up by developing countries at the moment. We have said
very clearly that, particularly as far as the least developed
countries (LDCs) are concerned, this should be `a Round for free'
for them. Already within the European Union we offer duty- and
quota-free access under Everything But Arms Initiative to LDCs.
You have to bear in mind that this is a single undertaking; it
is a massive negotiation. We want to see an ambitious, pro poor
outcome. We have been very clear about the principle of less than
full reciprocity when it comes to developing countries. We do
not expect them to do as much as we will do when it comes to reducing
tariff levels and improving market access. I think it is unrealistic
to expect a deal that does not ask China, India and Brazil to
do at least something when it comes to improving access to their
markets. As I say, I think it would be in a number of areas very
much to their benefit as well to do so, but it will be up to them.
The stage we have reached with the negotiations is that we have
a serious EU offer on the table; we need to see movement from
countries like Brazil in other aspects of the dossier, such as
non-agricultural market access, and also services as well because
we need a high level of ambition across all aspects of the Doha
development agenda.
Q172 Mr Hoyle: To make sure I have
this correctly, they are going to suffer pain—that is what
you are saying—but it is not quite as much as we are going
to suffer. Is it fair to say that? They are opening up their markets
but not as much as we are doing. Is that fair?
Ian Pearson: I think that is a
better way of describing it. Some developing countries will be
opening up their markets, hopefully as a result of a successful
conclusion to the Round, but they will not be opening up their
markets by as much as developed countries will be doing. We have
been very clear as well in terms of our negotiating position that
LDCs should not be forced to open up their markets at all if they
do not want to do so. We have also said that when it comes to
developing countries, there has got to be appropriate flexibility
there so that they can protect particular vulnerable sectors that
they may have. There have been discussions on what is called a
special safeguard mechanism that will also be available if problems
were to arise in the future.
Chairman: We will return to the differentiation
question later.
Q173 Mr Bone Minister, I think we
are going to have to disagree at the start about how generous
the EU offer is. I still think there is an outrageous lack of
ambition on behalf of the EU. We will leave that to one side.
You clearly say there is a focus on development, and that is probably
right. Are you in danger of missing out on the possibilities of
developing countries trading amongst themselves by reducing tariffs
there because of the concentration on the development Round?
Ian Pearson: I do not think we
are missing out on this. I think you make a very important point
because 70% of developing country tariffs are paid to other developing
countries. This is very much an issue for developing countries.
We hope that increased south-south trade will be one of the major
benefits that comes out of a successful Round. With regard to
the first part of your question about the level of ambition in
the EU offer, I do think it is a serious offer; it is a higher
average tariff reduction than in the Uruguay Round, but I do not
think that anybody is under any illusions that the UK would like
to see the EU go further. That is our publicly stated position.
Q174 Mr Bone I was not criticising
the British Government. I was criticising the EU position.
Ian Pearson: The EU position is
as a result of the mandate that the Commission has, and the EU
has to bear in mind the position of all the different 25 Member
States. I think it is fair to say that the UK takes a different
view when it comes to opening up agricultural markets to a significant
number of other countries within the European Union.
Q175 Mr Bone I do not think I made
myself clear at the beginning. In fact, the way you answered the
question showed I did not. What I was getting at is whether we
are missing out on the opportunities to open up north-north trade
by concentrating so much on the developing countries? Have we
lost sight of the fact that benefits are to be gained by north-north
trade and then cutting tariffs between those countries?
Ian Pearson: That is a good point.
No, I do not think that we are missing out on that. Certainly
a major part of the benefits that could accrue to the European
Union would be as a result of a reduction in tariffs in the developed
world, and so greater trade with countries like the United States
obviously, but other developed countries as well.
Chairman: We will return to the question
of differentiation.
Q176 Mr Weir: You mentioned in an
earlier answer Pascal Lamy's phase `a Round for free'. To what
extent do other developing countries, particularly so-called advanced
developing countries, need to start playing the traditional negotiating
game? Looking at the differentiation between developing countries,
do you feel that the least developed countries have as much, if
you like, to fear from the more advanced developing economies
like Brazil as they might from the EU or the United States?
Ian Pearson: Certainly, when you
look at the more advanced developing countries, such as China
and India, they are hugely competitive. China is hugely competitive
when it comes to manufacturing. It produces 90% of the world's
toys and 50% of the world's washing machines. India is enormously
competitive when it comes to the services industry. There is no
doubt that those countries are in a position to take advantage
of market openings, whether they be in developed countries, like
the UK and the rest of the European Union, or whether in the least
developed countries as well. We have clearly said, though, that
not only do we want to see duty-free and quota-free access to
our markets for these developed countries; we want to see them
in a position where they can have tariffs that protect their industries
while they are developing. It is not the case that we are expecting
LDCs to completely reduce the tariffs on their economies. We want
to see them develop. We want to work with them on their poverty
reduction strategies and help their economies to develop. I think
that is the best way to explain the situation.
Q177 Mr Weir: Do you feel they are
getting better at negotiating in WTO from the way they are perhaps
holding out for a better deal from the EU in agriculture?
Ian Pearson: I think what we have
seen in Cancun and since is the G20 and the G90 being very astute
in pressing their own interests. Certainly I think the voice of
developing countries and the voice of the LDCs is a lot more powerful
now than it was just a few years ago. I welcome that. I recognise
that a lot of developing and least developed countries felt that
they lost out as a result of the Uruguay Round. They are certainly
very keen to make sure that that does not happen again, as is
the UK.
Q178 Anne Moffat: My question has
been more or less answered. It is about the advanced developing
countries. The World Development Movement and others have pointed
out that those advanced countries have still got marked poverty
problems there. Do you think the UK businesses are justified in
seeking opening of markets in the advanced developing countries?
Ian Pearson: The World Development
Movement is certainly right to point out the fact that in some
of those advanced developing countries there still is extreme
poverty. Massive progress has been made as well. China, for example,
has taken roughly one-third of a billion people out of extreme
poverty over the last 20 years. It has done that primarily through
trade. As I say, when it comes to China, I think opening of their
markets in sectors like financial services and legal services
will benefit China both in the short and in the long run. I do
not really see a particular problem with a developing country
taking a decision, say, on non-agricultural market access, as
to whether it wants to open up a certain sector of its economy
and reflecting that in its negotiating stance, or in the area
of services and looking at what sort of services offer it wants
to put in. These countries will only do these things if it is
in their own interests. India and China and some others have a
great deal to gain as a result of opening up their markets. It
will be a decision for them as to how much they want to do that.
Q179 Anne Moffat: What do you think
the prospects of those opportunities in this Round will be?
Ian Pearson: That is the $63,000
question, is it not? Perhaps it is the $200 billion question because
that is the potential benefit to the world economy if we had an
ambitious trade Round and saw the elimination of trade barriers.
At the moment, we are going into Hong Kong with draft texts that
have a pretty low level of ambition. You will be very well aware
of that. I hope in Hong Kong we can agree a framework, by which
I mean a structure, within which contents are put. We would agree
on formulae and structures and the basic architecture of the Round
but I do not think that we are going to get into the position
of having specific numbers attached or coefficients even to the
formulae which they have in NAMA. I also hope that we can have
a reaffirmation that there will be duty-free and quota-free access
for LDCs for all the developed world and hopefully also for some
of the more advanced developing countries, and that we can have
an agreement on what is called TRIPS and public health, which
would have the benefit of providing cheap medicines to least developed
countries. I think that should be seen as the start of a package
of measures that will achieve the pro poor outcome that we want
to see for the Round as a whole. Sadly, we are not going to get
all the way there in Hong Kong. I do not think anybody is expecting
us to do that. I do not think we are going to get two-thirds of
the way there, which we would like to have done. Certainly a lot
more work needs to be done if we are going to have a successful
conclusion to the Round by the end of 2006.
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