Examination of Witnesses (Questions 48-59)
Professor Richard Higgott and Professor Simon Evenett
3 JUNE 2008
Q48 Chairman: Welcome to you both and
thank you very much for coming. The whole of this session is being
recorded for broadcast on to the parliamentary system. We also
record it manually, and you will be offered a transcript so that
you can perhaps correct some of the less fortunate things one
tends to say in a hurry. You may take it that we have all had
a look at the Warwick Commission report. We do, however, need
to get some of it on the record because our rules do not allow
us just to take evidence which was not written for the purpose,
as this was not. Perhaps I could ask you to start by outlining
what you see as the challenges facing the multilateral trade regime
that the Warwick Commission identified.
Professor Higgott: Thank
you very much, My Lord Chairman, and thank you for inviting us.
It is a pleasure for us to have this opportunity to be here. Let
me start by saying that we were concerned with what we have called
the systemic challenges for the global trade system. Even though
our discussions deliberated quite extensively around the issue
of how, for example, one would bring to closure the current Doha
Development Agenda, we were concerned about those challenges that
would exist for the world trade system above and beyond the not-so-simple
conclusion of a round. We were also sensitive to the fact that
there is a wide range of systemic challenges in other bits of
the global economy too, like global finance, but we focused on
five key issues for the multilateral trade system. The first was
to see how to stem the growing opposition to further multilateral
trade liberalisation that was seen to be developing in industrialised
countries. We were also sensitive to the fact that there was an
increasing wane in public support for the further opening of economies
evident in many industrialising countries that we felt threatened
trade agreements, future trade agreements, and a rules-based system.
The second thing we were particularly concerned about was to ensure
that the shift from a bipolar to an evolving multipolar trade
regime did not lapse into stalemate or, worse still, disengagement
by the major actors. It was not simply a case of how to keep the
United States and the European Union, the two traditional major
actors, and, to a lesser extent, Japan engaged, but also how to
facilitate and encouraged a role commensurate to their economic
size for the new players, particularly India, China and Brazil,
in the development and continuation of the trade regime. The third
thing we were particularly keen to think about was the challenge
of what I suppose we would call ensuring or forging a broad-based
agreement amongst members of the WTO on their objectives and the
functions that defined the activities and boundaries of the WTO.
Our judgment here was that quite clearly there was not a settled
definition on what should form the core elements of the agenda
of the WTO beyond the traditional activities of trade liberalisation,
the creation of rules and norms for the trade regime, and the
degree to which the WTO may or may not get sidetracked by what
we might call "trade and ..." issues (trade and environment,
trade and labour, and these kinds of things). The fourth challenge
that we identified was to ensure that the WTO's agreements and
decision-making procedures resulted in benefits for its weakest
members. To this extent, we were concerned with what at one level
may have seemed like academic issues, questions of fairness and
justice, but nevertheless issues that cast what we considered
to be long policy shadows. The issue here was how to ensure the
buy-in of weaker developing countries and so our agenda tackled
that issue. The final challenge we identified was to ensure that
the proliferation of preferential trading initiatives advanced
rather than retarded the longstanding principles of non-discrimination
and transparency in international commerce. We took the judgment
that it was not sufficient, as you find in a lot of what we might
call classical trade literature, simply to condemn the rise of
preferential trading arrangements. Recognising that they are sub-optimal
is not a sufficient reason for saying they will go away, so the
question was: "How do you live with these arrangements? How
do you manage these arrangements?" Our key agenda here was
that we finished up thinking about how best to multilateralise
regionalism and regional trade arrangements and how to mitigate
the downside of these particular activities. On the basis of these
five challenges, we came up with a series of recommendations that
presumably you would like us to discuss in this session. I will
stop there now if I may.
Q49 Chairman: Do you have anything
to add on this question?
Professor Evenett: Although our report
was drafted very much with the multilateral trade regime in mind,
I think the five challenges that my colleague has laid out all
have direct implications for EU trade policy as well as for the
structure and the operation of the WTO system. We may want to
explore the EU dimension of this a little more but I would certainly
like to get that on the table straight away.
Chairman: Thank you very much.
Q50 Lord Trimble: Your introduction
leaves me with the impression that you think most people, or at
least the major players, have lost their appetite for multilateral
trade negotiations.
Professor Higgott: Our judgment was that
there is a growing fatigue with the difficulty of negotiating
the liberalisation of trade. But I do not think there is a fatigue
with the benefits of the rules and the norms that the system provides.
Basically it is difficult negotiating trade liberalisation. Historically
we know it has got increasingly difficult as trade rounds have
progressed, from the early GATT rounds through to the contemporary
period. The other thing that is quite apparent is that there is
more than one way to negotiate trade liberalisation. We, the Warwick
Commission, are a pluralist Commission, with people from countries
that were actively negotiating bilateral and regional trade arrangements,
but the one thing we all had in common was that, in principle,
we were multilateralists but recognised that there was this increasing
tendency to look to other ways to liberalise trade: bilaterally,
unilaterally. Our judgment is that there is a fundamental commitment
to the norms and principles of the global trade system but a recognition
that the multilateral way of liberalising trade is becoming increasingly
difficult.
Q51 Lord Trimble: When you say there
is a fatigue about the multilateral approach, is this something
that goes further than the electoral cycle in the US and the Commission
cycle here in Europe?
Professor Higgott: We see it clearly
in the electoral cycle in the US at the moment, but it is something
that you could also argue has found its way into the academic
literature too. I do not know whether you have been following
the blog in the Financial Times, but people like Larry
Summers, Joe Stiglitz, Alan Blinder, (eminent economists all)
coming into this discussion in a way that I think it is fair to
say we would not have expected a decade ago. Conversely, in some
ways there is a growing enthusiasm for the liberalisation of trade
in many developing countries, or at least amongst the political
and economic elites of the major developing countries, so it is
not a one-way street. In the introduction to our Report by the
Honourable Pierre Pettigrew, the Chair of our Commission, he flagged
up very much what he called the political fatigue and, quite frankly,
the absence of political leadership, in major OECD countries.
Q52 Lord Trimble: Your primary conclusion
at the end is that there should be a period of reflection for
the trading system to look at these matters. We are supposed to
be still in the Doha Round, where everyone is still expressing
the hope that Doha still might succeed in producing something
but calling for a period of reflection almost as a signal, saying
"We think Doha is not going anywhere. We will just leave
these people here, pretending that Doha could go somewhere, while
we concentrate on reflecting."
Professor Higgott: I am delighted to
be able to answer that question because we may have left that
too ambiguous. It was not our assumption that there would be a
period of reflection during the DDA. Many of us are academics
but I would like to think we are quite policy-focused academics.
Our assumption was that once the DDA was out the way, notwithstanding
the outcome of that round, it would be time then to think about
the major systemic issues, particularly the issue of agenda setting,
particularly how you make more effective and more efficient the
decision-making processes of the WTO in this wider context. That
was where we thought the utility of the reflection exercise would
come, and also to deal with those wider issues that are off the
agenda in this round. The other thing I should say on that—and
then I will leave it—is that we were not naive. This has
happened before in the past. It is important that there are these
periods of reflection, but we were certainly not naive enough
to assume that this would have any traction and nor should it
have any traction during the process of a round of negotiations.
Q53 Lord Trimble: The reflection
is not a signal of a view that Doha is failing; it is not a signal
that you think WTO is failing.
Professor Higgott: I would substitute
"having problems" for the word "failing".
The DDA has taken a long time to get to where we are—and
my colleague may want to say something more about the state of
the round in that sense—but we all recognise that there
are serious problems. Our assumption was that there would be a
resolution at some stage, but if you think about the future of
the WTO and the role it has to play—and I know that is one
of your questions and we will come to it—there is a role
but we think that role is attendant on there being some substantial
rethink about the structure of decision making in the global trade
system going forward.
Professor Evenett: Perhaps I could make
two sets of comments. First, the Doha Round has revealed that
there is a lot of interest in the WTO as a system of rules. No
country is leaving this organisation, countries are tenacious
in defending their rights, but their willingness to engage in
the liberalisation function of the WTO seems very limited, their
willingness to give up much in return for making what are often
very large demands. I think the Doha Round has revealed that there
is something wrong with how one of these functions is working.
I think the Doha Round has also revealed a lot of dissatisfaction
from many of the developing country members about what they see
as a lack of even-handedness in the system. Often what that problem
is is not clearly articulated but there is a sense in which the
Doha Round has revealed a number of deficiencies. The question
is how one begins to address those deficiencies. People start
by saying, "We must finish the Doha Round first." There
is the old American expression: "We cannot walk and chew
gum at the same time; we have to do one or the other" and
I think many people would rather finish the Doha Round and then
begin to reflect on what has gone wrong. Second, when we drafted
the recommendations for this report, which of course was almost
nine months ago, there were two potential expectations you might
have had: that there would be a Doha Round breakthrough by now,
in which case moving on to a period of reflection would seem quite
sensible, or that people would have accepted that the Doha Round
was not going to be concluded and unlikely to be concluded for
two or three more years, in which case a period of reflection
would have made sense. That is perhaps why this proposal has received
some prominence on our side. Now we find ourselves in the situation
where people are still trying to conclude the Doha Round—and
this will probably be a critical month in determining whether
or not that will happen this side of the US election—and
so this recommendation of ours for a reflective process seems
a little odd, given the timing. But, hopefully, I have begun to
explain why we thought of it in the terms we did.
Q54 Lord Trimble: You are quite confident
there is a role for the WTO going into the future, particularly
on the rules-based side and on this question of getting the even-handedness.
Professor Evenett: That is right. There
is clearly a strong interest by WTO members in the rules. The
rules really are rules for non-discrimination, where we limit
the capacity of one country to pick on another, and there is a
very strong constituency it seems for supporting those rules,
especially amongst poorer countries. Where there is a concern
is very much in the liberalisation function. It seems that countries
like India are much more willing to unilaterally liberalise their
trade regime than to engage in reciprocal trade deals, whether
it is through trade agreements with the European Union or the
Doha Round, and the Indians are not alone in this regard. There
is a very curious political economy there of which we need to
understand a bit more if we are going to do business with the
Indians.
Q55 Lord Trimble: I cannot remember
now which expert gave us this evidence but I remember someone
saying to us earlier that previous liberalisations have really
been driven by the countries that wanted to liberalise because
they saw the benefits of it. This almost unilateral liberalisation
seems to be something that is a real prospect.
Professor Evenett: Curiously, if you
talk to the senior officials in some of the leading developing
countries, they want to reform their economies, but they find
it easier to explain to their own people reform on their own terms.
The moment it becomes a reciprocal deal, a negotiating deal, often
the trade minister is accused of not getting enough. Whatever
they get is never enough compared to the perceived losses. In
countries where this dynamic is at play, you can understand them
going down the unilateral route. Many developing countries have.
When you think on what this means for the WTO, it would seem that
using the WTO as a mechanism for liberalising reciprocally or
simultaneously is something which perhaps should be downplayed
and we should think much more about building the rules. When countries
feel comfortable about locking in and binding their unilateral
reforms, of course the WTO should be there to facilitate that
as well. Perhaps that is the future.
Q56 Lord Watson of Richmond: Before
we leave that interesting description of fatigue in terms of multilateral
negotiation, do you feel that it goes wider than trade liberalisation?
Is there, in a sense, a cultural fatigue about multilateralism?
This may be influenced by the frustration that people feel about
the relative failure of multilateral agreement on climate change.
Are these things linked in a way? People just get the sense that
it is all taking too long, it cannot be done, and maybe the heart
of it is to go for bilateral deals.
Professor Higgott: To use that old expression:
Where you stand depends on where you sit. We have taken this report
to half a dozen different countries now and you clearly see different
perspectives on multilateralism in different countries. If we
take the history of the US over the last decade, then I think
it is quite clear that the US has had an aversion to multilateral
diplomacy.
Q57 Lord Watson of Richmond: A strong
word, but yes.
Professor Higgott: Empirically justifiable
too. It is an allusion in some ways to what we might call the
move towards network and conference style diplomacy, as opposed
to more traditional hierarchical attitudes towards diplomacy preferred
by the USA. But I see a rolling back in some ways there. Conversely,
if you go somewhere like Australia or Canada, where there is a
traditional understanding of the role of the small and medium
players in international public policy and the degree to which
you get your messages across, then at the level of the officials
they are as strongly committed multilaterally as they have ever
been. At the level of the officials, if you like the global public
policy makers, in the UK too there is still a strong commitment.
If you go to what we might call the private sector of the global
policy-making elite, the corporate sector gets increasingly irritated
with the slow pace of this process—and this is where our
discussion of electoral cycles was important—so I do not
think you can make a blanket recommendation or a blanket judgment
there. The other thing we were particularly concerned about was
that we felt there was a danger of the "unlearning"
of the importance of institutions. There is not much that we can
say that we know solemnly in the social sciences but one of the
things we do know is the degree to which institutions foster cooperation,
enhance trust, transparency and credibility, and the degree to
which these have come under challenge over the last decade or
so. That is the kind of signal that we were trying to give here.
Professor Evenett: I would like to stress,
if I may, the diversity across the countries in their attitudes
towards certainly the multilateral trade negotiations. My reading
of the discussions in Washington at the time the Doha Round was
launched—and I was there following it very closely—was
that the Americans were particularly nonplussed about whether
this happened or not: they would do it if they thought they could
get something out of it but this was very much what the Europeans
wanted. Then, when you come to Brussels, you find that Brussels
is perfectly happy to have a trade round, "As long as when
it comes to agriculture we are merely going to lock in what we
have agreed to do unilaterally anyway," and the rest of the
world says, "Why should we pay you for what you are going
to do anyway?" When you go to India, I have described the
dynamics. Then, when you go to Beijing, they are much more concerned
about scaring the horses: they know that the moment they make
any demands of any other countries people will ask many things
back from them. When you consider all the big players, I think
you have different explanations as to why this round has been
a bit of an orphan.
Lord Watson of Richmond: I am sure you
are right to flag corporate impatience as a growingly important
factor.
Q58 Lord Haskins: With the alternative
objective of examining the WTO being used for wider purposes,
social and environmental purposes, is it not all getting a bit
too complicated? I remember Peter Sutherland being asked that
very question just after the last settlement, "Why does the
WTO not take up those issues?" and he said, "It's too
ruddy hard." He said, "I would never have ever got a
deal had I had to take into account these valid issues such as
social injustice." His argument was, "You make it too
complicated by going down that route and you will not get a deal.
You must deal with those issues on another arena." Is that
right?
Professor Higgott: With respect, that
is not what we advocated. We said in that section of the report
was that we needed to think about what were genuinely trade issues
that were an appropriate remit for the WTO and what should be
conducted in other forums. In our discussion of the decision-making
process and the idea that you should relax the single undertaking,
we were thinking of those kinds of trade-related issues that would
have been put under the rubric of "Singapore issues"
two or three years ago, things like procurement policy, competitiveness
and those kinds of things. I do not think we had a judgment—and
it certainly would not be a personal judgment of mine—that
the WTO should take on board the "trade and ... ." issues
(trade and environment, for example). We were quite specific that
that was not what we were advocating. We were concerned that there
were some important trade issues that were not being advanced
because of the nature of the single undertaking. Those states
that wanted to negotiate liberalisation on these issues should
be allowed to take them forward on their own, without unpacking,
if you like, the norms, especially the Most Favoured Nation status,
of the WTO, and in such a way as to allow those states that wanted
to take those things forward to do so but still offering the opportunity
to others to be involved at a later stage should they wish to
be in a way that did not drive actors away from the WTO.
Q59 Chairman: Do you have anything
to add, Professor Evenett?
Professor Evenett: In addition to the
recommendation for critical mass, which is what Richard is describing,
we also need to recognise that there will be some of these "trade
and ... ." issues which are so controversial that many of
the targets of them will not sign up. Let us take trade and labour:
India will never sign something like this. Having a critical mass
mechanism in place is useful for tackling some issues but not
all issues. One of the things which is particularly useful in
this report is that for those critical mass items—these
are items which only a subset of the WTO membership go ahead on—we
have articulated seven or eight principles or requirements for
an issue to go forward on that basis. We have put together those
principles on the basis of what we had understood about the operation
of the world trading system, as well as what is known in both
legal and other scholarly writing on the WTO. In terms of operationalising
critical mass, I would like to stress that we have not just said,
"This is a good idea," but we have also articulated
when we think it would be good. We went that route, rather than
specifying that trade and labour should be in or trade and environment
should be in. The question is whether or not an issue meets those
criteria. That is how we approached it.
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