Examination of Witnesses (Questions 60-79)
Professor Richard Higgott and Professor Simon Evenett
3 JUNE 2008
Q60 Lord Watson of Richmond: I was
struck by another phrase you used at the beginning, "long
policy shadows", really stemming from issues like fairness
for justice and involving the problem of winning the co-operation
and motivation of weaker members. If you were deploying what you
would consider historically to be the best evidence for the benefit
that developing countries have received from multilateral trade
agreements what would it be? If you had five minutes in the lift,
what are the key arguments you would use?
Professor Higgott: Not surprisingly one
of the biggest discussions we had in our deliberations was about
the relationship between trade and development. The position we
came to was that trade liberalisation is categorically a necessary
but not a sufficient condition for development. The way that we
focused on this—and you will have seen the debates by William
Easterly recently about the nature of development—was to
ask, "What is it about trade liberalisation that facilitates
development and what can be done by the trade system to enhance
and support this liberalisation process?" and not, "How
do we take on all the other aspects of the developmental process?"
We started from the assumption that if you look empirically, historically,
those states that have developed best, let us say since the Second
World War, are those that have eventually practised export oriented
industrialisation as opposed to import substitution industrialisation.
We would argue that the empirical evidence says that trade liberalisation
assists development. In the chapter that we had on trade and development,
we identified what we thought was the need to disaggregate the
understanding of Special and Differential Treatment, because it
is used too often as a blunt instrument and often as a moral instrument
and it is politically overcharged. We felt there was a need to
deal with that and also to think about the importance of Aid for
Trade. It may be that Simon could comment on that.
Professor Evenett: The question was also
a bit about the evidence as well. You will remember that we said
earlier we thought there were two functions to the WTO: the liberalisation
side and the rules side. On the liberalisation side, there are
some studies which claim to show that developing country exports
have been bolstered by WTO membership, by joining the WTO. You
can question whether or not that is right. Since up until the
Uruguay Round many developing countries did not do much liberalisation
in the context of the multilateral trading system, there cannot
be many benefits on that side, because they did not do anything,
but the question then becomes: Is that the fault of the system
or the choice of those policy-makers? Again, there is a problem
there in interpreting some mixed results. When you turn to the
impact of the rules, almost all of the WTO rules help reduce uncertainty
and increase transparency often of national business regulation.
There is a large literature which argues that private sector development
is conducive to growth and, again, it may be that if you look
at that second literature it is the rules side of the WTO which
has been perhaps more beneficial.
Q61 Lord Watson of Richmond: The
rules side is of course very important to multilateral companies,
the whole commercial sector.
Professor Evenett: Absolutely.
Q62 Lord Watson of Richmond: That
is where you get that. In your judgment how rapidly do you think
less developed countries, and particularly the weakest, should
be persuaded to remove important tariffs? I have heard it argued
both ways. You can get a real cry of desperation from some of
the smallest and the poorest: "We simply can't do this because
it will wipe us out."
Professor Evenett: There I would say
a number of things. First, we should remember that a large number
of the smallest and the weakest developing countries have liberalised
tariffs on trade on their own. The question often then, with respect
to the WTO, is whether or not they agree to lock in those reforms.
It is often a question more about commitment than it is about
the willingness to reform. Then, if the countries are reluctant
to commit, they often say, "We need to have policy space."
I do not know what policy space really means. It is a nice NGO
expression, and I do not know of anybody who knows how to practically
operationalise this concept.
Q63 Lord Watson of Richmond: Is it
just breathing time?
Professor Evenett: Partly it is a call
for transition periods, but I think there is an issue that they
would like to be able to roll back any reforms that they have
done, and that raises the question why. If you fear a shock to
your economy or some big price change in a commodity that you
export, the question then is why the labour markets and the industries
are not adjusting: Why can they not adjust in your country? If
you ask that question, it brings you back to one of the recommendations
in the report which we very strongly advocate and that is having
a comprehensive approach to Aid for Trade and having aid funds
which are made available to help countries develop their supply-side
capacities and to be able to withstand and adjust to changes in
the world economy. When one pushes back and asks, "Why do
people want this flexibility? Why are they reluctant to commit?"
it is often because they fear the adjustment process. We have
heard similar things in industrialised countries as well. In the
case of developing countries, we can assist them, I think, with
dedicated Aid for Trade funds along the lines which have been
explored at the WTO for the last few years.
Q64 Lord Watson of Richmond: That
is a very fruitful line of inquiry, I think. Finally, under this
heading from my side, you mentioned earlier the importance of
the EU dimension of all of this, so let us be quite specific about
that in terms of EU trade policy, positives and negatives. What
do you feel now should be the priorities for EU trade policy going
forward as it affects developing countries and making available
to developing countries the benefits of globalisation?
Professor Evenett: There are a number
of things the EC could do. I should say here that I am going to
describe what I think is perhaps more appropriate because the
report did not touch specifically on the EC, although I do think
there are clear implications for it. The first issue would be
to support wholeheartedly this Aid for Trade initiative and to
put in substantial funds, not just the one-plus-one formula we
have at the moment, which is €1 billion of Commission funding
plus, hopefully, €1 billion from the Member States—so
a substantial expansion in the support for that. It is worth remembering
here that Japan has promised to put in $10 billion, so the European
contribution pales by comparison. The second matter would be to
start thinking about whether or not the duty-free/quota-free market
access which we offer mainly to former colonies could indeed,
that very generous package, be extended to all developing countries
by and large. I think that is worth doing. There is some new and
quite disturbing evidence that the benefits that the European
Commission gives to our former colonies comes directly out of
the pockets of other developing countries which did not have a
European heritage or link. The third area would be agriculture.
We would have to think about how the CAP reform plays out and
how that could be used to reduce the distortion of world markets.
The fourth thing—and, again, this is very much my own opinion
but it does link back to some of the things in the report—is
that the EC should be an important builder of trust and relations
with the rising emerging powers. They must not see the WTO as
the "Western Trade Organisation" as some of them do.
That is going to require us giving way on some issues for the
sake of keeping these larger new players inside the camp. Otherwise,
they may just sit on their hands, exercise their current rights,
and the WTO would stagnate.
Lord Watson of Richmond: Thank you.
Q65 Lord Woolmer of Leeds: One player
outside the camp is Russia. Increasingly that will be an anachronism.
Why is Russia still outside? Does it matter for the future? It
is a big, big player in the future.
Professor Evenett: Again, this is not
in the report, but I do follow the WTO accession issues rather
closely. I am in charge of an informal group for looking at these
matters for a Swiss initiative, so I try to speak to some of these
matters. We do need Russia inside. We also need Iran inside and
as many countries that want to join. One change which this will
require is the countries that are existing WTO members should
not block the accession of countries, or at least the initial
establishment of a working group which facilitates the accession
process. Where foreign policy intrudes should enter much, much
later in the process. Then, on the specifics of Russia again,
so much of the negotiation is over certain critical sectors, service
sectors as well as energy, and we do have to resolve those. The
Russians are particularly tenacious negotiators, and so are some
of the others who are inside the camp, but we do need to resolve
that and get Russia inside the WTO as quickly as is feasible.
Q66 Lord Woolmer of Leeds: What is
your judgment about how quickly is feasible? Do Russia care, in
their current mood?
Professor Evenett: That is a very good
question. When you asked your first question on how quickly, I
was about to say, "We will probably get Russia into the WTO
before we complete the Doha Round" but that may not be saying
very much. There are signs that we could get Russia in this year
or early next year.
Q67 Chairman: Do you regard them
as critical for the completion of the Doha Round?
Professor Evenett: The accessions?
Q68 Chairman: Yes, the accession
of Russia.
Professor Evenett: No.
Q69 Chairman: It is a useful extra
but not critical.
Professor Evenett: It is a useful extra.
If the World Trade Organisation is going to be about "for
the world" then one should have the major economies all inside,
I believe.
Professor Higgott: The classic counterfactual
way to argue this is to look at, if you like, the socialisation
effects of joining the WTO. The classic example is China coming
in to the WTO.
Q70 Lord Woolmer of Leeds: In an
interesting section of your report you say that the dispute settlement
mechanism is an area which has been a success but which still
has room for improvement. For the record, what kind of measures
do you propose to amend the current functioning of the dispute
settlement mechanism that would be an improvement?
Professor Higgott: For the record—that
is an ominous expression for us. I have three points to make on
this. The dispute settlement mechanism is clearly what we would
call the jewel in the crown of the WTO in some ways: a remarkable
settlement scheme in the history of international law—perhaps
one of the most—with notable successes. But developing countries
are complainants in just one third of the cases—and mostly
it is the large ones: Argentina, Brazil, India, Korea, Mexico,
Chile—so it needs to improve access for smaller and poorer
members litigating effectively and obtaining satisfaction. The
key issues are the asymmetrical power of the rich, developed states;
the highly technical nature of the cases; the limited retaliatory
capacity of smaller states in the face of non compliance; and
the prospect of reprisal against smaller state litigants. The
extent to which we can enhance the capacity of the smaller developing
countries to participate here is important. It is important for
two reasons, one of which is the very critical, rhetorical one
about justice and fairness not only as outcome but as procedure.
We on the Commission are all, basically, WTO boosters and WTO
supporters. One of the badly used expressions, like "policy
space", which is thrown around and not used properly is the
issue of legitimacy. We are of the judgment that the WTO is a
legitimate international organisation but, as we know, legitimacy
is very often one of these rhetorical concepts that is fudged
and used politically, so the degree and the extent to which we
can enhance the role of the smaller states in this process, the
better. Having said that, the recommendations we came up with—and
I think I am happy to have this on record—were what we might
call the fuzziest recommendations in our report, the ones that
we recognise are open to differences of interpretation, that are
not likely to meet with approval in all circumstances. Some would
say that it is not going to make much difference but we suggested
that members should be given some right to what we might call
a dispute ombudsman, to mediate prior to formal complaint. Second—and
this is one of those recommendations that it is very difficult
to disagree with: "Well, we can all sign up to this, can't
we?"—we felt it was important to strengthen transparency
via more open hearings. We also suggested the submission of amicus
curiae briefs before panels and appellant bodies. That may
not necessarily appeal to everyone's taste. Some states may feel
that NGOs have too much involvement in this process anyway, but
we were thinking about how you might be able to provide extra
technical support to the smaller developing countries. The one
that is probably controversial is that, in the absence of compliance,
or where compensatory trade policy is not forthcoming, WTO members
might be able to consider an obligation to provide cash compensation
to aggrieved parties. We already know, on the basis of the report
having been around for seven or eight months, that some things
find favour in some quarters. On some things people say, "This
is very interesting," and on others people say, "We're
not having a bar of this." I suspect that that last recommendation
falls into that category. They are on the record now, as you have
asked, but I do not think any of us would die in a ditch defending
these, if I may put it that way.
Professor Evenett: I agree.
Q71 Lord Woolmer of Leeds: Just to
give a concrete feel to the countries involved, taking what you
call the small countries, the countries that find it difficult
to take on the big countries in these matters, could you give
us one or two examples of the countries you have in mind? Which
of the developing countries are sufficiently large not to face
that kind of problem? Which countries are we talking about and
which are we not talking about?
Professor Higgott: Clearly some countries
are now developing what we would call their own substantive technical
capacity in WTO issues: the ability to speak "GATT-speak",
for example. It is an exclusory language, just as the language
of medicine is. The law is available to very few people to totally
comprehend. If you look at the size of delegations and the technical
capacity of various countries at the WTO there are some countries
that simply do not have that kind of technical capacity. Countries
maybe with very low GDPs, very small populations, very small public
services are the kinds of countries that could profit from that
kind of support that we are talking about.
Q72 Lord Woolmer of Leeds: Could
you give me an example of a developing country that is no longer
in that position?
Professor Higgott: I think Brazil would
be a classic example. You might not even want to consider Brazil
a developing country any more. The irony is that there is this
paradox about what constitutes a developing country. Places like
India and Brazil would argue that in terms of GNP per capita they
are developing countries; but if we look in terms of the politics
of these actors in international relations, they are clearly the
world's major players. One of the problems that we face nowadays,
particularly with issues of special and differential treatment,
is that it is quite clear that the United States, for example,
is not going to consider Brazil or India to be a developing country
in that context. If you look at the capacity of their public services,
their trade policy communities, they are not.
Professor Evenett: I believe you may
find that the small Caribbean states have now come together. They
have their own regional negotiating mechanism and, associated
with that, have developed expertise not only in WTO law but also
in bringing disputes. That is a very useful example of how small
countries can pool resources, often with support from industrialised
countries. But one should accept that there are still a number
of developing countries that may not feel they have the capacity
to exercise their rights as effectively as they could. Another
part of this is that, as we have seen with the Antigua and Barbuda
decision on gambling with the United States, if large industrialised
countries decide that they will not honour the WTO's decisions
and the decisions of the Appellate Body, then there is not much
the small countries can do in terms of retaliatory capacity, unless
they wish to threaten the intellectual property rights of an industrialised
country. That seems to wake people up in Washington. We have precedent
for that. But, in general, there is almost an obligation on the
part of larger powers to comply with these adverse judgments,
because, if they do not, then developing countries will feel that
they cannot defend the rights that they have within the WTO and
that important function that we discussed earlier in the rules
part begins to lose its value. I think this is tied in together
very much with the question of the governance of the WTO and how
we facilitate and encourage the support of small states.
Q73 Lord Woolmer of Leeds: Some witnesses
before us have said that some countries may get a better deal/get
more tariff reductions via the dispute settlement mechanism than
if they simply pursued a traditional multilateral trade agreement.
Do you agree with that?
Professor Higgott: No.
Professor Evenett: We did not specifically
address that matter in the report but I do have a view on this.
Technically those witnesses are right: one could bring some very
sensitive cases to the dispute settlement understanding, especially
against the US and the EC in agriculture, and win. Then the question
would arise whether or not the EC or the US would comply. The
question would also arise—and this is where the doubts begin
to creep in—whether or not there would be a backlash from
legislators on both sides of the Atlantic as this process unfolded.
The question you ask is a particularly good one because, as you
may well know, there is one US law firm which has prepared ten
such cases and is fishing for clients, so this use of the DSU
as a way of seeking liberalisation, whilst it may be technically
possible, I think would be extremely unwise and potentially very
damaging.
Professor Higgott: The biggest argument
in our discussions that we had against the recommendations was
the danger of creating, I suppose, the trade equivalent of what
in the United States is known as ambulance chasing. We were sensitive
to that.
Q74 Lord Haskins: I would like to
move on to preferential trade agreements which have escalated
in the last 15 years. I see in the report that the only country
that did not sign up was Mongolia, so everybody is in this. I
would like a little bit to understand why people have moved in
that way. In what sense do these sorts of agreements conflict
with multilateral agreement, in the sense that, for example, some
of the American preferential trade agreements with the Middle
East are clearly politically driven? Is this approach not in conflict
with what multilateral agreements should be about? Is there a
divide and rule pressure from the big countries, the EU, the US,
in pressing this forward?
Professor Higgott: The first point I
would make here is to support your view. Many of these regional
trading arrangements are in fact of recent vintage. They certainly
are asymmetrical. They are very often hub-and-spoke agreements,
of more benefit to the larger hub than the smaller states. They
can be non contiguous in nature. They are very often of mixed
motive. There are strategic and political elements to the development
of these bilateral arrangements as much as there are economic
and trade liberalising ones. The concerns we had about RTAs was
that they can lead to trade distortion and market segmentation;
they can engender unfairness towards smaller players; they can
lead to the erosion of preference margins; and very often the
rules of origins component of a PTA are wasteful and incur costs
and reduce trading opportunities. This goes to the nub of your
last point, Lord Haskins: they make multilateral trade negotiations
more difficult; they pick off the easiest liberalisation opportunities,
they leave the tougher issues for the multilateral fora; they
divert attention from MTNs; and they create governmental preferences
for softer bilateral and regional options. These were, if you
like, our principal objections to them. It is in that context
that we made our recommendations on PTAs that we can maybe come
to later on.
Professor Evenett: Richard has articulated
the important part of the critique. Of course the core of that
critique is that the principle of non discrimination (that is,
we will treat all of our trading partners equally) is undermined
the moment you sign a free trade agreement and privilege one party
over another. That is a traditional critique; however, in our
reflections we also felt that that is not all the story. We also
have found in a number of free trade agreements measures which
have either limited or eliminated discrimination on a worldwide
basis. In a number of free trade agreements you will find that
countries have agreed not to use performance requirements on foreign
investment, and not to use them against any trading partner, not
just the party they have signed the FTA with. That is one example
of about four or five different ones which have been identified
in the literature where RTAs are vehicles for limiting discrimination,
so one of the interesting things we have going forward, given
that RTAs are here to stay, is to ask what elements of RTAs are
less corrosive or, indeed, supportive of the principles of a multilateral
trading system, and encourage individual countries to use these
clauses in their FTAs that they sign. This recommendation goes
under this ghastly phrase "multilateralising regionalism".
That is what people mean by that. That is something new that we
have learned in the last couple of years which is directly operational
and something which trade policy-makers can take on board. In
addition, of course, there is one other development and one potential
developing which are important. The development which has happened,
which I think is really worth following, is this new transparency
mechanism at the WTO for studying newly signed free trade agreements.
A number of analyses have been done by the WTO secretariat of
free trade agreements. This is said to be adding substantially
to the information base about what works and what does not and
I think that could be useful.
Professor Higgott: Since we are reading
things into the record, one of the things we do recommend here
is that this process should be strengthened and made permanent
as part of the WTO activity.
Professor Evenett: The transparency mechanism
at the WTO, as I am sure you are aware, is only provisional. It
is not permanent. One question is whether it should be made permanent
and we certainly take a view on that. The last area where work
needs to be done—but people have been saying this for decades
and it has not been done—is to revisit the WTO rules on
free trade agreements. It is much easier to say but whether there
is any taste or willingness to do it is another matter. That is
where I started off, by saying, "Are there elements of free
trade agreements which countries can individually, on their own,
without a WTO initiative, begin to start implementing in a way
which is supportive of non discrimination principles." That,
perhaps, is the more useful, more likely trajectory to follow.
Q75 Lord Haskins: The development
of these free trade agreements could, if not kept under control,
undermine the whole WTO set up. Are there any rules within the
WTO which control or establish principles for countries to enter
into preferential trade agreements with each other, which can
make sure that these agreements are compatible with the broader
agreement?
Professor Evenett: There are three sets
of rules. It would be appropriate to say that they are more honoured
in the breach than followed and complied with. This is an area
where the mismatch between what is on paper and what happens is
very wide and probably needs to be narrowed. As I indicated earlier,
people have been saying this for years and there has been no taste
to reform. It seems the countries signing free trade agreements
do not wish to be constrained in what they do.
Chairman: That would figure.
Q76 Lord Moser: Professor Higgott,
you referred in your introduction to weaker members. That is chapter
3 of the Warwick Commission report, which I was very interested
in. Incidentally, may I congratulate you on this report, not just
the content but I think Warwick has invented a marvellous process
for linking academics—and I am a social scientist myself—and
the policy world. So much social science work goes on in universities
and it never gets near the policy world. This is a marvellous
model, and you had the WTO on your Commission.
Professor Higgott: Thank you.
Q77 Lord Haskins: I hope this is
followed. This is the first.
Professor Higgott: This is the first.
Q78 Lord Haskins: I think it is terrific.
Professor Higgott: Thank you.
Q79 Lord Haskins: On chapter 3, where
you are dealing with the weaker members, you have two topics:
special and differential treatments on the one hand and what is
called aid for trade on the other. One the first, I get the impression
from reading this that this is not uncontroversial.
Professor Higgott: That is correct.
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