Examination of Witnesses (Questions 411-419)
Mr Pascal Lamy
10 JULY 2008
Q411 Chairman: Mr
Lamy, good afternoon. Unless you would like to start by making
a statement, I believe you have had our questions and we could
just start with those.
Mr Lamy: The only thing
I would suggest we do to begin with is to give you these two bits
of paper just to introduce the discussion so that the overall
framework within which we are working is clear. These two bits
of paper are very simple. One is the list of the 20 topics which
were put into the bag of the negotiation when the Round started.
The other paper is a simple map of the constituency system we
are operating within the WTO.
Q412 Chairman: This is fantastic,
thank you.
Mr Lamy: There are 20 topics, this constellation
of various groups. The whole point of this Round is mixing these
two elements together, shaking it for seven years and hoping that
an outcome will stem from this process. Any statistician would
tell you—
Q413 Chairman: We have any statistician
with us, yes.
Mr Lamy: I know you have a very qualified
statistician who will tell you that the odds of getting anywhere
by proceeding in this way, which is the way we proceed, is nil,
which is why we need a bit of politics, a bit of a miracle, a
bit of pressure and a bit of media in order to get there. That
is to give you a very simple description of what we are trying
to do.
Q414 Chairman: Thank you so much.
That leads me right into my first question, which is how confident
are you feeling about a breakthrough in the Ministerial on the
21st? Who or what do you think are going to be the major obstacles
to getting agreement? I was wondering if you would be prepared
to say a word about the German attitude within the EU.
Mr Lamy: How confident am I? Enough.
When I called the ministers for the week of the 21st in Geneva
I was confident enough that the odds of getting there would be
over 50 per cent. Had I thought that was not the case I would
not have done that. I did this a fortnight ago. Let us say at
the time, to be prudent, it was 55 per cent and it is probably
65 per cent today. In other words, the work that has been done
from the moment this was announced to the compromise text on agriculture
and industrial tariffs, which we will release this afternoon,
is moving in the right direction. That does not take us to 100
per cent, not even to 90 per cent, but it is moving in the right
direction. What we are trying to do this time is address five
or six of the issues you have on your list, which is not the whole
Round but a set of issues we need to stabilise before we move
to the final phase of the conclusion of the Round, which everybody
still has in mind should be before the end of this year. The issues
we have to stabilise in order to get there are agriculture subsidies,
agricultural tariffs, industrial tariffs and to some extent services,
although the services negotiations operate with a different technology
from the three previous ones. So it is agriculture subsidies,
agricultural tariffs, industrial tariffs and some progress on
the services negotiation which we are trying to achieve during
the week of 21 July. What are the main issues? It boils down to
a balance, which is a new balance, between developed countries—US,
EU, Japan, Australia, Canada, New Zealand, Switzerland, Norway
and a few others—and emerging countries. Not that poorer
than emerging countries do not have a big stake in this negotiation,
but my sense is the benefits and the small contribution which
developing other than emerging countries will have to make is
already on the table. The balance between these three issues and
basically the US, EU, Japan, China, India, Brazil and a few others,
is where it has to be found. It is a technical balance. How much
does the US finally reduce its trade distorting domestic subsidies?
How much does the EU cut its agricultural tariffs? How much does
China cut its agricultural and industrial tariffs, how much does
Brazil and so on? It is a fairly technical issue but behind this
there is a political issue which stems from the origins of the
Round where developing countries decided that this Round would
be about rebalancing in their favour rules of the game which we
inherited from the previous 60 years of trade negotiations. Developing
which developing countries as a whole see this as a legacy which
needs to be amended because their analysis of the rules of the
game is that they have been drafted and agreed by previous masters
of this planet, but the landscape is changing and they want their
own say. That was the view of the whole of the developing countries'
camp. Of course, poorer developing countries know that they have
less clout than China, India, Brazil or Indonesia, which is why
at the moment of truth my answer to your question is that is where
the big deal has to take place. As far as the EU is concerned,
on agriculture the EU has a price to pay in this negotiation but
this has been dealt with already within the European Union as
successive reforms of the Common Agricultural Policy were decided
in 1992, 1999 and 2003 and implemented. In many ways the Europeans
are selling on the WTO market a quantity which they have already
paid for among themselves. Of course, they lock into the WTO disciplines
what they have agreed between themselves, so it gives a certain
value because all the other partners of the European Union know
that the EU is a big oil tanker that does not change very often.
That is different from the US which has cycles in its farming
support legislation which are every five or six years and have
been a bit up and down. In many ways, assuming the EU does not
do much more, and that is a question of debate between experts,
than lock into the WTO what they have done among themselves, it
is not a huge issue. Of course, there is still a debate whether
reducing the tariff on poultry matches the difference between
the reduction in production and the evolution in consumption,
and depending on the euro/dollar exchange rate you can have lots
of discussion on this, but overall this is the picture. The Americans
are negotiating commitments which would and will, if there is
a deal, oblige them to change their farming policy. In a way they
are in a more difficult political position than the EU in that
field. On industrial market access you mentioned Germany, and
I am not surprised by this. In this sort of negotiation Germany
has always been very crucial. For whatever reason they believe
that their main stake is on industrial products' market opening
even if they have their own agricultural issues with Bavaria and
the former Eastern Germany. Just look at the German economy, at
the volume they export and where they export these volumes to:
emerging countries. For the last five or ten years emerging countries
have been sucking in German exports on things like machinery,
machine tools, cars, the high value-added segment of cars, so
they have a specific focus on industrial products and precisely
on the markets of those emerging countries I mentioned. This is
why they have taken a lead in this within the EU trade policy
and the EU negotiations which are led by the Commission and the
Commissioner. They have a specific sensitivity both sector-wise
and market-wise which explains why they take this specific stance.
For many, many years now the Germans have been the sort of anchor
of EU trade policy. Their mix is there and, as the anchor, where
they finally land on a compromise is extremely important. Everybody
knows the Germans have a longstanding preference for open trade
and have this free-of-charge model in mind that has been there
for years and years, and of course they are preserving their interest,
but everybody believes Germany is on the right side and at the
end of the day the EC is on the right side. If Germany drifts
on to the wrong side then there is a big problem with the European
Union.
Chairman: Thank you very much, Mr Lamy. I was
going to ask you about where the fallback position lay, but I
think this is the wrong moment, so I will ask Lord Woolmer to
ask the next question.
Q415 Lord Woolmer of Leeds: That
was extremely interesting and I am sure we will come back to it.
Turning to the developing countries, some of the witnesses we
have talked with have said that countries like China, India and
even Brazil have not enough to get out of the Doha Round now to
really engage them. Is that the case? If it is not the case, what
is in it for them?
Mr Lamy: In this Organisation the witnesses
for Members are the Members themselves. They negotiate, they talk
to each other, they talk to me and I talk to them. These countries
have been the main promoters of the new agenda which I was sketching.
Who has made sure that agriculture is number one in the negotiations?
Not the EU, not the US, not Korea, not Japan, not Switzerland,
not Norway. They have made sure that agriculture is number one
because this is where they have short-term, medium-term or long-term—short-term
with Brazil, medium-term with China and long-term with India—important
comparative advantages which they want to exploit. What is happening
with the food price crisis does not go in a different direction.
These countries want (a) more market access in agriculture, (b)
fairer discipline because they remain poor countries and basically
say they cannot fight with the EU budget or the Japanese budget
or the US budget, they can fight with the farmers but they cannot
fight with the budget, and (c) industrial market access. Although
agriculture has taken a lot of prominence, notably because they
wanted it this way, the main benefits of the Round will be in
industrial products and for them, notably in the US market which
on average is not really protected, three or four per cent, five
or six per cent, like the EU. The average is the wrong concept
if you talk about tariffs. I can have zero on plenty of my tariff
lines where I do not have much trade and 30 or 40 on a few tariff
lines where I want to protect my domestic producers. For instance,
in the US market on textiles, clothing, footwear, trucks, ceramics,
to take a few examples, there are high tariffs and if they go
down the way they will if a deal is there, that is a huge plus
for countries like China and India in textiles and clothing and
countries like Brazil, Argentina or even South Africa on agriculture.
I have not given public numbers at this stage because I want to
focus on the success of the negotiation. If you make a rough calculation
in terms of duties foregone, which is very rough because it implies
a sort of zero-sum game, which is a minimum quantification of
the benefits of the Round, if you take tariff reductions in industrial
tariffs, in agriculture, if you convert in tariff reduction terms
what disciplines on subsidy would procure, and there is a simple
way to do this, and on the basis of trade flows today projected
without any increase in, let us say, five, six or ten years from
now, what is on the table in terms of purely duties foregone is
in the order of magnitude of $80 billion a year, two-thirds of
which is paid by developed countries, one-third of which is paid
by emerging countries. Within this emerging countries' camp roughly
half of that is paid by China, not that China has high tariffs,
it has much lower tariffs because of its recent accession, but
because their bound tariff, which is the maximum tariff, negotiated
at WTO is very similar to their applied tariff. Because they joined
recently, Members of the WTO made sure they would bind where they
have applied tariffs, which is not the case in other developing
countries, and second, because of trade flows. Duties foregone
is a multiplication of a tariff, a quantum of these trade flows.
They will be big beneficiaries short-term. If you factor in the
increase of trade flows with these countries five or ten years
from now, the savings for developed countries' exports are absolutely
huge because they will apply to amounts of trade which are much
higher. If I took the table today and asked them, "Are you
okay with the balance of what is on the table?" they would
all say, "No. I pay a lot and don't get much". They
would all say that, which mathematically is totally impossible
even with a zero-sum game. That is the difference between negotiators
spinning their positions. The reality is that potentially on the
table there is a huge package, they will all benefit from, they
just need to do the few remaining miles to get there. Emerging
countries will amply benefit from this deal.
Q416 Lord Kerr of Kinlochard: You
are the master, Mr Lamy, of the big package. I think, for example,
of "Reussit L'Acte Unique". You are also well-known
to be an optimist, and you are absolutely right to be optimistic.
I can quite see why you called this session. But I am a gloomy
Calvinist, a Scotsman, and it seems to me, although you are doing
the right thing, your 65 per cent chance of success does surprise
me. In terms of the political cycle it is quite difficult to see
the Americans making much of a move, and presumably no move on
agriculture from the Americans means no deal. In terms of the
economic cycle the threat of recession creates a stronger threat
of protectionism and maybe the American political cycle is relevant
here too. Maybe the deal got too big, maybe there is too much
in, and yet we see people trying to throw extra issues in: environment,
labour, whatever. Maybe the deal has got too small, because bits
of it have been taken out in advance, at Singapore or Hong Kong.
Maybe it has been overtaken by the development of bilateral deals
and autonomous reforms. Look at the Indian tariffs, as you say
the Chinese tariffs on accession, or look at the CAP, which is
a very different CAP from the CAP of 15 years ago. I am sure it
is right to try to bring this big package to a crunch now, but
personally I think it will be a superhuman feat if you bring it
off. Can you comment on the political timing, the economic cycle
timing, whether the deal has got too big, or whether the deal
has got too small?
Mr Lamy: I recognise Lord Kerr has an
analytical capacity. First, the WTO has no master but its Members;
it is a Member-driven organisation. You spent a lot of time in
Brussels with machinery which is a Member driving organisation
and here it is a Member-driven organisation. Believe me, having
been in both universes, there is a big difference. You are right
that the political cycles, the economic cycles and the WTO cycles
never match. Why is that the case? It is because our cycle is
15 years. From the moment the concept of a Round is elaborated
to the moment the results of the Round are implemented, it is
15 years. The Uruguay Round started in 1986 and the implementation
period ended 16 years later. This Round started in 2001, maybe
we will conclude it in 2008, which is seven years of negotiation,
and the implementation period for developed countries which will
probably start in 2010 will be five years and for developing countries
ten years. That is our cycle. It is inevitable because we are
in a mass which is the international system. When I was in the
French Government the time cycle I had in mind was next week;
when I was in Brussels it was next month; here it is the next
decade. Inevitably, because of the spaces of regulation within
which we operate, there is a big difference. It does not fit with
electoral cycles or economic cycles. The US elections, yes, it
is an important Member of the World Trade Organisation, although
Indian elections may be just as important today. There are elections
in the US, but for the Round this works in a good direction because
this administration has made a determination that they want to
clinch a deal. There has been enough venting of other views during
the electoral campaign up until now and many of the players believe
it is better to clinch a deal with somebody you know rather than
go into the open. That does not solve the question of whether
Congress will ratify an agreement or not, but there is no answer
to this question before you have an agreement. The economic cycle
is also important, you are right, it is looking bad, lots of dark
clouds on the horizon which might lead to protectionist surges.
Governments know that, but they know they have an insurance policy
in the WTO against protectionist surges. Re-investing in this
insurance policy today has a huge value for many of them. They
will not say that publicly, but when Heads of State and Government
come to me they privately tell me sometimes, "I know it is
difficult to agree to new disciplines or reductions in tariffs
but if I lock this into the WTO I am safe because at home I say
we are all abiding to a set of rules and if we start rocking the
boat others will do it". There is this element that also
plays. On things like food prices it is obvious that reducing
trade distorting subsidies or export subsidies by developed countries
which have damaged the production capacity of the developing countries
becomes crucial. It is true, environment and labour are not there,
true in Cancun the notion that disciplines on investment have
been dropped and, true, energy questions, investment questions
may be in the air, but we have to finish this Round first. Everybody
knows there is no way that new issues can be introduced with this
principle of the single undertaking. The Round finishes when on
each of the 20 topics that I have given you there is an agreement.
There are square brackets on some topics, things like geographical
indication extension or the convention on biodiversity, where
whether or not a negotiation is formally mandated is disputed.
My main answer to your question is we have inevitable differences
in cycles. Bilateral deals are there. Yes, we have more bilateral
deals than we used to have, but the basic reason for that is because
countries who had no clue or no interest at all, or with whom
others had no interest at all to enter into bilateral deals, have
developed such as they are now in the range of possible candidates.
If you look at the potential market for bilateral deals this market
has increased, which is why the number of bilateral deals has
increased. I do not regard it as a sort of fashion, these bilateral
deals have many regional and political motivations. They leave
us with two problems. Are the rules of the World Trade Organisation
that discipline these bilateral agreements clear enough? No. We
have rules, but they are not clear enough. Second, their multiplication
leaves us with a problem of erosion of preferences because if
I enter into a bilateral deal with you this will give you a preference
as compared to my MFN WTO status. If in a negotiation I reduce
my MFN tariff you have a problem, and the other way around. The
big political problem of Free Trade Agreements is they create
a sort of anti-MFN vested interest which then weighs on the negotiations.
It is something that I think we can cope with. All in all we have
reached a state of technical maturation and political determination,
including with the US electoral cycle, that makes it a propitious
moment. I know that selling trade opening is more difficult than
it used to be and liberalisation creates resentment more than
it did five or ten years ago. Let us not saddle trade opening
with that. The reasons why the losers of liberalisation are more
vocal than they used to be is basically because systems of solidarity
which existed before have either been removed or changed in a
way that does not provide the same level of security, but that
is not because of trade.
Chairman: I think we are now going to ask you
to think the unthinkable. I am going to ask Lord Moser to ask
his question.
Q417 Lord Moser: I am afraid this
is another pessimistic question. I am not a pessimist or an optimist,
I am just a statistician. All the papers in commenting on your
decision to call this Ministerial Meeting have said you are taking
a big risk. Just as a supposition that the Round may fail—it
is not what I hope, but just on that supposition—what do
you see as the risks for the WTO if that should happen?
Mr Lamy: First, taking a decision in
an unknown environment is always taking a risk. What you have
to consider is the risk of not taking the decision. Because of
this political cycle issue in the US my sense is if we do not
clinch these "modalities", if we do not cross this bridge
now that will lead us to being able to conclude at the end of
this year, then the Round will be postponed for quite a long time.
If we have nothing on the table a US administration will want
to review this carefully and pick and choose, and we know that
a new US administration only comes into the real year after six
or eight months, which means sometime by the end of next year.
The risk is if we do not get modalities, the agreement we need
on the three topics plus the bit of services I mentioned, the
rest of the Round will freeze for two or three years which would
inevitably be interpreted as a failure. It is not taking a risk
if the other option is failure, it is taking a risk between the
fact that if we do not do anything failure is more than 50 per
cent and if I try I have more than a 50 per cent chance of getting
there. What if the Round were to fail? There would be a big geopolitical
problem. The huge investment which developing countries and emerging
countries have made in the WTO is not by coincidence because they
care only about trade, they made it in the WTO because this is
the place where our decision making and governance system is the
most flexible to their interests. We do not have a security council,
veto rights which have been inherited from 60 years ago, quotas,
voting rights, we do not have to spend five years to transfer
1.5 per cent of voting rights from Belgium to Brazil. We are in
a system where we work with consensus. It is a big problem because
getting people to agree takes a longer time but it reflects the
reality of the force of this world more immediately. They would
be very disappointed, very frustrated, and a failure, whatever
the rational reason would be, would be that developed countries
have not done what they should do to rebalance the world economy.
I am not saying that is the right explanation, but that would
be the mantra. Think about the chances of getting somewhere on
an issue like climate change if you do not succeed in getting
anywhere with the Round. A Round is ten times simpler than getting
China or India to agree to the sorts of decisions which they would
have to agree to if they wanted to limit their emissions per head
20 years from now. That is the big picture. That would be bad
news for the world economy at a time when it probably needs more
good news than bad news so it can entertain a negative cycle.
We know where we are and I do not think I need to comment on that.
As far as the Organisation is concerned, of course it would be
bad news. We would still be administering the rules of world trade
as they have resulted from eight previous Rounds. We have a stock
of rules. We would still have a dispute settlement machinery that
is fairly sophisticated and reasonably well-recognised and legitimised.
We would still be training developing countries to understand
what negotiating and implementing trade agreements means. But
we would have less clout on an issue like Aid for Trade, for instance,
which I have been trying to push since I have been here to complement
the fact that we provide developing countries with more market
access possibility, but it only remains a possibility and does
not translate into reality if they do not increase their capacity
to use these trade positions, and there would be a sort of depression,
whereas for the moment the two things are reasonably well synergised.
It would not bring the WTO down. We have accumulated rules, procedures
and know-how over 60 years and you do not drop this overnight,
but for sure it would be seen as an incapacity of one of the organisations
which has been managing the multilateralisation of the world economy
for a few decades and it would be interpreted as where is global
governance today if organisations like the WTO cannot do their
mission. It would not bring this Organisation down, but it is
like not making an investment.
Q418 Lord Kerr of Kinlochard: Would
it affect the credibility of your extremely impressive dispute
settlement procedure?
Mr Lamy: I do not think it would affect
the credibility short-term but it would create a situation where
the balance between the legislator and the judiciary would race
to be treated on the side of the judiciary. As in any governance
system, we have to have a very careful balance. We have a big
legislative, a tiny executive and a big judiciary. If rules are
not adjusted to the world today this would go to dispute settlement
and then the panel and the appellate body would have to interpret
all such rules, some of them from 1948, into today's reality.
It is better to adjust the rules—you are legislators, you
know that—rather than asking the judge to do it, especially
if the judge is operating far away from normal legitimisation
processes. For the moment it is okay, but I have heard sometimes,
"Why should we abide by the rulings of seven gnomes in Geneva?
Who are these people to tell us what is good and bad to put on
our plate?" There is a danger if you do that. This danger,
which is inherent in any system, especially because we have an
extremely specific judiciary in many ways, is of being unbalanced
and if it is unbalanced then it is the whole legitimacy of the
system that is affected.
Q419 Lord Maclennan of Rogart: Mr
Lamy, you said, and I listened very carefully, that you work with
the consensus which reflects the realities of the world we live
in more immediately, but that might almost appear to be an impossible
scenario with your own description of the cyclical decision making.
Is it not possible that international trade agreements are taking
too long to actually impact, that is universalist multilateral
agreements are taking too long to impact beneficially upon the
international community? Whatever the outcome of this Round, whether
favourable or unfavourable, from your vantage point and the others
you have occupied before, is it not arguable that there are less
universalist approaches that might deliver more variable geometry,
two speeds, a sectorally more limited approach, or do we have
to continue to live with this long cyclical, even circular process
of change and just accept that is it? This is not to say that
there are not other possible beneficial roles for WTO to play,
perhaps in respect of other trade negotiations, recognition of
implementation of desirable changes that may not have been so
multilaterally conceived. Your experience post-Doha would be interesting
in this context.
Mr Lamy: If we get to the end of this
Round your question will be on the table five months before we
get there. I remember the end of the Uruguay Round in 1994 and
I was already connected to these issues in the position I was
in and the mantra after the Marrakech Conference that formally
closed the Round was, "Never again. This single undertaking
is terrible. Consensus is too heavy. Never again". We operate
under three constraints, not just two but three constraints, and
Lord Kerr will understand immediately: consensus, a heavy way
of taking decisions but in international organisations rather
widespread; the single undertaking, which is mixing these 20 topics
which is terribly complex; third, not to be forgotten, bottom-up.
The initiative proposals in this system are with the Members,
so if I have an idea I will have to have this idea cleared by
my capital, which will make it totally self-serving, and I will
table this to other Members and say, "I've got a great idea,
that's what you should do now", and immediately the 152 other
Members would say, "No. I know you, so let's start with three
years during which we are going to wash all these self-serving
elements from your proposal before it becomes capable of being
discussed". That is three years. There are other systems
in governments where the legislator of the government can table
an initiative. It is no coincidence, because the thing was devised
by people who knew the international system pretty well, that
in the European system the Commission has the monopoly of the
initiative because they know it needs somebody above the domestic
national interest to table something which a priori can
serve as the basis. This debate will come and we will have the
various options you have just mentioned, instead of doing 20 topics
together, could we not go topic-by-topic and have a negotiation
on geographical indications or on fishery subsidies or regional
trade agreements. This is what happened after the Uruguay Round,
there were a few sectoral negotiations, telecommunications, financial
services, between 1994 and 1996. The sectoral way is one potential
way. Then there is another way which is, "Can't we get rid
of this consensus and go to variable geometry?" We tested
this and it happened after the Uruguay Round with the ITA on technology.
We had this with the Government Procurement Agreement, which is
a plurilateral agreement, not a multilateral agreement. These
ideas are there and they may be useful for a next stage. The world
has changed since 1994. When there was disagreement, for instance,
that basic investment rules should be negotiated at Cancun, the
Europeans tried at the time to have this as a plurilateral agreement
and this was refused because in order to have a plurilateral agreement
you basically need the non-participants to this agreement to agree
that you can enter into this. Whether India is ready to be a non-participant
in an investment negotiation is unclear because there is a cost
to do that, especially in matters of this kind. These avenues
remain open, they will be considered and debated, plus, of course,
the bilateral or even unilateral way of opening trade, which is
what happens every day. If you look at the bound tariff of India
on industrials, it is somewhere around 40 or 50 per cent, and
if you look at the applied tariff of India on industrials it is
probably an order of magnitude of ten, but in WTO we negotiate
bound rates. The one thing which you cannot do sectorally, bilaterally,
with variable geometry or unilaterally is horizontal disciplines.
Take agricultural subsidies, you cannot do that bilaterally, you
cannot do that by variable geometry. Take anti-dumping, disciplines
on anti-dumping, bilateral, no, plurilateral, people will want
everybody to be in the disciplines. Take fishery subsidies, we
also have ways to factor in variable geometry although we do not
call it this, it is Special and Differential Treatment for developing
countries. In many ways our tariff agreements or tariff structures
are not homogeneous. If we are negotiating a totally new, starting
from scratch, agreement on discipline in fishery subsidies, will
the Irish or European fishery subsidies be treated the same way
as Indian fishery subsidies? No, there will be an element of Special
and Differential Treatment. Our system is not one-size-fits-all
as it sometimes appears and there are avenues to approximate this
and I am convinced that this will be the case. Where I do not
think we will change is on consensus, not least because finding
another system is so terribly difficult. When you look at all
the literature and academic proposals that have been made in the
international system, the only rational way of getting there,
which is a sort of double majority of populations and states,
took the European Union 60 years and you are not even there because
the Treaty is not ratified. It took 50 years to get to a system
where the political determination to create integration was incomparably
stronger than in any other non-national system. That is the clever
way of addressing it 50 years from now maybe.
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