Examination of Witnesses (Questions 40-47)
Professor L Alan Winters, Dr Michael Gasiorek and
Dr Peter Holmes
13 MAY 2008
Q40 Lord Moser: Presumably, the importance
of services varies from a very small percentage to a very high
percentage in countries. Do you have a figure in your head?
Professor Winters: In terms of production,
it varies from a fairly large percentage to a very large percentage.
China is the least service-orientated country that you could more
or less think of and services count for 40 per cent, maybe a smidgeon
under, their GDP. Services are difficult to trade, so there are
certainly some countries which trade relatively little services
or certainly which export relatively little services. For many
countries, the rich countries in particular where 75/80 per cent
of production is service orientated and India is a case where
50 per cent of production is service orientated, one has to believe
that there is very substantial scope. There is some trade now
but there is scope for substantially more trade. It seems to me
that when you start to think about services, you should bear in
mind that you are thinking about the bulk of economic activity.
Q41 Lord Steinberg: When we talk
about developing countries—and you have just used the word
"rich" countries—would you agree with me that
every country likes to think of itself as developing because they
always have further ambitions of industries and things that they
want to become involved in? I presume that when you use the word
"developing", you would prefer to use the word "poorer"
countries. Speaking of tariffs, the less developed countries seem
to be protected more and they are entitled to be protected, are
they not? Should their tariffs, imports particularly, be removed
quickly or slowly taking into account what the individual circumstances
of each country are? I do know that the bigger the economy, the
less effect there is and the smaller the economy, the smaller
the country and whether it has any mining assets which a number
of these smaller countries have. Should those tariffs be removed
more quickly or more slowly?
Dr Gasiorek: Let me perhaps quickly try
to answer the first question about developing countries. Typically
when, as economists, we use the term "developing countries",
we do mean the poor countries and I guess that there are different
ways in which one could define poor in that sense. In terms of
tariff removal and how quickly tariffs should be removed, "quickly"
and "slowly" are relative terms. It seems to me that
one can think of circumstances of poor, developing countries where
requiring them to remove all their tariffs, let us say in a short
period such as three or five years, is too short a period of time.
I firmly believe that developing countries should liberalise their
tariffs. In addition to what I was saying earlier about potential
benefits from bilateral or regional integration, the fundamental
principle which very much holds to is that reducing your tariffs
on imports from all partners is always preferable. So, liberalising
tariffs is something which developing countries should be seeking
to do. How quickly they should do that will depend a little bit
on individual circumstances. If you liberalise tariffs very, very
quickly in the hope of engaging more in world trade yet you do
not have the supply capacity, the infrastructure, the core facilities
and the legal and financial infrastructures in order to take advantage
of those opportunities, then perhaps that is liberalising too
quickly. Conversely, a time period of, for example, 25 years,
as is the case with the EPA agreement initialled between the EU
and the Caribbean, seems to me extraordinarily long; it is almost
saying "never".
Professor Winters: I would like to add
to that. I agree with Michael but would actually be rather stronger
on this. I believe that developing countries would benefit substantially
from reducing their own tariffs, not immediately but over some
quite clearly finite period.
Q42 Lord Steinberg: On a graduated
basis?
Professor Winters: Usually a graduated
basis as long as that was credible. Sometimes, graduation is an
excuse for taking a small step and hoping that the large steps
later will get overtaken by some other events, but a credible
liberalisation phased over a period is not a problem for me. I
have done research with Thomas Hertel at Purdue University fairly
recently which suggests that one of the reasons why the Doha Development
Round is not going to give us very much reduction in poverty in
the world is precisely because we have allowed the developing
countries to make no concessions for it, the least developed countries
making no concessions and the developing countries, the next level
up, to make smaller concessions than industrial countries, actually
sufficiently small that very few of their applied tariffs change.
We find that in fact poverty is reduced in developing countries
if they reduce their own tariffs. I believe that one of the major
mistakes that we made in the Doha Round was the so-called round
for free. It has been a cancer, to be honest. It has completely
changed the attitude as to what trade can do for an economy. The
people who have encouraged developing countries and the least
developed countries to think that the real victory in trade negotiations
is to get somebody else to reduce their tariffs while you keep
yours or even raise yours have just got it upside down.
Q43 Lord Steinberg: What do you think
European trade policy should be to help the less developed countries
for the benefits of global trade?
Dr Holmes: I think that we all have particular
issues or individual hobbyhorses here, so I will just mention
my two. I think that we should be more serious about the reform
of anti-dumping. I think that the Commission is aware of the fact
that this is getting in the way of European firms' outsourcing
activities as well as being a nuisance for the exporting countries
though I think that, in all cases, the poorest countries are not
the ones that are being targeted. The ones that are really poor
are not being held back by the inequities of anti-dumping. The
other matter that I would like to mention is that I think we need
to think about—and this is where I think it comes back to
the deeper integration issue—technical barriers to trade,
food safety and so on. These are very, very hard issues to deal
with. It is no good saying that Europe should abolish restrictions
on unsafe food products coming from developing countries—we
cannot do that—or even to say that we will accept testing
certificates issued by labs anywhere in the world that say that
the food is safe and will not bother to check again. I think that
there is a very important set of steps that need to be done to
encourage developing, as in a country that really is developing,
countries to give them a reward in that if they upgrade their
standards infrastructure, health and safety standards, quality
control and so on, then we will make it easier for their goods
to come in. That will not help the ones that are not able to live
up to these standards, but it would help those that can.
Q44 Lord Steinberg: You think that
those two things, better infrastructure and better grading of
products, would make a big difference?
Dr Holmes: A support for what is usually
known as quality assurance and thinking carefully about what our
real interests are in anti-dumping. Those are my two hobbyhorses.
That is not to say that they are the most important, they are
just the ones that I have.
Dr Gasiorek: I think that the first of
those comes under perhaps a broader umbrella of trade related
development assistance and I think that that is an important area
in which the EU could be helping developing countries. That is
not specifically to do with EU trade policy, that is to do with
development assistance which is not exactly the same field but
I think closely related. I think that there is some scope for
appropriate regional tradings or bilateral agreements for developing
countries. As was discussed earlier this morning, I think that
there are potential gains for developing countries from those
processes which are potentially important. Then, what might seem
like a fairly technical hobbyhorse—and this is my hobbyhorse—is
that I think that the EU could do a lot more to make the rules
of origin significantly easier for developing countries.
Q45 Lord Steinberg: That is a good
hobbyhorse to have. I agree with you.
Professor Winters: May I add two hobbyhorses.
The first, given my answer to your previous question, is: get
the rhetoric right. Europe's rhetoric has been unhelpful in the
last half-a-dozen years. The second is the Common Agricultural
Policy. It does not impose misery on every single developing country,
but it certainly is a cause of some economic problems in some
places.
Q46 Lord Renton of Mount Harry: I
am sorry that I was late in arriving and I hope that anything
I ask is not a repetition of matters that have already been discussed,
but I was actually on a train three miles from Sussex University
this morning and I should declare that I had the privilege of
being on the Council of Sussex University for a number of years
until the end of the last academic year and I know very well the
high reputation for international research at the University.
Clearly from reading the papers that you sent to us on the Sussex
Framework, I think it is fair to say that you collectively are
very disappointed that economic partnership agreements have not
worked better or more have not yet been formulated. Would it be
true to say, really picking up on the last remarks made, that
some of the reason for this might simply be seen as the interference
of the EU and the wish to establish principles of organisation
and so forth before the partnership agreement really comes into
effect? I note that in the last of your papers you write, "These
policies need to be specified in terms of the constraints identified
with respect to each of these issues (e.g., minimum levels of
infrastructure, minimum standard of domestic institutions and
regulations, institutions to support trade facilitation) ... "
Is there not a moment when you might say that the average developing
African country might run away from that very quickly saying,
"We do not want all this degree of interference"? Is
there not perhaps a view of some that the EU is there to change
and almost on their terms to conquer? If an African State is at
the moment very busy negotiating with China to sell them all their
copper or to allow China to buy the copper mines, this sort of
discussion does not fit in. Am I being too pessimistic or is some
of this what is happening at the moment?
Dr Gasiorek: You have raised a very large
number of issues here and let me try and make my way through them
as best I can. Towards the very beginning, you raised the question
about disappointment with regard to EPAs and that perhaps more
had not been signed. I would say disappointment with the EPAs,
not disappointment that more had not been signed. I think that
the EPA process was in many ways flawed from the very beginning.
I think that the EU made a very major error in determining and
deciding which of the groupings and the configuration of countries
it was prepared to negotiate with as opposed to allowing the countries
to work out amongst themselves whether they wished to form regional
groupings and what type of regional groupings and whether they
were consistent with existing arrangements in those regions of
the world and so on. I think that the EU also made a mistake in
refusing to link some trade aspects of the agreement to trade
related development assistance. Yes, there is disappointment about
the EPAs. I think that the one EPA which seemed more or less coherent,
logical and consistent is the only one that has been signed which
is the Caribbean EPA, and I think that both parties to that agreement
at least at present seem very happy that they have each got, they
feel, something very positive out of that agreement. In terms
of the part of the document you read out, the spirit behind that
was not that we feel that the EU should be saying, "You must
achieve certain minimum standards". That very much was not
the spirit behind that document. The spirit was much more that
I believe it is important for developing countries to take control/ownership
of what their constraints are and their priorities are and then,
in agreement with the EU, decide on where to move forward, not
for the EU to tell them where they must change. It was very much
the reverse of that that I think was intended by that document.
Professor Winters: I feel rather strongly
about EPAs. First of all, again, we got the rhetoric wrong. It
has been a most remarkable negotiation where it appears that the
sole objective of most of the developing countries is to do as
little liberalisation as possible and to do that as far as possible
into the future. I agree entirely with Michael that it is not
for us to say, "You have to do this". We just got into
a complex game which absorbed a lot of capacity and essentially
designed it with completely the wrong thought processes. I am
not particularly disappointed in one sense that we have not signed
more EPAs. I am more disappointed actually that we continue to
pour resources into trying to get them done and have developing
countries pour resources into getting them done too. For myself,
I would have done two things: First, I would try to make the EPAs
very, very much more simple so that negotiations take up much,
much less of the scarcest resource which developing countries
have, skilled labour. Second, I would encourage the developing
countries to understand that, if they maintain tariffs at 20/30
per cent against the rest of the world and zero against the EU,
they are almost certainly going to incur economic costs and what
the EU could usefully do is encourage and support and maybe even
finance the reduction of their tariffs on other people.
Dr Holmes: Very briefly, I would like
to add something just going back to our talk about the connection
with domestic activity. To the extent that countries are exporting
agricultural products and that agricultural products are increasingly
taking on some of the characteristics of industrial goods with
supply chains, value chains, certification procedures and so on,
it is actually quite difficult trying to think of some of the
support for trade that does not involve reaching back into the
domestic supply chains and food safety regulations. The EU is
not going to be able to say, "We will import coffee from
Ethiopia regardless of how much ochratoxin there is in there".
If you are going to facilitate exports of spices, coffee or anything
from Ethiopia, you are going to have to do something which actually
talks about the trade facilitation dimension which is not just
about trade, it is also about production. If we are talking about
supporting the supply side, we are going to get into some rather
messy things about how they regulate their economies, whether
it is services or agriculture.
Q47 Lord Renton of Mount Harry: This
may have already been covered but very much in answer to very
interesting comments we have just heard, to what extent do you
think that the EU are prepared to change and are changing? Professor
Winters, you said that you were very disappointed in the EU's
attitude and the rhetoric and making it too complicated and so
forth. Is it changing?
Professor Winters: It is not changing
very much, to be honest, partly because the crisis has passed.
I did begin to wonder towards the end of last year whether, with
the impending deadline and apparent zero progress, we actually
might have a serious rethink. Ever since EPAs were mooted, I have
bombarded the profession and sometimes the Commission with bits
of advice and I had hoped that they might have listened, but in
fact I think what happened was that we really patched something
up with these interim agreements. The Caribbean agreement might
offer something, but I think that the others are pretty disappointing.
I do not honestly see too much sign that we are getting a coherent
story and certainly we are not moving in the direction that I
would particularly have advocated.
Dr Gasiorek: May I respond to that as
well and I entirely agree with Alan there. The current position
of the European Commission on EPAs is, leaving aside the Caribbean
one, that the others are interim agreements and that they will
be renegotiated and there will be full EPA signings in the course
of this year. I think that is exceedingly unlikely. I really do
not see that happening. The other example I would give is going
back to my early hobbyhorse, if I may, briefly, which is that
one of the ways in which I do believe that the EU could help developing
countries is in simplifying its rules of origin. Approximately
two-and-a-half or three years ago, the EU formally announced that
it was undertaking a review of its rules of origin in order to
make them more development friendly and it was going to come up
with proposals for more development friendly rules of origin.
Manifestly, that is not happening and those proposals have been
shelved.
Chairman: Thank you very much. It remains for
me to thank you very much for coming. It has been a most useful
session and indeed has started one or two hares running certainly
in my mind about further questions we might at some future stage
ask. Thank you very much indeed for coming.
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