Examination of Witnesses (Questions 344-359)
Ms Patricia Francis and Mr Rajesh Agarwal
10 JULY 2008
Q344 Chairman: Ms Francis, Mr Agarwal,
thank you so much for coming to see us, it is very good of you.
This is a House of Lords inquiry for a report which means that
we do take a transcript of everything that is said, but equally
we send you the transcript so any infelicities can be removed.
What I would like to start with, for the record, is for you to
tell me a bit about the work of the ITC as well as anything else
you would like to say by way of an opening statement.
Ms Francis: Thank you very much. I am
very honoured to be here and very interested in the subjects that
you have presented to the ITC. In fact, the outcome of your recommendations
going forward will certainly have a very potent impact on our
constituency, who are small and medium-sized enterprises in developing
and transition economies. Clearly the ITC, which is a product
of both the WTO, in its genesis the GATS, and the UN system is
the third part of a process: one, policy development, which is
done by an organisation called UNCTAD; two, which is rules-based,
which is the work of the WTO; three, ours, which is implementation,
which is the realisation of opportunities that have been presented
as a result of the global trading system. In a nutshell, that
is what ITC is about. We are about helping people to realise the
business opportunities which exist in front of them. Because we
are both a UN and WTO institution we are also guided by the principles
of the UN and the Millennium Development Goals. In making decisions
about what it is that ITC does, we qualify things that are in
front of us to ensure that we focus our attention on those who
have the least opportunities and where poverty is the greatest.
We are currently allocating about 45 per cent of our resources
to least developed countries and are trying to reach a target
of 50 per cent of our expenditure to least developed countries.
We focus very much on landlocked and small island developing states
because those also have peculiar issues. I have provided you with
a couple of documents here. Within the context of trade, ITC is
very much focused on "export". We have focused our attention
not just on export, but export which has an impact and results
in some kind of good. The slogan—Export Impact for Good—that
the organisation holds on to and the thing that I challenge my
staff with when they come forward with projects is, "Yes,
but what is the outcome of this intervention? What is going to
happen at the end of the day after you have spent these resources?"
This document, to a large extent, speaks to what the goals and
objectives of the organisation are. It talks about our role in
Aid for Trade and there is a specific question on Aid for Trade
so I will hold any elaboration on that for when we speak about
that. We try to ensure that we are sensitive to the needs of the
people we are working for, that we are providing them with solutions
rather than some kinds of activities. We are focused on what are
the solutions and can we understand what the real needs of our
clients are. Partnering is very important for us because we are
a small Geneva-based organisation and, therefore, it is only through
partnerships and integration with other organisations that we
can truly have an impact. We have five areas of competency or
business lines, and they are: 1. Business Trade Policy. Because
we are focused on small and medium-sized enterprises it is about
helping the private sector to elaborate their issues in a way
that can be understood by policymakers and to help them put that
in a context so they can benefit from what is happening in the
area of trade policy. 2. "Export Strategy" is very much
about helping governments and the private sector make choices
about where they place the emphasis, where the greatest levels
of opportunity are, helping them to distil through a public-private
dialogue how they can focus their attention and set priorities
because, generally speaking, when we go into a country, and I
have just returned from the Caribbean where we were talking about
EPAs, there were 22 priorities and we said, "How can we move
forward on 22 fronts? I am sure we will fail. Let us see if we
can focus", it is through a process of public-private dialogue
where one can come up with that. That is what export strategy
is about. 3. "Trade Support Institution Strengthening".
We cannot work with every small and medium-sized enterprise in
developing and transition economies so we work through what we
call trade support institutions, which are trade promotion agencies
and also chambers of commerce, sector associations, those kinds
of organisations that have a membership or clientele. We try to
ensure that once we are out of a country there is an institution
which is empowered to deliver the same service that we are trying
to deliver. It is about capacity building. 4. "Trade Intelligence"
is where ITC started with during the GATT days and it is about
the trade data, market information, market analysis, understanding
trade policy and putting that in a form which allows people to
make decisions on their own based on the knowledge which they
are able to gather through this data which we produce and assimilate.
5. "Export Competitiveness" at the end of the day is
about producing a product which can be sold in a marketplace somewhere,
it is not just about production but can we actually sell it and
what does it take to do that. In the rest of the brochure we talk
about how we connect people and build capacity. We are thinking
of the long-term benefits of the work that we do, very much focused
on community-based work through linking them with other people
and, of course, at the end of the day is it going to result in
an impact. That would be where I would want to start. I would
be happy to come back to some of these other issues as we go along.
Q345 Chairman: Thank you very much,
Ms Francis. I have a couple of supplementary questions just to
get sight of your organisation clearly in my mind. How many people
do you have and what is your budget?
Ms Francis: We have a complement of about
250/260, mainly technical people within the organisation because
we are a technical organisation. We are not a policy organisation,
we are a technical organisation. Our budget from the UN and WTO,
which is our regular budget, is approximately $30 million-plus
a year and then we have an additional $30 million-plus which we
raise in what we call extra budgetary resources from various donors.
That is what we spend on our interventions in various countries.
Q346 Chairman: If I may just go on,
what is the view in the trade and support institutions you work
with of the Doha Round? How do you feel about that? The media
is starting to say in various places we have a poor deal for the
LDCs. Do you agree?
Ms Francis: In the way that the Doha
Round is constructed, there is a guaranteed outcome for the LDCs
basically, so regardless of what happens one could say that perhaps
they do not have a negotiating position because they negotiated
their position beforehand. To the extent that they perhaps could
have got something more, maybe they have lost, but just based
on what our knowledge is of LDCs there is currently, if one looks
at the trade data, very little participation of LDCs in trade.
That they have been given market access means there is an opportunity,
an opening for them and that they are able to take advantage of.
This is where the real challenge is if we look at the reality
of what it is that we are talking about. What they may be worried
about is, "How do I actually move from an agreement to reality?"
The discussion you hear is always about supply side and the question
is, "I am going to get market access, but how am I going
to realise the opportunity?" That is where the discussion
on Aid for Trade comes in. That is where Enhanced Integrated Framework
comes in. That is where the understanding of the reality of what
is taking place in an LDC and their capacity and capability to
take advantage of those supply side capabilities is the big challenge.
It is like stepping into Wimbledon without having had the first
lesson in tennis, so you are allowed on the court but who is standing
on the other side? If it was Venus Williams I would tremble, even
though I used to play on my team at school.
Q347 Lord Haskins: Following on from
that, since the Uruguay Round 15 years ago, in many parts of Britain,
for example, there is quite a strong feeling that the less developed
countries have not benefited from these multilateral agreements.
Would you agree with that? What would your response be to that?
Ms Francis: If we look at the trade numbers
they probably have not because their percentage of world trade
has actually declined. The fact that world trade has increased
in the dollar value—I cannot bring the numbers to the table,
but the percentage of world trade has moved from six per cent
down to less than one per cent—begs the question why in
the Doha Round we are talking about the Doha Development Agenda,
not just a Doha Round. The Doha Round was supposed to be about
development in recognition of the fact that after the Uruguay
Round there was not the commensurate increase and response from
LDCs. I think sometimes we forget that this is supposed to be
a Development Round.
Q348 Lord Haskins: Do you think the
reason for that is the comment you made earlier that we put them
on the tennis court but they did not have the strokes to play
Venus Williams?
Ms Francis: Absolutely, definitely.
Q349 Lord Haskins: Following on from
that there are two specific issues. Have the Special and Differential
Treatment provisions been relevant to real development needs and
Aid for Trade, and I think we know the answer to that one? On
the first one, the Special and Differential Treatment, has that
been real Aid for Trade for developing countries?
Ms Francis: I think there is a challenge
here and it is first one of capacity, which is the Venus Williams
versus Patricia Francis, or Venus Williams versus John Brown who
has never picked up a tennis racket in his life. There is a capacity
issue. The second issue is if you do not have congruence between
what your development objectives are with your financial objectives,
and also with your trade objectives, then the limited capacity
that you have will get skewed in a particular direction. What
all of us have been doing and the development partners have been
focused on is macro-economic stability as being the first pillar
that can have economic development taking place. There has been
a lot of effort in establishing a base on which good governance
could actually take place and the first pillar of that was macro-economic
stability. In terms of good governance, we hear talk about the
business environment, corruption, and so on, and you have the
other pillar which is health and education. A least developed
country faced with these very large issues, and in some cases
security because that is the other piece, when all of these things
are not working then security becomes the big issue, asks "How
do I divide up these resources?" Everyone is an advocate
for their particular issue, and health, security and education
have had the largest voice in any development arena. Trade and
trade ministers have perhaps been the least recognised in the
developing world. What power does a trade minister actually have?
When he sits at the table with health, education and security,
and the development partners are saying, "Health, education
and security" and nobody is saying, "trade", then
the minister of finance is making the decisions on health, education
and security. For us to actually see economic development taking
place, all of those stars need to line up and choices have to
be made about where resources are going to be placed. If we could
ever have a mechanism, which I hope is what Aid for Trade is trying
to do, where all three sets of people—development, finance
and trade—begin to talk together to see how we move the
development agenda on but also bring the trade agenda on, perhaps
we will see a different outcome. That is what we are trying to
accomplish. I do not know if I have answered your question.
Q350 Lord Haskins: Do you actually
think that multilateral agreements have damaged the development
of less developed countries? Have they damaged or just made less
impact than they might have?
Ms Francis: I do not think they have
actually damaged. They have a bad reputation. Politicians, and
I know I am speaking to politicians so I will be careful, are
faced with the domestic community and the domestic community are
looking at the impact of agreements, so if there is reciprocity
in an agreement and there is not the mechanism in-country to help
the country realise the potential and deliver on these things
then you are going to have a negative outcome. It is a circular
reference I keep coming back to. If you are not focused on building
the capacity of countries to be able to trade then, of course,
if I sign an agreement and do not have the infrastructure in place
to be able to deal with it, the years that I have negotiated on
Special and Differential Treatment run out and if I have not put
in place the infrastructure then all of a sudden I am exposed
and the easy thing for a politician to do is blame it on the WTO.
That is very much the case. What you hear politicians and trade
negotiators talking about is, "Can I have some policy space
within which I can manage?" If you take the discussion a
little bit further and begin to look at things like customs reform,
taxation reform, trade facilitation which would then allow for
this business environment to improve, and if resources are put
into those kinds of things, that is what we hear our small and
medium-sized enterprises talking about, "I see an opportunity
but can I realise it because there is not the sanitary and phytosanitary
organisations in my country to certify my products. I may be able
to find the resources to invest, but is the Ministry of Agriculture's
veterinary division able to put a system in place which can allow
me to take advantage of that opportunity? Is the refrigeration
there at the airport for me to be able to get my product out?"
It is practical, pragmatic implications of things that have been
negotiated that need to be looked at if, indeed, this potential
of being in heaven can be realised.
Q351 Lord Kerr of Kinlochard: This
is extremely interesting. I am struck by the range of things that
you and your organisation are trying to do, some of them advising
on very, very big issues, good governance, security, export strategies,
some of them on very finite, very concrete things, like marketing
strategies or the refrigeration at the airport, and you are trying
to do it with a smallish budget of $60 million. What would you
feel the EU could most do to help the least developed countries
that you are trying to help with up to 50 per cent of your effort?
Is it at the big end, the big factors, or is it at the very concrete
end, the small factors? Take your example of refrigeration at
the airport. If you were advising a small Caribbean country that
was a natural banana producer, how would you do it? You might
find Geest, Fyfe and Dole looking over your shoulder and not very
keen to see you encouraging indigenous export capacity, but it
might be a very good thing to do. Can you make it concrete for
us? If that is a bad example, give me another example.
Ms Francis: Let me correct something,
and I hope I have not left this impression. We are not involved
in good governance. We partner with other entities. When we go
into a country and we see there is work being done on trade facilitation,
what we try to do is bring the private sector voice to that discussion.
Generally speaking, what we find is those discussions are happening
outside of the private sector or of the small and medium-sized
enterprises. The big guys are always at the table, they have their
lobby groups and are able to have influence. Where the real opportunities
are, those people do not have that access and that is our constituency.
We are there preparing them, helping them to make sure their voice
goes into this kind of discussion, but we are not involved in
big projects related to good governance. We are very much involved
in helping people to understand the issues, in market development
work, market analysis work, those kinds of practical, pragmatic,
on-the-ground kinds of things. I will have to ask not to answer
the banana question because I am from a banana family which is
perhaps in competition with Geest and so forth. Actually we are
partners with Dole. I will take another example. If we look at
some other agri-business opportunity, let us take that for example,
if we are looking at the European Union, and currently the EPAs
offer a level of opportunity which should not go begging, here
is an opportunity and this is the time for the European Union
to have a real impact and be able to be a real partner, because
that is what we should be talking about, a real partnership, on
certain objectives. I think it makes life simpler and easier if
we go to the OECD document which has the diagram about trade development
and so on. Trade policy and trade regulation, trade development,
building productive capacities, trade related adjustment, trade
related infrastructure, all of these things are critically important
if you are going to be successful. For example, let us say we
need refrigeration. The way to decide whether or not you need
refrigeration is to do a level of analysis to see what is the
value chain, how we can develop it and is there an opportunity
for private investment, because in my experience private investment
has been extremely good because it brings business and much more
commitment to the table than aid does. If we were able to find
a private investor to come and invest in the refrigeration he,
she or the entity would have a vested interest in making sure
that there is throughput and would be engaged in the process of
ensuring that this happened. What would be the role of the EU
in this regard? It would be offering some kind of insurance or
guarantees in what might be perceived as a risky environment in
which the private sector to engage. What is much needed in all
of these countries is to facilitate a mechanism where more private
sector is engaged because where more private sector is engaged
I believe you will begin to see things happening in a real way.
It is facilitating the process where one looks at what these opportunities
are, bringing real partners to the table which is very important,
real partners who are going to invest in the country, who are
going to become partners in the marketplace, because again that
is going to be critical. If we are going to find a way to realise
this potential then it has to be good business for both sets of
partners, that is the only way it is going to be sustainable.
At the end of the day if we just build productive capacity without
having the proper infrastructure in place, or if we build the
infrastructure without the capacity in place, then we have a white
elephant and nothing which will run through it. It is a complex
thing and if we have trade support institutions, both public and
private sector, who understand what the opportunities are, what
the building blocks are to make this happen, then you can find
a way to build consensus on setting these priorities. If I was
in charge of a small Caribbean country and I was looking at these
issues I would certainly be looking to the EU to say, "We
would like perhaps a relationship with UK Trade and Investment
which contribute to the dialogue for people to understand where
the opportunities are and to bring real business people from the
UK to discuss the opportunities. We would certainly want to see
the infrastructure in government as well as in the private sector
to build on opportunities presented. Today with tariffs going
down to nothing it is going to be your non-tariff barriers, which
we are already seeing, which are the things which inhibit trade.
If you do not have the SPS infrastructure in place it will still
be this opportunity which will never be realised. I cannot stress
more the importance of this ability for the capacity building
of the trade support institutions both in the public and private
sectors. Many of the challenges that we are facing are based on
a lack of understanding of the issues. If we could find mechanisms
to increase the level of knowledge and understanding then I believe
we could get closer to finding where it can be a win-win for everyone.
Q352 Lord Kerr of Kinlochard: Thank
you very much. I have one supplementary. You mentioned, and of
course I agree, that although they are both necessary and complementary,
trade is more important than aid, and you talked about the role
of the private sector and investment. Is it a mistake that there
is so little emphasis on security of investment in Doha? Was the
Singapore decision a mistake?
Ms Francis: I think there are huge opportunities
for the comfort level of both trade and investment to take place.
If one is able to have proper functioning organisations there
is very important work that can be done in terms of legislation
and regulations because legislation is one thing, but what about
the administrative procedures and how do you promulgate those
down and get change management. We have seen and experienced in
Customs Unions where rules have been changed but they are not
promulgated, so you talk to the customs officer and he says nobody
has told him anything about that new rule and he is going by the
rule that he knows. It is all very well doing things at a high
level but you have to find a way to have them trickle right down
to the operational level, and that is critical for success.
Q353 Lord Maclennan of Rogart: You
talked about the importance of identifying private investors to
participate in stimulating trade in least developed countries.
Do you look to the European Union at all to assist in that process
of identification? You have explained how you would look to the
Union for terms of trade or the circumstances of a regulatory
background, but do you have any direction from the Union? How
do you approach that?
Ms Francis: We partner with a number
of organisations in the European Union who are what you might
call outward investment or outward export support organisations,
or ones that help import products into the EU. Basically the function
of these organisations is to work with us and our partners in
developing countries to establish what are the products that could
potentially enter the European market, who are the potential buyers
and is there a way we can construct a relationship to make that
happen. We would select a number of products within a sector,
look at how product development needed to happen, whether it was
a question of packaging, of certification, and we would work to
make sure that the various institutions which are necessary to
create compliance would actually come up to speed and then be
certified to have these exports go out. It may be something simple
like packaging where we would work with a packaging institute
in a European Union country in order to make sure the local producers
of packaging are producing packaging material to the standards
necessary to go into the European market. In the case of organics,
say, it may be that we are working with a number of institutions
to set up a traceability mechanism and training various people
in order to do that. Yes, we have key partners in the European
Union who provide that kind of service and it is very effective
because at the end of the day what we have are business-to-business
meetings or we may be just going for a trade show. You are identifying
the kind of product, making sure that you can actually produce
it and then taking it to the market through the trade shows, having
meetings and having it sold.
Q354 Lord Maclennan of Rogart: Does
the European Union itself provide any kind of intermediation between
those sectoral partners and yourselves, or is it a private enterprise
by you, in a sense, to find these partners?
Ms Francis: It is really country organisations.
It would be the Netherlands, et cetera. It is state driven more
than European driven. We also have several European Union programmes
funded by the European Union, for example, in Asia where they
are building the capacities of the organisations, they are working
to ensure that, indeed, the intermediary institutions, like the
standards organisations, et cetera, are built. The European Union
is very much working with us in that regard in quite a number
of areas. They are also working with other partners. Clearly ITC
is not the only organisation involved in this business. We have
also been working through the Enhanced Integrated Framework which
has been created specifically for LDCs and there the UK is one
of the bigger players involved. That is an excellent mechanism
in the LDCs because there is a process by which the trade priorities
are agreed and that distillation process is done and the resource
is put behind that and countries can go after it. The EU is a
player in that as well, I think.
Q355 Lord Maclennan of Rogart: Can
I move to another question which arose earlier in our inquiry
about the European Union's bilateral trade agreements. It was
alleged and argued by some of our witnesses that the European
Union, in a sense, was picking off trading partners within groups
which could be positively disadvantageous to those left out and
it was a sort of divide and conquer pattern. What is your response
to that allegation?
Ms Francis: The big challenge in bilateral
agreements is the multiplicity of Rules of Origin. That is why
I think the multilateral trading system is preferred and multilateral
agreements much preferred. When you think about the capacity of
countries to comply, it is not possible for a small and medium-sized
enterprise to understand all the different rules that they have
to meet to go into different markets. If everybody has a different
rule, it is just not possible. They can barely administer the
accounting of their organisation, much less figure out is it 20
per cent or 25 per cent of value added to X product which allows
them to get into Y market or Z market. I would say that clearly
our constituency is not disposed to the multiplicity of agreements
because generally those will also be WTO Plus and that will probably
impose some obligations which are even greater than they would
normally have. If you have to deal with different Rules of Origin
it becomes what they call a noodle bowl. It is just not possible.
It is not possible to actually look at what would perhaps be your
natural markets. It is very market distorting. I think that is
what you will find from small and medium-sized enterprises.
Q356 Lord Maclennan of Rogart: If
you cannot get complete regional participation in a trade agreement,
is it not better just to go for those who can reach agreement?
I am thinking perhaps of the example of West Africa where it has
sometimes proved difficult to involve Nigeria in some of these
bilaterals. What is the disadvantage? It is obviously preferable
to have a regional agreement, but if you cannot get it as a not
bad second best, why not?
Ms Francis: If you look at the trend,
certainly there is a level of pragmatism which is brought to the
table and governments then realise if the regional trade agreement
is not going to happen they will respond to the pressure of their
business people and will go ahead with bilateral agreements. From
our experience, we have seen that it can be used as a stepping
stone. Is it the optimum situation? It is not, but it can be used
as a stepping stone and some governments make the decision from
a very practical and pragmatic point of view that they will move
ahead. I can give you a bizarre example. A free trade agreement
between Central America and the US on garments where the garments
can be made of fabric from various places, however the pockets
must be made in the United States, so you have to import the pockets
and stitch them on in Central America. That was because of some
particular lobby in some place where there were factories and
the compromise was that they were to make pockets. Some of the
things that are put into these agreements are ridiculous. That
is why our constituency wants to have more of a multilateral environment
which then has more of a level playing field and these anomalies
are not introduced at that time.
Q357 Lord Kerr of Kinlochard: I do
understand your preference for multilaterals, I am sure we all
do, but I would like to press you a little on your answer to Lord
Maclennan's question because your answer was about Rules of Origin.
Is it not the case that the European Union is, in fact, pretty
liberal in its Rules of Origin rules in relation to LLDCs? You
do have to have some Rules of Origin, otherwise an enterprise
in a country that does not have duty-free access to European markets
could send, allegedly for final assembly, but in fact for repackaging
or labelling, goods to a country that does have such access to
Europe. You need to have some sort of system.
Ms Francis: Yes.
Q358 Lord Kerr of Kinlochard: I thought,
maybe wrongly, that we in the European Union, say by comparison
with the United States, were quite liberal, particularly in relation
to LLDCs? If that is not true that is important. This does seem
to me to be the way the world is going to go, there are going
to be more bilateral agreements and if the major objection to
them is the complication of conflicting and illiberal Rules of
Origin, then we, on this Committee, ought to think about it.
Ms Francis: The European Union has, indeed,
had more flexibility in its Rules of Origin than many other people.
You are moving in the right direction and are far more exemplary
than other countries. If there are complexities then the complexity
is what is difficult for countries and some people have opted
for MFN because it is simpler rather than going through complex
preference arrangements which means they have to prove certain
things.
Q359 Lord Kerr of Kinlochard: Do
we allow cumulation in respect of goods from a particular region,
contiguous very poor countries? I think we do.
Ms Francis: Yes, that is something new.
In fact, the Bangladesh Ambassador was saying something very positive
to me the other day about this accumulation. We saw some factories
in Lesotho where they were getting fabric from Bangladesh, going
into Lesotho, product being produced and going out. That is very
positive.
Chairman: Because we are slightly running out
of time, I am going to jump to a question about services which
Lord Woolmer wants to ask.
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