Examination of Witnesses (Questions 100-106)
Mr Edwin Laurent and Dr Mohammad Razzaque
17 JUNE 2008
Q100 Lord Maclennan of Rogart: Thank
you very much. Mr Laurent, this Committee, of course, is focusing
principally on European trade policy. What steps do you think
the European Union should take to help less developed countries
reap the benefits of global trade?
Mr Laurent: The European Union approach
has largely been through its preferential negotiated arrangements.
In the case of the African, Caribbean and Pacific, it is the EPAs;
in Latin America it is in a number of association agreements and
so on. That approach is probably a sensible one in general, given
what is happening at the multilateral level, but maybe what Europe
can ensure is that these agreements are genuinely pro-developmental
and do not impose on their partners conditions that go unduly
beyond the requirements of current multilateral rules. I give
one particular example: in the negotiations with the African,
Caribbean and Pacific group, the EU has been quite aggressive
on the so-called Singapore issues, such as investment, competition
policy, government procurement. Its requirements go way beyond
what is being envisaged in the debate in the WTO. Maybe this might
be one of the areas in which it could step back. Some of the other
approaches of Europe, for instance with respect to aid, are very
positive, very constructive. These are just two of the areas that
I want to mention.
Q101 Lord Renton of Mount Harry:
Mr Laurent, you say that some of the ideas put forward by the
EU are "very constructive". Could we talk for a moment
about two particular types of agreement that the EU is putting
forward at the moment, and let us talk about economic partnership
agreements first. They are being negotiated to replace the 1990s
Cotonou Agreement. I think they are designed to give special trade
conditions to the poorest countries. We are an EU Committee, so
we are particularly interested in what the EU is doing. Do you
feel that they are working, that they are fair? Or do you think
in general terms that the EU is asking for too much?
Mr Laurent: Thank you very much, my Lord.
I would certainly not, as a member of the Commonwealth Secretariat,
be so presumptuous as to explicitly answer this. But maybe I could
look at the position of the governments. We have 18 countries
in Africa. Two in the Pacific and the Caribbean group that have
considered that what the EU has proposed to them is generally
acceptable. That is a minority, so the position of the governments
of the ACP countries would be that what is proposed is not acceptable,
and even, of those that have indicated their support for these
economic partnership agreements, some of them are a bit ambivalent.
Of those that have not agreed, some of them are strenuously opposed
to the EPAs, and they cite a number of reasons. They say that
the arrangements are not in their economic interest; that they
are likely to retard rather than promote their attempts at industrialisation
and agricultural development because the proposed opening up of
their markets would be too quick, i.e. before their domestic production
has been strong enough. Some also claim that it is not in their
interests to grant concessions in a bilateral framework and it
would be more appropriate to do so multilaterally. The reason
they cite for this is that doing so just to Europe imposes on
them significant trade diversion costs, since they might currently
have been importing a particular product from the most competitive
suppliers internationally (Japan, Canada, the US) but now, because
of this deal, they divert to the EU. I believe Dr Razzaque referred
to the issue of the loss of tariff revenue, and that is a serious
concern as well for several of those countries which are very
heavily dependent on tariff revenue. This would be my response
to this.
Q102 Lord Renton of Mount Harry:
You raise a very interesting point there because there are, of
course, also the EU preferential trade agreements as well as these
partnership agreements. You mentioned in your opening remarks
to us that the Commonwealth represented two billion citizens.
The EU represents now close to 500 million citizens, and therefore
I would think that there would be every advantage for the poorer
Commonwealth countries to try to work with the EU. Can they use
a bilateral trade agreement in your experience? Are they doing
so? Are they fair?
Mr Laurent: I would say that there definitely
is interest—and maybe more than an interest, a determination—amongst
the African, Caribbean and Pacific countries to work with the
EU. A few years ago, all of them committed to concluding these
EPAs by the end of last year. The problem is that many of them
had concerns over the content of the EPA. It is not the principle
but the content.
Q103 Lord Renton of Mount Harry:
The principle does not mean much if the content is not right,
does it?
Mr Laurent: With due respect, my Lord,
I would say that maybe it was a little bit even more than principle.
For instance, for the countries that are not least developed,
they are determined to have an arrangement with Europe, because,
unless they have that arrangement, the products that they currently
export would lose their duty-free entry, which for many of them
would be an economic disaster. Some persons would consider that
in fact this is probably the reason why the majority of those
that committed to EPAs did so: not because they were happy, but
because they realised that they had no choice. Many of the countries
consider that their economies are very closely linked—at
least within the short- to medium-term to Europe, and they have
no intention or option but to stick with Europe.
Q104 Lord Renton of Mount Harry:
That is very interesting. Do you think that large developing countries
should negotiate preferential trade agreements with each other?
Does it make good sense?
Mr Laurent: I do not want to commit to
a personal view on this but I would say that we certainly believe
that the preferred arrangement is multilateral. As a general principal
multilateralism is superior to regionalism/bilateralism. But we
live in the real world and large developing countries do embark
on those arrangements. This, we consider, though, can be damaging
to other developing countries, since there could be the diversion
of the exports of LDCs and other developing countries from the
markets of these advanced developing countries. So there is a
real cost. There are ways in which that cost could be alleviated.
Maybe if two or more major developing countries embark upon a
tariff reduction arrangement amongst themselves, maybe they could
multilateralise this, extend this concession to LDCs, and maybe
even some other developing countries, to reduce the negative impact.
Lord Renton of Mount Harry: That is a
very interesting answer.
Q105 Lord Haskins: The issue of food
has dominated trade negotiations for the last 40 years. For most
of the last 30 years, at any rate, the problem has been oversupply
of food, cheap food, surpluses, being dumped from countries in
surplus into markets and creating chaos there, and those same
countries having tariff barriers to protect their farmers. In
the last two years the rules of the game have changed very dramatically,
with food prices changing and moving up as rapidly, and turning
the issue almost on its head. I have two questions: first, do
you think this is a long-term issue? Second, is it going to change
people's attitudes radically towards the present arrangements,
including European food policies? Where do you think all that
is going to be developing?
Mr Laurent: I will make a quick introductory
remark and then, as I know we are moving on in time, I will ask
Dr Razzaque to make a quick comment. UNCTAD recently seemed to
suggest that this was not necessarily a long-term phenomenon.
It considered that the current problem came out of certain conditions—and
Dr Razzaque will elaborate on that—but there is adequate
scope for ensuring that those problems do not persist into the
future, so there is no reason why this needs to be a long-term
feature of world trade. I will pass this on to Dr Razzaque because
he has done quite a lot of research into this area.
Dr Razzaque: My Lord Chairman, my Lords,
this issue is on the food price hike of recent times. When the
Uruguay Round was being concluded there was some concern from
some of the net food importing, least developed countries (LDCs),
that the implementation of the Uruguay Round Agreement on agriculture
was going to raise the food price in the world economy. Actually,
in agricultural liberalisation there are two important elements:
one was the tariff reduction; the other was the cuts in subsidies,
particularly in the western developed countries. We all know that
tariff reduction is to have a depressing effect on prices; on
the other hand, costs and subsidies in the western developed world,
who are also very large producers of many of the food products,
will have some effects on rising prices. There was a kind of disagreement:
Which effect is going to dominate? Is it the tariff cuts or the
cuts in subsidies? At the Commonwealth Secretariat we have done
research on this particular issue. Even before this food crisis,
our results were published, and we found that if under the Uruguay
Round agreement on agriculture and, beyond, if there are 100%
tariff cuts in agriculture along with significant amounts of subsidy
cuts in the western developed markets, in general the effect on
prices is going to be positive. That is, the liberalisation in
agriculture will tend to raise food prices. We did some simulation
work particularly in the context of rice, because we considered
rice was very important for some of the South Asian countries,
where the livelihood and food security issues clearly depend on
the production of one single commodity. In our study, we found
that the liberalisation could lead to something like a 10 to 15%
rise in rice prices—but actually, because of other factors,
the price rise has been much more. We also studied the implications
of this rice price rise for many of the poor developing countries,
particularly in South Asia. We found, for instance, that in the
case of Bangladesh, just a ten% rise in the rice price could lead
to an additional 400,000 households slipping back into poverty.
That was to increase the poverty incidence in the net food importing
countries quite significantly. That we have been able to establish,
using a very large amount of data and good methodology. Here the
issue is that there is another important feature that is related
to many of the food commodities, which is known as the "thinness"
of the market. For example, in the case of rice, if we look at
the global supply, the global supply that is coming to the world
market is only 6% of the total global production. This is because
of the fact that the rice producing countries are also largely
rice consuming countries, so there is not much available in the
global market. That is why during the crisis, many of the countries
looked for an international market, the market never existed.
That was one factor. The other factor is that some countries,
for example, India and Pakistan, who are traditional rice exporters,
given that the food crisis was being experienced by many other
countries, also decided to put some restrictions on their exports.
Basically, therefore, those countries being dependent on food
imports could not avail themselves of those supplies from the
world market and that was a serious problem for them. Since the
question is all about attitude, it is a fact that food dependent
countries, the net food importing countries, do realise that for
their food security, especially when they rely on one or two particular
cereal crops and given the experience from the crisis, now think
that for them probably the best possible issue is to refocus on
their agriculture. It is to consider the fact that, in order to
attain food security, they will have to readdress, if possible,
their agricultural policies. Some countries are already thinking
of doing some tariff adjustments while some others have already
proposed providing additional incentives to the agriculture. For
net food importing countries, the attitude is that, because of
this crisis, they will try to achieve food self-sufficiency or
at least be well placed to survive food security. With regard
to the net exporters of food, suddenly they have gained from this
windfall, but still in these countries a lot depends on the situation
in the world market. If the prices are going to be this high,
certainly the surplus from the net exporting countries will also
increase. I would also agree with Mr Laurent that this food price
hike might not be a very long phenomenon. On previous occasions
the price hikes were short-lived episodes—it never existed
for more than five to six years—but maybe this time that
can be slightly longer than the previous experiences.
Q106 Chairman: Thank you very much
indeed. We have already kept you rather longer than we said we
were going to, but it has been most helpful and most interesting.
Thank you very much indeed for coming. It has been a real pleasure.
Mr Laurent: Thank you very much, My Lord
Chairman, my Lords.
Dr Razzaque: Thank you very much, My
Lord Chairman.
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