Examination of Witnesses (Questions 380-392)
Ambassador Bruce Gosper
10 JULY 2008
Q380 Lord Kerr of Kinlochard: Before
asking my question I should declare an interest and warn that
I am a director of a Melbourne company called Rio Tinto Limited.
Ambassador Gosper: Congratulations on
your price increase!
Q381 Lord Kerr of Kinlochard: Can
I take you into the area of what is, in your view, the desirable
link, if any, between trade issues and first, social issues, labour
standards, migration, social standards, against a background of
certainly a more Democratic party-dominated Congress in America,
very keen on attaching labour standards and social conditionality
to any trade liberalising deal, and second, the Mode 4 negotiation
which clearly will be problematic for probably any American administration
concerned with homeland security. What is the right relationship
between the trade dossier and these dossiers?
Ambassador Gosper: I think the Mode 4
question is a little bit different than the trade and social condition
issues because, at least as I understand the Mode 4 question,
it is not about the movement of labour per se but the movement
of professional or semi-professional people, which is not to disagree
with you that it is a politically charged issue in some places,
particularly where there are broader immigration debates and concerns
about the migration intake, if I can put it that way. It is a
difficult question. We had the experience around the 1996 Singapore
Ministerial about trade and labour and the push that was then
underway to have some explicit discussion of these issues, and
we saw that surface again in Seattle through statements that were
made by political leaders about these sorts of issues. We saw
the reaction that was had from many developing countries which
feared that would simply be a guise for protectionist action on
the part of domestic constituencies in some economies. That is
still very much the perspective of many about this sort of issue,
I think. It is difficult. It is hard to escape the broader consequences
of globalisation for trade and more particularly for economic
policy in our economies, it is a much more complex field now.
Whether it is trade and environment or trade and labour, or general
regulatory approaches to commerce, these are much more complex
issues for the governments now, much more complex also for the
WTO which has to deal not just with a narrow set of rules but
much broader expectations about those rules and how they relate
to the broader community. Where this is going to come into clearest
focus for the Organisation over the coming years will be in the
area of trade and environment. Already all of our economies are
dealing with a variety of demands for things like labelling products,
lifecycle assessment, a whole lot of regulatory changes domestically
that derive from community expectations, business practices. How
the WTO system deals with that, how members choose to engage in
the WTO on such issues, is perhaps the most challenging of the
sorts of issues for the Organisation over the coming years. Where
that will be probably most sharply in focus is on the question
of climate change.
Q382 Lord Kerr of Kinlochard: That
is a very diplomatic descriptive answer. You would not want to
say in a personal capacity what you think would be the right position
for trade negotiators to take on these issues?
Ambassador Gosper: I -
Chairman: Perhaps that's a question we can discuss
informally I'd like to move on but I think Lord Moser wanted to
come in.
Q383 Lord Moser: Just a quick supplementary
on labour markets. It is always assumed in newspaper articles
that liberalising trade is good for employment. Asking as a statistician,
I wonder whether you find that argument easy to deploy, whether
the evidence that comes to you at WTO is fairly uncontroversial,
that liberalisation is good news for labour markets.
Ambassador Gosper: It is not a difficult
question to answer for an Australian at the moment. We have had
more than a decade of strong economic growth. We have high levels
of immigration and temporary visa holders. We have low levels
of unemployment. It is an extraordinary situation. Of course,
it is all built on productivity improvements in the economy, most
particularly China and what is happening in China, increasingly
in India as well, the giant sucking sound of commodity imports.
I began my career 20-odd years ago working in the resources area
and I can remember $40 a ton coal prices. Rio Tinto, which negotiates
for iron ore, in one year had a 97 per cent increaseOur two big
resource states, Western Australia and Queensland, have been growing
very quickly. Our infrastructure is straining. I am associating
what is happening in China with an open global trading environment
and to some extent that is true, of course. The access that China
has in the US, EU and other places and the strength of its own
economy does reflect an open global trading regime and that has
immense benefits for Australia. We have firsthand practical insight
into all of this. I can remember 15-20 years ago the sort of public
debates we had in Australia about foreign investment, for instance.
When I think about the sort of debates we used to have about Japan
investing in beef feedlots, for instance, it seems like another
age. The way in which people have accepted the benefits as well
as the costs of globalisation is extraordinary. That might not
be true in every place, of course, and I am sure it is not, but
for an Australian overall it is a pretty convincing answer to
your question.
Q384 Lord Haskins: Following on from
that, you could argue, therefore, that Australia, like many other
countries, has benefited over the last 60 years in the global
case from low food prices, relatively low energy, increasing trade
liberalisation, all of those things, and in the last two or three
years fundamental questions have been asked on all three points.
Food prices have accelerated, energy has gone out to the world,
Rio Tinto prices are rising and the global economy is slowing
down. I have two questions about that. First of all, if it is
a blip what does the WTO do about it? Secondly, if it is a longer
term issue, and there are all sorts of tariff obstructions coming
in now, export taxes on food and that sort of thing, are we entering
a global phase in the global economy which may affect the fundamentals
of the WTO?
Ambassador Gosper: There are certainly
issues there for governments and policymakers. Slow economic growth
globally, hints of increased protectionism, but we have yet to
see manifestation of that too much, and, of course, you have got
fuel and food price rises. The OECD research on food, if you look
at a longer period of time, shows a downward trend in food prices.
There was a significant spike recently, but in the sense as analysed
and projected by the OECD it is stabilising, maybe at a somewhat
higher level than previously and still on a relatively flat trend.
As an agricultural exporter we have been as conscious as anyone
of the trend in prices for agricultural products over a period
of time. On this issue we have to be careful to understand what
the medium and longer term dynamic actually is and what the required
policy response is. Certainly if you look at what has happened
with food prices recently there is obviously a need for an aid
response that the global community has been addressing. The trade
response is a little bit more difficult to see. Sometimes I fear
that the immediate response to the food price rise is one that
is a bit dubious from the trade perspective. Because of the price
rises and concerns in local communities people see that they need
to increase the productivity of their agricultural sector, to
modernise it, enhance it, and sometimes they also seem to suggest
that means they need to protect it or increase protection in a
different way. There are different answers for different national
economies, of course, but I have been quite worried that the immediate
response we are seeing on this issue just in the WTO context has
been to suggest that we should increase tariffs or raise levels
of protection for food, and I am not sure that is the right policy
response because generally, if accompanied by the right sort of
governance, the right sort of investment, the right sort of technology,
a lower trade regime over a course of time is a better way. Certainly
for the trading system overall the appropriate response to food
shortages, or at least food price rises, is one that increases
the openness and flexibility of international markets.
Q385 Lord Haskins: Yes, I can see
that. In 30 years' time some people say that Australia will be
a net importer of food if climate change takes its course. There
is a long way to go but there are huge changes taking place which
on the one hand suggest that food should be traded more liberally
across the world and, on the other hand, we had a witness this
morning saying trade is one aspect of developing countries' economies,
the other is in agriculture and whether those countries can develop
their own agricultural systems at the present time without resorting
to protectionism. That is the dilemma, I think, that there would
be pressures from those countries.
Ambassador Gosper: I think you have neatly
encapsulated the dilemma of how people increase their productivity
and the strength of their own agricultural sectors but at the
same time support an open trading regime for food. We just have
to be careful that we do not reach for a short-term solution which
is counterproductive either for the country concerned or the trading
system overall.
Q386 Lord Haskins: You do not think
people are going to take short-term silly decisions?
Ambassador Gosper: That is what I worry
about. As for Australia, we might be the smallest continent but
we are a continent, so we have a variety of regions and climatic
conditions. There are certainly some parts of the country that
with global warming might be fundamentally changed with respect
to their agricultural capacity.
Q387 Lord Kerr of Kinlochard: Like
rice in the Murrumbidgee.
Ambassador Gosper: Yes, and some of the,
other irrigated agriculture in some areas of our country. It is
a big place, temperate, subtropical, many agricultural sectors
spanning across several thousand kilometres, so they will be affected
in quite different ways. If you look at the last couple of years
it is quite true that in the Murrumbidgee area they have had water
shortages but there has been very good water fall in North Queensland,
for instance, and the sugar industry is doing very well, and grain
after a couple of years is back again. I am not sure that we are
going to become a net food importer.
Chairman: You are evidently stunned by the suggestion.
Lord Maclennan, you wanted to come in.
Q388 Lord Maclennan of Rogart: Thank
you. Ambassador, there has been great apprehension expressed at
the United States in particular, and particularly following the
Farm Bill, that this would prove to be a spanner in the works
at Doha, but, as I understand it, with the rice in food prices
which is going on concurrently the prospects of agricultural payouts
from subsidies to the American farm community is really quite
low. Do you think there is no possibility of getting that message
across in the United States and getting them to turn the focus
of their criticism away from India particularly, and India to
play ball by recognising that they would not have to compete effectively
with a subsidised agricultural system which could be described
as unfair trade?
Ambassador Gosper: I agree wholeheartedly
with your message. We are certainly quite disappointed in the
Farm Bill. At a time of high prices like this it would seem an
opportune time for much more significant cuts in levels of subsidies
and protection generally. We have certainly expressed our disappointment
that the US has not taken this opportunity. In fact, we consider
the Farm Bill is a step back, and a very unfortunate step back,
in what is a necessary process of reform of US agriculture. I
think we have made that very clear. It is not the best environment
to be negotiating the Round in, of course, with the political
signal from the US Congress in doing that. It has to be said that
the President has been very clear in seeking to veto the Bill,
he does not think that is the right approach for US agriculture
and has been very clear that the US is looking for a strong outcome
of these negotiations and is prepared to negotiate seriously on
levels of agriculture subsidies. We will see where we get to in
the next couple of weeks but we are certainly hoping—it
is much stronger than hope—and unless there is a good outcome
on US domestic support I do not think the Round will go very far.
Q389 Lord Woolmer of Leeds: That
brings us very neatly to what I was going to ask you. What would
an acceptable deal look like? Put it another way, what are the
potential deal breakers?
Ambassador Gosper: For Australia?
Q390 Lord Woolmer of Leeds: No, overall.
You are Chair of the General Council, you have an overview, what
would be the kind of shape and content, not the absolute detail,
that you would regard as an acceptable deal and one could say
that has brought this Round in the circumstances to a reasonable
conclusion?
Ambassador Gosper: First and foremost,
it will have to involve a good agriculture deal and that will
have to involve not just the elimination of export subsidies in
all their forms but also significant increases in market access,
most particularly in the developed country markets, the European
Union, Japan and the United States. It will also have to include
an appropriate level of contribution from the developing countries,
in particular the major emerging developing countries. We are
certainly expecting that China, India, Brazil, Korea, Taiwan and
others will also make their contribution in the agricultural area.
The level of contribution, of course, is proportionate to what
is provided by developed countries and will have to take account
of the particular flexibilities that developing countries have
sought, that in turn takes account of their interests in the livelihood
of poor farmers or vulnerable rural communities. That is a level
of balance that the membership has yet to find. We know the broad
parameters of the balance that is available, the number of particular
tariff lines that might have some additional flexibility and the
depth of tariff cut that might be employed, but for agriculture
that is the sort of broad framework. It is going to involve cuts
of around 75 per cent in the current entitlements for domestic
support. It will involve cuts of around 75 per cent, maybe not
quite that much, for the highest levels of tariff in developed
countries and around about two-thirds of that in developing countries.
Then in NAMA we are going to have a formula which cuts tariff
peaks as much as possible. You are going to have something that
produces real market access in the developed countries which generally
have tariffs at their applied rates now, so it is going to be
a significant improvement in those markets. Where the membership
is seeking balance is in the proportion of contribution of developing
countries, in particular the major emerging developing countries
of Brazil, China, India and some others. In services, which is
not subject to a formula or modality as such but bilateral request
offer processes, obviously there will need to be an outcome there
that produces significant improvements in Mode 4 and other areas
of interest to developing economies, but also in some of the key
service sectors, areas like telecommunications, financial services,
professional services and so forth. Then we have the rule making
area, which will come later in the process, later than the next
few weeks or so, where you have the prospect of some improvement
to rules that relate to trade members in particular. Members are
still seeking to find the right balance between various provisions.
Some relate to zeroing public interest tests, sunsets, lesser
duty rules, those sorts of things, but there will be some strengthening
and improvement of those rules. There is something which for the
first time seeks to present an explicit framework for fishery
subsidies, which is quite important for the environmental community,
in particular the World Wildlife Fund, Greenpeace and Oceana have
been working very hard for that, and it is seen as an important
outcome. There will be some important outcomes in the area of
trade facilitation which deals with customs and border costs and
procedures. That is a very unsexy area of the negotiation but
a big dollar item for business groups or those who follow these
negotiations. It will produce an important reduction in global
transaction costs in these sorts of areas. It has been a little
bit underneath the radar, but people will want to ensure there
is a good outcome in that area. You have got a couple of other
areas. On trade and environment I expect there will be some recognition
of the important mutual complementarity of environment and trade
regimes and some reinforcement of co-operation in that area. Even
though they are not formally part of the single undertaking I
expect to see some relatively minor improvements to some of the
rules that relate to dispute settlement understanding. Then, of
course, we have got some more complex issues, complex politically
at the moment, that relate to the TRIPS regime, the intellectual
property regime, where we have one mandate to provide a register
for wines and spirits which, courtesy of the Uruguay Round, are
subject to a high level of protection, and a disputed agenda,
disputed among the membership, for some extension of higher levels
of intellectual property protection for geographical indications
for other goods, so from the EU perspective that reflects concerns
such as the Italian interest in Parmigiano-Reggiano and the like,
but also an interest on the part of many developing countries
for stronger rules on disclosure related to genetic material and
patents. Members are still heavily divided on those issues, so
it is very difficult to say what outcome will come in that area
ultimately. Broadly speaking, it is clear that for the membership
a good part of the strength of this Round relies on subsidy reduction
for agriculture in the major subsidised developed countries and
market access improvement in agriculture, industrial tariffs and
services, and in strengthening of rules in areas like trade remedies,
trade facilitation, and there are some other areas of product
probably less commercial but of overall significance for members.
Q391 Lord Woolmer of Leeds: You have
been living with this for a long time, and your predecessors too,
and it sounds as if all the issues are well gone over, well understood,
but what is it that, despite the understanding, could prevent
an agreement? Where is the political will issue presumably? I
presume the issues are not at a technical level of understanding
what the issues are.
Ambassador Gosper: The immediate issue
is whether the major players can find the right balance in these
negotiations. The EU, US and some others will need to make major
reductions in subsidies, what we call effective cuts. We are talking
about much more than was done in the Uruguay Round where ceilings
were set which were never, never at risk of ever being approached.
We are talking about ceilings now which either cut beyond or very
close to actual levels of expenditure. We are talking about the
elimination of export subsidies, which was a path that I think
the EU was more or less on, but elimination and consequent changes
in export credits, food aid, state trading monopolies. We are
talking about improvements in market access. We are not talking
about tariff reductions of an average of 36 per cent, we are talking
about something much more significant, an average of at least
54 per cent, and with TRQ increases. For the major economies,
they argue that they need to see some return, particularly on
access to the major developing economies, China, India, Brazil.
The exact focus of that interest, of course, will differ from
economy to economy. There are other issues which, if not immediately,
will certainly play into this negotiation. Rules, of course, even
though it has a certain political profile, will have a much bigger
political profile later in this negotiation if we get to the next
phase. At the moment, as some key members see it we are balancing
between subsidy reduction and market access improvement they offer
for the market access they see in other markets. That is particularly
an American perspective but obviously the EU has that interest
as well and we can see that reflected in the current debate they
are having on both the agriculture and NAMA texts, and in particular
the EU interest in what access it will have for its industrial
products in other markets.
Q392 Chairman: Thank you very much,
Ambassador. I am conscious we have already kept you ten minutes
more than you agreed to be here. It has passed very quickly. Thank
you very much indeed for coming, that was extremely useful. May
we wish you luck, although it may be a great deal more than luck
which is required.
Ambassador Gosper: It certainly is. I
appreciate it anyway.
Chairman: Thank you very much.
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