Examination of Witnesses (Questions 27-39)
Professor L Alan Winters, Dr Michael Gasiorek and
Dr Peter Holmes
13 MAY 2008
Q27 Chairman: Good morning and thank
you very much for coming. We are most grateful for your help.
Those of you who have been here before know the form: everything
is recorded, it is all being broadcast, but you do get a transcript
of your evidence and are able to correct that which did not seem
to have come out as you said it. How would you like to start?
You have seen the list of questions but, if you would prefer to
make an opening statement, any or all of you, we would be glad
to have that too. What would you like to do?
Professor Winters: We thought that we
would make a very brief opening statement just to say that we
have been dealing with trade policy a long time and, although
there is a considerable body of experience and expertise at the
University of Sussex, we do not come with any institutional position
to support. Indeed, with three of us, there are probably four
or five opinions. That is all we thought we ought to say by way
of comment.
Q28 Chairman: Against that background,
I will begin by asking you how you now see the prospects for the
Doha Round. Who or what has caused the logjam? Has it all taken
so long that people have given up? What is the effect of increased
oil and food costs? Would you take those in random order, please!
Professor Winters: We thought that I
might start with this. I think that the prospects for a substantive
and very useful outcome to Doha are not high at all. I think there
is a question about whether we get a completion that we could
even declare to be a victory now. I personally am rather pessimistic
about the outcome. Who or what has caused the logjam? It is important
to remember that Doha was born under pretty inauspicious circumstances.
We had talked about having a new round for two years and had Seattle
and a good deal of policy in between and, in a sense, the scramble
to create Doha was a response to another very particular global
diplomatic need after 11 September. Therefore, in some sense,
the fractiousness that we have seen during the Doha Round should
not be awfully surprising. What is behind that? There are clearly
to some extent changing attitudes publicly. Certainly, elements
of civil society have come to think of international trade as
hostile to the things they support rather than supportive. It
is arguably the case that industry has been less interested in
multilateral trade negotiations than previously; partly I think
because they found other ways of achieving their goals; partly
because they have begun to think that maybe the steam had gone
out of the process. I think it is also the case that in a sense
we had picked what we used to refer to in the World Bank as the
low-hanging fruit. Reducing tariffs is very much easier than liberalising
in other dimensions: non-tariff barriers or regulatory issues.
Easy tariffs in a sense have come down. The tariffs that remained
were very sensitive. So, in some sense, as the process of liberalisation
proceeded, the job of pushing it further became more difficult.
Having said that, I do think that we probably made a number of
mistakes along the way and that careful thought perhaps would
have allowed us to be having a more optimistic conversation at
the moment. I do not think that the length of the talks per se
has particularly damaged the participants' belief in the concept.
I think it has perhaps damaged public faith in the concept. My
guess is that most of the participants do understand what a complicated
process they are taking part in and understand that it is going
to be difficult. I think that the process has revealed itself
to be difficult and that has caused people's expectations to no
longer be very high, but I do not particularly put that down to
the time as opposed to the gradual revelation of the very strong
interests and very strong views that certain governments are subject
to.
Dr Holmes: I agree with what Alan has
said. I want to stress something that was implicit in what he
said. My understanding is that among the member governments of
the WTO, there is a very firm commitment to trying to deliver
something, even if it is only a formality. One colleague recently
pointed out that, at the Hong Kong meeting, if the Cubans had
refused to sign the Final Declaration, the whole thing would have
come crumbling down. I think that there is a determination to
avoid a complete collapse of talks which might discredit the organisation.
I think I would put what Alan said differently. The way it seems
to me is that, at the time of the Uruguay Round, you could see
that there were a number of countries and interests that really
wanted something to be delivered: there were lobbies; there were
interest groups; there were countries that had particular interests.
It is much less easy to see exactly what particular countries
need and want. If you take China, they desperately want the continuation
of the existing system and there are a number of other countries
that feel that. It is very hard to pin down the exact lobby that
wants something enough to persuade its government to concede,
in mercantilist terms, on something else. As Alan says, the general
belief in the virtues of liberalisation is a lot less, so you
are going to have to persuade the reluctant people rather more.
Alan said that we could have done things differently. I personally
do not think that the EU played its cards terribly well. I am
thinking in particular of the Singapore issues. I was watching
the Trade Competition Agenda quite closely and I felt that the
EU did not handle that terribly well. I would agree with Alan
that belief in the concept of the talks has not by any means collapsed,
but there is a danger that people are keeping their cards close
to their chests and negotiating tactics might lead to some rather
adverse outcome. My general belief is that everybody needs some
kind of success on paper too much for there to be a complete breakdown
of the talks of the organisation.
Dr Gasiorek: By and large, I very much
agree with what Peter and Alan have said. I am not sure that I
am quite as optimistic as Peter in thinking that there will actually
be a resolution because everybody needs something on paper. I
think that is entirely possible. Equally, I think that time has
dragged on so long that the lack of those obvious interests for
a deal which Peter mentioned, and which in another context Alan
mentioned in terms of we have already picked off the low-hanging
fruit which I think is a reflection of the same issue, means that
I am less optimistic that we will actually achieve an agreement
and a deal. I think that we also need to bear in mind that even
if notionally there is some agreement, it still has to then be
ratified and agreed by the countries and in particular by the
United States and clearly that takes us into almost certainly
the next presidency and it is far from obvious in which direction
that will then go. There is obviously at the moment a great deal
of protectionist rhetoric and I guess that is normal at this time
of the election cycle, but it is far from obvious that an agreement
will actually then be ratified and there are the worries that
Congress may then perhaps start to try and amend the deal which
in the past they did not do under fast track but then, with the
Peru Agreement and so on, they did start to try and throw in additional
clauses and I think that that is a worry in the system.
Q29 Chairman: We have all seen media
reports which suggest that the cost of oil and food products is
causing unrest. Does the fact that food costs are going up and
it would be more sensible for the countries which can grow it
to grow it help or hinder trade talks?
Professor Winters: That is a very difficult
question. It seems to me fairly extraordinary that the reaction
of some of our European partners to the soaring food prices has
been to argue for higher protection which will raise them even
further internally. In some sense, the economists' toolkit of
rationality does not seem to be applying very much at the moment.
I am rather of the view that the World Trade Organisation is a
great deal more useful than is popularly perceived and, if one
thinks back, for instance, to the East Asian financial crisis
in 1997/98, one of the remarkable things about that crisis was
that it did not lead to an unravelling of trade agreements and
increase in protection, despite shocks that were substantially
bigger than the ones we are facing at the moment. It may be that
as people grizzle and complain and talk about protectionism, actually
the WTO might be able to assert itself and its leadership position
and show that indeed it is more useful than we had remembered
and it would actually help the process. I can certainly see that
as being conceivable. But I would hate to make it an unconditional
prediction.
Q30 Chairman: That does rather tie
in with the other thing I am trying to elicit which is, do you
think that the WTO still has a role which perhaps some of your
colleagues can address along with the question about what is happening
with oil, food and protectionism.
Dr Gasiorek: Let me perhaps address the
second part of that question first. I guess historically we tend
to associate more protectionism with economic downturns and hence
that is perhaps where the spirit behind that question lies. So,
if growth declines, will that raise protectionist sentiment? Clearly,
I think that there will be some pressures in that direction and
there certainly will be rhetoric in that direction. I am not convinced
that it will lead to higher levels of protection. I think that
the nature of world trade has changed considerably over the last
ten or 15 years where there are vested interests both with regard
to imports and exports such that it is far less obvious that exporters
will wish to see a rise in protectionist sentiment. I think that
the political economy has changed somewhat and, while there may
be rhetoric in public about protectionism, I would hope that policy
makers would not go down that route and I think that there will
be strong political economy pressures for them not to do so.
Q31 Lord Steinberg: All three of
you have said in differing ways that you are not overly optimistic
about Doha. Is this view prevalent amongst your colleagues and
is this view prevalent amongst the nations concerned?
Professor Winters: I think that the view
of the profession is fairly similar on average to our view. As
regards the views of the countries, it is very difficult from
the outside to work out exactly what they do think. Of course,
they have to continue as if they believe. As Mr Lamy reminds us
every two months, victory is just around the corner, but do they
really, really believe it? I would find that very difficult to
judge. I think that the participants have to be aware that this
is an extremely difficult area. My own view so far as the outcome
is concerned is that I very much hope that we do at least get
a nominal closure to this because I would not want to see it remaining
open as an open sore. I do not expect us to see much out of it.
I would like to draw a line, take a breath and think how we will
do it better next time. I would like to think that this is the
Government's thinking, but I do not have much evidence that that
is the case.
Q32 Lord Kerr of Kinlochard: If you
can draw a line, take a breath and think about how we can do it
better. There used to be, certainly in Victoria Street, the theory
about bicycles which said that if we stopped going forward with
further liberalising rounds, the existing system, the discipline
of now the WTO, would deteriorate or be damaged. Is that theory
no longer held?
Professor Winters: My view is that the
bicycle theory always had a large element of truth but was rather
simplistic. My own view for thinking about why we need to have
some conclusion is in a sense a bit like the bicycle theory: if
the issue remains unresolved and no process looks as if it is
starting to resolve it, I think that we will gradually see ourselves
slipping back into these somewhat petty and beggar my neighbour
sort of policies that we are seeing at the moment over food prices.
Because the institution does not gain very much if the process
has stalled, and precisely because it has stalled, nobody seems
to be willing to contribute towards its further progress, I think
that something like the bicycle theory is applying at the moment
and that there is a serious danger if we let this thing fester.
The promulgator of the idea of the bicycle theory was Fred Bergsten
in Washington and Fred to quite a large extent used it as a suggestion
that it was perfectly fine to be going on doing a deal every six
months with some partner or the other, bilaterals and so on; I
do not have much sympathy with that.
Q33 Lord Kerr of Kinlochard: I would
like to push you a little further on Doha. Let me begin where
you began, Professor Winters. You gave as a reason, perhaps a
principal reason, why Doha has become stuck that industry no longer
seems to have success in the further liberalising round high in
its priorities. Why is that? Is it because Mr Mittal does not
need a WTO to take over companies because the balance of the world
has changed? The manufacturing industry in America and Europe
either tends to outsource a bit and/or is a bit defensive. Was
the mistake perhaps separating out the Singapore issues? Industry
in the developed world did see advantages in things like investment
protection which was shelved. Is that what Dr Holmes meant in
saying that the EU did not handle the Singapore issues very well?
Dr Holmes: May I respond to the bicycle
question first because I would like to offer you the tricycle
theory.
Dr Gasiorek: I was going to suggest stabilisers.
Dr Holmes: I will leave you stabilisers!
I would see the tricycle as a concept. I once asked an Indian
trade official how he felt about the negotiations and he replied,
"Actually, we are getting a lot of what we want through the
dispute settlement mechanism". I think it is a real paradox
here that, at one level, if I were Stalin, I would say, referring
back to his article in 1930, that we are "dizzy with success".
The problem is that liberalisation is proceeding; it is proceeding
through the dispute settlement mechanism and a lot of countries
are getting what they want through that. However, if you have
one wheel at the back moving much faster than the other, it is
skewing the direction. It may well be that some people would be
happy for the system to go on as it is because it is in some sense
delivering. Even on agriculture, things are beginning to move
in dispute settlement, on subsidies and on anti-dumping. Things
are happening there which are not happening outside dispute settlement.
I think that that raises a fundamental political economy legitimacy
issue. I think that it provides additional explanation as to why
some countries feel that they do not need to proceed with negotiations.
Clearly, the system does matter to everybody. Again, some of the
multinationals, with all their outsourcing, need the system to
go on. They have the tariffs down and they do not want them to
go back up again. They want the existing game to be played. Again,
it might even be paradoxically that the system is working too
well. Applied tariffs have been brought down very low. Michael
may want to say a little more about this but some people suggest
that people are not very interested in an agreement that would
merely ratify the existing level of bound tariffs. People may
be taking for granted that they will stay low. It seems to me
that business has an overwhelming interest in keeping the achievements
that they have. So far, they are managing to keep that and even
improve on it a little through dispute settlement and it may even
be that if the dispute settlement system were more cautious, people
would return to the need for more negotiation. Specifically on
investment, I think that the MAI was probably what killed any
sort of investor protection. It really looked as if you were seeing
a takeover by multinationals and so "trade and investment"
became a sort of bugbear and "trade and competition"
was tainted with that, even though actually if the EU had offered
something a little bit more by way of multilateral assistance
against international anti-competitive practices, they might conceivably
have got the Indians on board on that.
Professor Winters: I would like to talk
a little about why industry might not be so enthusiastic. I think
that there are a whole variety of causes behind this as Peter
has already mentioned. Applied tariffs are pretty low, so in a
sense the simple and obvious job that the WTO could do for them
does not exist to the same extent. Where tariffs are high, they
are well entrenched and well protected with special interests,
so it is much harder work to cut them; they are not there by accident.
I also believe that there is somewhat of an attitude that says
that you can pick and mix through bilaterals. After all, the major
powers are out there talking to dozens of different parties, you
can target and you do not have to give very much up; this idea
that one can address really critical issues bilaterally I think
has undermined their multilateralism in that respect. I suspect
that the technological improvements that allow things like outsourcing,
improvements in customs procedures and so on have, in a sense,
addressed some of the difficulties that companies face when they
trade internationally and management attention is focused on how
to exploit those more than how to worry about regulations. The
third thing is that manufacturing is not as confident in Europe
or the US as it was, say, 15 or 20 years ago. The service sectors
perhaps ought to be more confident but liberalisation of services
is very, very difficult and that also tends to take a bit of the
momentum off the round as a whole.
Dr Gasiorek: Alan and Peter have very
much made the points that I wanted to, but I would like to add
one paradoxical point which is that the relative success that
we have seen in reductions in applied tariffs, vis-a"-vis
bound tariffs, have in some sense potentially made agreement in
the Doha Round more difficult because, in order for manufacturers,
for example, to get real cuts in applied tariffs, that suggests
in the negotiation demanding very, very large reductions in bound
tariffs which the developing countries have been less keen to
agree to.
Q34 Lord Kerr of Kinlochard: I am
grateful for that point which was absolutely new to me. Professor
Winters, you implied in your last answer that bilateral agreements
were one of the contributory causes to Doha getting stuck. Do
I infer that you see a conflict between bilateral and multilateral,
that you wish it were multilateral but you think that the world
is moving towards bilateral?
Professor Winters: There are two elements
to that. I have been pretty unenthusiastic about bilateral trade
deals for a very long time. My colleagues do not necessarily share
this view. It is very clear that the existence of bilateralism
has not caused the multilateral system to completely unravel,
so one must not get hysterical about it. I do believe that one
of the ways in which bilateralism has insidiously cut away at
multilateralism is precisely that it offers other ways of getting
the job done. It allows a different way of addressing the most
immediate symptoms, so in a sense you do not bother to try and
address the basic cure. One said exactly the same in the 1980s
about the US trade policy with its so-called aggressive unilateralism
where section 301 of their Trade Act essentially authorised the
administration to beat up anybody who upset them in one way or
another. In a sense, it offered a much more direct way for US
firms to address the really biting issues that they felt they
faced in other countries than going through a big negotiation
at the WTO. I do think that bilateralism does not help multilateralism
in that respect and I worry that this process, this chipping away,
has gone on without us realising very much. Do I think that bilateralism
is the future? It is clearly going on but I hope that we actually
can restore the multilateral system before deciding to go bilateral.
Lord Kerr of Kinlochard: Chairman, I do not
want to hog this session, but may I ask a question about the Sussex
Framework?
Chairman: Yes, of course.
Lord Kerr of Kinlochard: I want to think
of an extremely clever way of making the Sussex Framework answer
the question I have just asked about bilateral versus multinational.
I think it is there but it is just too difficult for me to capture.
As I read your paper on the Sussex Framework, I think that it
would be very good if you would, in layman's language which I
will follow, give us a very brief excursus of the concept. As
I read it, you are saying, for example, that the Indians would
do very well to go for the deepest sort of integration they could
get whereas the Jamaicans should settle for something very shallow
because trade diversion would be very strong in the case of small
West Indian economies linked to the US economy. That is a very
interesting conclusion if I have it correct. You are saying a
number of other very interesting things and I am drawing this
personal conclusion out of your paper, but is it correct?
Q35 Chairman: In this context, I
would like to remind you that, since you did not produce written
evidence, you will have to tell us about it or we cannot get it
into the report. So, the brief excursus of how it works is very
important.
Dr Gasiorek: Let me try and give a first
pass at the answer. Let me go back to some of what Alan just said
because it is obviously very closely related. In what Alan just
said, he used the term, "Let people see bilaterals as another
way of getting the job done". I share many of the concerns
that Alan raised about bilateralism or regionalism but not to
the same extent as Alan. The reason for that is that the job you
can get done might be different in a bilateral/regional framework
than that which might be achievable multilaterally and that takes
me then into the Sussex Framework. Let me try and give a brief
synopsis of the Sussex Framework. Economists have some very sophisticated
technology-intensive tools for analysing changes in trade policy,
for analysing free trade agreements or multilateral changes in
trade policy. They require highly-skilled people to run those
models and powerful computers to do the work. The Sussex Framework
was developed by a team of us at Sussex originally on a project
for DFID and is based on using existing data based very clearly
on economic theory. You use that data to generate summary statistics,
what we call diagnostic indicators, and if you then apply those
diagnostic indicators intelligently to the theory, you can draw
conclusions as to the likely possible impacts and benefits of
changes in trade policy, notably pre-trade agreements. So, you
can try and draw conclusions, for example, as to whether it is
more likely that there will be trade diversion and trade creation.
If I go back to Lord Kerr's example of Jamaica—and this
is generally true of many of the Caribbean economies—a very
large proportion of their imports come from the United States
and that is the sort of thing we can think about in more detail
using the Sussex Framework or can identify the products and so
on. Given that we can see that this is happening, if the Caribbeans
liberalise their tariffs just with regard to the EU and not the
United States, then the conclusion that one can quite unambiguously
draw is that there is a strong danger of trade diversion in that
case and therefore less likely to be a net welfare gain. We have
now applied the Sussex Framework in a number of circumstances
and cases. A very common conclusion—and this is where I
suspect much of I guess Alan's concern about bilateralism or regionalism
comes from—is that the welfare gains from a number of the
RTAs, regional trade agreements, at which we have looked are likely
to be very, very small, possibly even negative, because of issues
such as in particular trade diversion versus trade creation. That
therefore raises the issue of, why should countries sign such
a bilateral agreement if, on the face of it, it looks like the
welfare gains are going to be small? I guess that an answer to
that question lies in the fact that direct, if you like, immediate
effects may be small but there may be longer term, longer run
economic benefits from signing certain types of agreements, types
of agreements that might deal with more than just tariffs but
deal with behind the border issues, what is commonly referred
to as deeper integration. If you can achieve deeper integration,
then the welfare gains for the countries concerned may be considerably
higher. I think that there is then reason to believe that it might
be easier to achieve those elements of deep integration bilaterally
or regionally more easily than multilaterally. In the recent EPA
agreement initialled between the EU and the Caribbean, the Caribbean
economies have substantial liberalisation of access and services
into the EU market. Those are elements of deeper integration which
the agreement has achieved which would have been difficult for
the EU to offer multilaterally. So, for the Caribbeans, that is
probably a good thing. The EU has managed to achieve—and
the Caribbeans wanted this—quite strong clauses with regard
to guarding intellectual property rights. Again, those are the
sorts of issues that you can try and get more progress on possibly
regionally than multilaterally and that can yield higher welfare
gains.
Q36 Lord Moser: I would like to ask
something on the Framework. I have longstanding connections with
Sussex and I was delighted to see something called the Sussex
Framework which I have tried to understand and thank you for what
you have just said. In other discussions on this topic, we have
been very much reminded of the links between trade policies and
domestic economic matters. I have not understood how your framework—and
I am interested in the statistical side/economic side—relates
to the domestic economic framework. It is certainly quite well
advanced in Sussex thinking. Are there relationships between the
economies and the trade figures and so on?
Dr Gasiorek: Yes, indeed, there are.
It partly depends on available data. At most obvious level, one
wants to link the data on production that you have for the economy
at a detailed level of disaggregation and levels of production
and levels of trade and then relate it to levels of production.
Then are macro-economic variables that one might want to take
into account. What has been happening to economic growth, to inflation
and to unemployment in the national economy over time in particular
sectors. Which are the sectors that appear to be growing, which
are the sectors that appear to be in decline and linking that
to trade performance.
Q37 Lord Moser: Conversely, do the
findings from the trade framework fit into effects on domestic
economies? I was thinking of it that way round. We should not
spend time on this really.
Dr Gasiorek: Yes. That will depend on
the circumstances, but it is entirely possible that the framework
will suggest that, in a particular trade agreement, it is quite
likely that a given economy is more likely to specialise in a
particular sector as opposed to another sector because to date
that sector has been highly protected. If you can see that a given
sector has been highly protected in the economy and, as part of
the agreement, the tariffs and non-tariff barriers in that sector
go down, then that suggests that that is a sector that might subsequently—
Lord Moser: That is the kind of thing.
Thank you.
Q38 Chairman: Before we leave bilateral
agreements, Dr Holmes, you have been slightly missed out in this
and I am sure that you have things to say.
Dr Holmes: I have just a couple of little
things on that. To follow up on this notion of the deeper side
of integration, I agree with a lot of what Alan has said but,
like Michael, I am slightly less anxious than he is about the
potential damage to the multilateral system from the newer forms
of bilateral agreement. To the extent that we have succeeded in
lowering tariffs, the risks of trade diversion is slightly less
and, to the extent that these new trade agreements really are
about, shall we say, approximation if not harmonisation of regulations
across borders, my feeling is that it is harder to have adverse
discriminatory effects in that sort of area than it is in just
tariffs. Negotiating service liberalisation in the context of
a bilateral agreement does tend to mean that the agreement is
more open in general. So, where the EU is urging countries to
adopt its standards, in fact, in most cases, the standards will
be international standards that countries are being urged to adopt.
I think that the danger is more perhaps in the area of what Lord
Moser was talking about, but again that is not necessarily a danger,
that if you press countries to adopt EU or internationally-orientated
standards when they are not yet capable of applying them across
the board, that might have serious costs for some firms that are
not yet able to cope but benefits for those that can and can upgrade.
If we look at the experience of Central and Eastern Europe, and
their adoption of EU Regulations, the experience seems to be that,
even in countries that were formerly parts of the Soviet Union,
their ability to respond to the challenges has been really quite
positive and one of the statistical indicators that we look at
in our framework is the notion of intra-industry trade, where
we are looking at the extent to which firms are either taking
part in the vertical division of production supplying components
to other firms or specialising in fine niche markets. Where they
are doing that, one can argue that there is a scope for positive
advantage in getting the standards aligned, getting certification
procedures and trust in compatibility and quality. In our statistics,
we look for little signs that developing countries are in a position
to engage in the kinds of trade that take place between developed
countries and then we try to ask the question in a qualitative
way: are there regulatory and institutional arrangements that
could help this develop? I think that is less likely to be a danger
than some of the effects of tariffs. There has not yet been a
case of which I am aware where you have regional trade agreements
obliging a country to adopt some standard which will then cut
them out of some third markets. It is a risk that might happen
in the future but there has not been a lot of it yet.
Q39 Lord Moser: It goes back again
to bilateral versus multilateral. I must confess that the more
I listen to these discussions, the better I understand the differences
between bilateral and multilateral but the less clear I am on
how to think about the pros and cons of a very wide-ranging system
of bilateral agreement as opposed to multilateral, but perhaps
I will become better educated as discussions go on, but is there
anything you can say to tell me what to think about the pros and
cons? It seems that the world is going fairly unavoidably towards
bilateralism. Anyway, specifically on services, we get sent press
cuttings with our papers from the Clerk, and this one says that
considerable progress is being made on agricultural trade, less
on services and non-agriculture, but it also says that there is
progress on trading of services partly because developing countries
are pushing harder. From the point of view of services which are
obviously very important, is bilateralism good news?
Professor Winters: I think that your
confusion about whether all this bilateralism is a good thing
or a bad thing besets us all. None of us can assert with confidence
that we really know. We feel deeply about it sometimes. I think
that the story about services is the following. Service liberalisation
clearly is more complex than goods liberalisation because services
are just about never controlled by simple things like tariffs.
Rather we use regulations, which often are technical and arcane.
The question really is, can we imagine a set of circumstances
where circumstances are simple enough that a multilateral agreement
can actually be forged or are the necessary bits of liberalisation
so complex and so specific to particular countries and their circumstances
that they really have to be negotiated one by one around a very
small table? We do have some service agreements. The financial
services agreement has clearly been of some use and there was
the international telecoms agreement. So, we are able in some
cases to make some progress on services liberalisation. When it
comes to agreeing other standards however, I think that the evidence
at the moment is that progress such that has occurred has been
at a bilateral level and then I think that the really critical
issue is exactly the one that Peter Holmes highlighted and that
is the extent to which agreements formed bilaterally de facto
or de jure lead to the exclusion of third parties. Whether or
not a bilateral agreement precludes or even makes it more difficult
for non-parties to that bilateral agreement to trade with the
partners or for the partners to trade outwards to the other countries.
There are dozens and dozens of services and dozens and dozens
of regulations and, in a sense, we should not realistically expect
a very simple black and white answer that applies in all cases.
I think that there are cases where we might look to multilateral
arrangements to make progress in services even if it does not
necessarily liberalise every dimension and give us a perfectly
open trading system but which lay down norms and requirements
and then possibly leave room for more local fine tuning of that
to particular circumstances. I certainly do worry that if, for
instance, we got into a situation where the only progress on a
service issue were bilateral, we could end up fragmenting serious
parts of the world economy. If one thinks about financial services,
all our experience suggests that the more global is the regulation,
the more harmonised are the regulations, the better off we will
be.
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