Examination of Witness (Questions 501-517)
Ambassador Crawford Falconer
11 JULY 2008
Q501 Chairman: Ambassador,
may I formally welcome you and say it is very kind of you to come.
I know you have got a few other things to do today and, indeed,
possibly overnight. We are grateful that you are here. We would
particularly like to start by asking the key question: how are
you getting on? Does the agriculture text that you published last
night meet your expectations? What are the next steps?
Ambassador Falconer: I thought you were
going to ask me how are you getting out, which is much more on
my mind at the moment I can assure you!
Q502 Chairman: We can ask that later
perhaps.
Ambassador Falconer: I suppose in certain
ways it is the same question. I think for better or worse it will
be resolved at the end of July. You can always have what I would
consider to be the most horrifying scenario, which is that you
stagger on, come back after the summer and keep staggering on
day after day all the way through to the end of the year, but
I do not think so. I think by having this event at the end of
July you take a clean-cut decision, hopefully a positive one,
and if you do not then nobody will ever say that it has failed
formally. The press will declare it dead but if that event happens
the press have already declared it dead. My mother back in New
Zealand keeps saying to me, "Why haven't you come back, I
read that the Round is over?" I think one way or the other
it will be over and done with to all practical intents and purposes
for quite some time in July. We are in less than ideal shape for
dealing with that, but just about in enough shape to deal with
it. In theory, ministers should be here round about the 21st.
They could, in three or four days, do everything that needs to
be done. I must say they probably will have every right to be
a bit irritated with their officials for leaving them with so
much to be done, but it is just about manageable. It is at the
margins of manageability, in my view. I reckon you could probably
end up with 15 issues on agriculture for ministers to resolve,
which in itself is not difficult because some of them are pretty
straight "yes/no" decisions; others run the risk of
being a little bit more complicated. With these two texts out
you could have some chance within the next week of fine-tuning
them, I do not think anything dramatic can be done, and then ministers
will have a go at it for a week and we will see what happens.
I think it could go either way, frankly, but we will see.
Q503 Chairman: It has been suggested
to us throughout that the key question is whether the Americans
feel able to make significant concessions. Do you see it that
way or are there lots of other people who will have to move as
well?
Ambassador Falconer: There are others
as well. I am only really supposedly looking after agriculture,
but my sense is that the US has some heavy lifting to do on agriculture,
it has to be prepared to make commitments—in the jargon—on
domestic support, subsidies on agriculture, to a point that makes
the deal worthwhile in particular to developing country members.
Where is that point? There is a range in my document. If it is
within that range and people accept that is the range, which at
the moment some of them do not, somewhere there I think you could
get a deal, but they would have to be able to move to that particular
point. On the other hand, in agriculture you need to have an outcome
for what I call flexibilities for developing country members on
the market access side that the US and others can live with, but
the US in particular for whom politically they have to have some
kind of outcome that they can point to. Again, that is a pretty
marginal call because, in my view, there is not a wide range of
choice now in the document as to how far that can go. There has
to be, if you like, something that the US can swallow that is
not excessive for them, but there has to be something on the part
of developing country members that accepts the range of flexibilities
is manageable for people who want to get access to markets. That
is within agriculture. Essentially the key issues within agriculture
are: will the US move on domestic support that makes the deal
worthwhile to everybody else; will developing countries and US
and some other developed country exports be able to reach a compromise
on how many flexibilities there should be for developing country
members on market access. Then, outside of agriculture, whether
there is enough market access on industrial tariffs and enough
comfort level on services for developing country members and the
richer countries to do a deal. They are the main elements. There
are other things as well which are highly obscure, things like
the relationship on the Convention on Biodiversity and what goes
on in the WTO where developing country members have quite a lot
of interest and I think that has been a bit underrated. Things
like that will also need to be fixed. I do think it is down to
those major political points and the question is whether people
really want to make that deal or not. You may say, "Surely
you should know by now" and that is why I say it could go
either way. When you have any big negotiation, if you are close
to it you either have the smell there is a deal there or you do
not. I do not have the unambiguous signs of a deal. I can see
it could happen and three months ago I did not even feel that.
I feel it could happen, but you do not have that sense of inevitably
that you would like to have going into an event like this.
Q504 Lord Woolmer of Leeds: Breaking
down the macro view there, what are the products on the American
side that, in effect, they will move on? From the point of view
of the countries which hope to benefit from this, what are the
agricultural markets that really matter to them, and which are
the countries? I am seeking to put it in a way that the layman,
the non-professional person, could understand, just to make it
a reality.
Ambassador Falconer: From the US point
of view, they pay subsidies to their farmers and pay them in a
way in which they benefit particular crops. We are largely talking
grains, corn, cotton, soybeans, things like that. They legislate
how much those subsidies can be. In fact, those subsidies can
go very high because they vary depending on what the international
price is. When the international price is low the subsidies go
up; when the international price is high, by and large the subsidies
go down. At the moment, paradoxically, international prices are
sky high, so US subsidy expenditure is very low. The problem is
that the world changes seasonally, especially in agriculture,
and even though that is the case this year and certain people
make products which are pretty stable and it is going to stay
that way, there is always the uncertainty and it may not be like
that in three or five years' time when the prices might be very
low, in which case the subsidies would go sky high. The US negotiating
position is, "We are going to put a limit on those".
In the negotiation they would be saying, "Okay, the maximum
amount of subsidy you could spend on cotton, corn, soybeans, is
the following" and if you are another competing country out
there you want that limit because it means you have got to compete
with less subsidy. The US probably could be relaxed about that
this year but it is going to enter into a deal where it is going
to put a limit on which will not affect it this year because prices
are high but has the political anxiety it might affect them in
three or five years' time. They have to sell to their constituencies
a limit which they consider is realistic in the circumstances
and everybody else who is in the negotiation wants to make sure
that limit is as low as possible, but they want to make sure the
limit is as high as possible because, naturally, their constituents
would rather have the cheques if they possibly could, thank you
very much. We are haggling, in effect, over what those limits
will be.
Q505 Lord Woolmer of Leeds: Which
are the countries pressing most strongly?
Ambassador Falconer: There is a groundswell
in a lot of the developing world that would really like those
subsidies right down, either because it affects their domestic
agriculture or because they compete on world markets and they
lose market share. It is not just the US, do not get me wrong,
it is also the EU, which is the other big spender, but the EU
already has a plan for what it is going to do to reduce the subsidies
over the future and so is in a good negotiating position and the
US does not. It is more of an issue with the US. Plus, on some
key crops, their programmes are a bit more distorting for some
of those countries. Commercially, it is very important for a country
like Brazil because they compete in some of these crop areas with
the US pretty directly, and Argentina, on corn, soybeans, et cetera.
They are actually competing with US subsidies, so they have a
very strong commercial interest in it. You have those kinds of
countries which have a more commercial orientation, and the Australians
are in the same category, but then you have countries which on
the import side, and even on a small scale, are quite conscious
that the way in which those subsidies operate is they depress
prices internationally when they apply, so they lower the prices
to their producers who are already poor. The most significant
example of that is a country like Benin in west Africa, and a
number of west African countries, which produces cotton. In the
past, US subsidies to cotton have depressed the prices of their
poor farmers enormously, which is why cotton is a very specific
part of the negotiations. Politically, the US faces the dilemma
on cotton, which is a very powerful political lobby on cotton,
very powerful political pressure internationally to lower their
subsidies on cotton, and they have got to sell their deal because
it has got to be sold to the US Congress. In one sense it is notionally
easier to do that now because, in actual fact, even cotton prices
are going up. They were pretty slow to go up compared with some
commodities. There is perhaps a window now where the US could
say, "Look, we can make commitments on this stuff which look
quite dramatic, but they are not going to affect the dollar in
the pocket of the farmer one bit, so what's your problem?"
The answer is people want that insurance policy for the future,
so they will have to negotiate that politically, domestically,
and find something which is acceptable to the rest of the world,
who will say, "What you are proposing still isn't enough".
I assume the US will come to the meeting and have some proposal
and people will say either, "That's enough" or "It
isn't enough for us". Some people will play it tactically.
They may have a direct interest in that subsidy question but because
they do not want to open their market to industrial products,
say, they will find it convenient to say, "It's not because
I don't want to open my market to industrial products, it's because
it's not a fair deal because these guys are using taxpayers' money
to steal markets in agriculture and it's not a fair deal for me
to do this". So you will have both elements in the negotiation.
Q506 Lord Trimble: Our locus in this
matter is that we are part of the House of Lords European Union
Committee, so technically our examination is on European Trade
Policy and we are absolutely fascinated by all the ins and outs
of the Doha negotiation and trade policy generally. Because our
technical position is looking at the European Trade Policy, I
would appreciate your comments on the European Trade Policy.
Ambassador Falconer: That is a big canvas
and I probably do not have much of a mandate for that. I will
try and constrain myself to what strays into my path. Since the
McSharry reforms European agriculture has been on a reform path
and personally I doubt very much that will change. The world is
an unpredictable place but probably, at least after 2013, there
will be further reform in Europe. I know it is politically very
sensitive at the moment and those decisions have not been taken,
but the direction is pretty reasonably clear. It would take a
major political convulsion for that to change. It is not certain,
but to an observer like me that looks to be something that will
continue. That means over time the process of moving from the
kinds of subsidies which really distort international markets
to subsidies which are paid to farmers, not because they produce
but because they are farming, will presumably continue and that
will improve the international market, not at a pace or an extent
that others that have to compete on the international market will
be happy with but it is at least going to go in the right direction
presumably. If we have a successful outcome in this negotiation,
that will have a little bit of additional pressure, not a great
deal, I have to say, on the internal market because there will
be a bit more competition from imports. Again, not a vast amount,
to be honest, because what is realistically going to happen out
of this negotiation is not going to turn the world upside down
but it will be a bit more external pressure that will maintain
the sense of direction that for its own reasons Europe by and
large wants to go in with its agricultural policy.
Q507 Lord Trimble: So you do not
see as a result of the current Round any significant opening up
of the European agricultural market to non-European imports?
Ambassador Falconer: I think there will
be some. My assessment of that is that it would be a moderate
opening. In actual fact, I would say a moderate additional opening.
For instance, if you look at the projections in areas like beef
for consumption inside the EU it is quite obvious if the production
trends that are there continue and the consumption trends continue
there is going to be a gap that needs to be filled in any case
and imports will move in to do that whether or not you have a
negotiated outcome. One of the beauties of a negotiation is that
you can do what you know what you are going to do anyway and get
paid for it, it is smart negotiation, and I think the Commission
negotiators, like others, are smart enough to know in certain
areas Europe is going to be able to open up in any case and they
will be able to sell that as a concession at this table and get
some payment for it as well. It is not entirely cynical because
at the margins there will be things that will happen that would
not otherwise happen if we do this deal. It may not sound huge,
but things are connected in a way that are not obvious to the
eye. There is a way in which at the political level there are
connections which are not logically there. It is politically connected
that when you are doing your internal reform and you have an ongoing
multilateral process of negotiations that have credibility time
after time you cannot completely separate them. McSharry did not
make his reforms in a vacuum, it was projecting Europe as part
of the world, and part of that world was, "We have to negotiate
with our trading partners. We have to find ways to accommodate
their interests and live with them as well as our own". If
you lose that, and you run the risk of losing it if you have a
failed Round, then you lose quite an important part of the context.
I do not doubt that internal reform would continue even if you
did not have a successful Round, but you increase the chances
of that going forward to more optimal outcomes if you have a successful
and credible Round. It is not just because politically internally
to Europe the argument has been made, as indeed it has, that we
have to do certain things partly because we are going to have
to deal with the multilateral negotiation, it is because there
is indeed that sense that you are part of a generalised process.
If that fails, you just take a little bit of the credibility away
from those who are seeking a bit more reform.
Q508 Chairman: I am going to ask
Lord Haskins to ask his question. I should warn you that he is
a farmer!
Ambassador Falconer: Shall I leave now!
Q509 Lord Haskins: Coming back to
the issue of food prices, quite clearly in the short-term we have
seen a very rapid movement from the priority moving from support
for farmers to protection for consumers with all of these export
taxes that are taking place at the moment. That may help the American
Government to agree a farm deal because the American public may
be much more interested in jobs lost in Detroit than in the farmers'
position, the farmers are doing okay. It is certainly a new element
since we started the Doha negotiations five years ago. If it is
a long-term factor, and I am not saying the prices are going to
stay at this level but they probably will not go back to the level
before, will any of the settlement that we have now stand up under
those new pressures? In other words, is there going to be an issue
there? Are other issues which are looming in importance, like
the development of GM, going to become a WTO issue, or is it going
to be left for everybody to continue to scrap about this issue
as they are at the moment?
Ambassador Falconer: On the first one,
I am guessing, probably like all others at the moment, if we get
an outcome now, and when I say an "outcome", in the
jargon this is modalities, it is not the final deal—the
final deal does not actually happen until you sign and seal it,
which presumably is not for several months—it is quite conceivable
as far as the domestic subsidy commitments are concerned that
they will be pitched at a level, and I am guessing what that level
would be but I have a rough idea in my mind about what I think
will happen, and it is perfectly conceivable if we arrive at those
commitments at those levels that sometime over the next five-plus
years those levels will be under threat. In other words, there
will be occasions when members will have to live up to something
that prices would lead them to want to breach. I think it would
be worthwhile to do the deal we are going to do now because at
some point in the future it will be a very important insurance
policy for smaller players. I would not be sitting here as a bureaucrat
if I really had confidence in my own judgments, I would have made
my fortune on the Chicago Commodities Exchange, so I do not know
really what is going to happen. I have a suspicion that there
will be occasions when prices will drop and they will drop to
levels that are conceivably below what we ultimately negotiate,
which means you will want to put in place dispute settlement to
stop people doing that. Indeed, for the governments concerned
it is a good idea because I do not think any of them particularly
want to overspend taxpayers' money on these things but they have
a political balance to strike. On the second question, part of
the reason for wanting to do this now and get it off the agenda
is precisely in order to get onto what I would consider to be
a more real world agenda. It is not that I am demeaning what we
are doing at the moment, it is just that it has taken so damn
long to do it that you get a bit frustrated with it and it is
crowding out the capacity of the Organisation, and internationally
member governments, to focus on far more timely questions. We
have got to get rid of this so that we have some chance of credibly
dealing with an emerging agenda. On the GMO question specifically,
it is hard to tell except that dispute settlement within the WTO
is dealing with it. They deliver up judgments on this. Personally,
and this is only a personal view, I am very sceptical about the
capacity of seemingly adjudicated decisions on these matters being
able to resolve intensively political questions, but it is fair
enough that they provide another element in the mix. I do not
think with really contentious issues that the WTO dispute settlement
system is sufficiently robust and entrenched at the national level
within the member governments that it is capable of profoundly
changing politically highly sensitive issues, which is a long-winded
way of saying I think you have to negotiate those things, I do
not think you can litigate them. You can at the margins, and there
are some things which you have to, and they may provide leverage,
but at the end of the day you still have to negotiate them. Is
the WTO likely to negotiate on GMOs? I am very doubtful about
that one in particular, but there is a whole range of other things
which are agriculturally related where even if the Organisation
does not negotiate on them it could certainly go a long way to
doing other things which are what I would call more best practice
peer review type exercises, which is not a pure negotiating function,
more the soft law rather than the hard law area, which the Organisation
has not done. It has always been knock `em out, drag `em out negotiations
and "Give me a rule and off with his head". That has
pretty much been the mentality and that is fine, that has a role,
but there is something which is short of pure negotiations where
you have contractually binding commitments where there is a policy
vacuum at the international level. You have national levels to
deal with it, you have an international organisation which does
contractual type deals between governments, but there is nothing
in the trade field that we use in the middle internationally and
I think there is a role for that in the future. That is probably
where the kinds of issues you are talking about are more likely
to get an airing.
Q510 Lord Haskins: Just pursuing
the GMO issue, let us say the WTO comes out and finds in favour
of the Americans, that there is a restriction on trade, you are
saying for political reasons Europe might say, "That's all
very fine but we're ignoring it"?
Ambassador Falconer: That is quite possible,
yes. It would not be the first time in a dispute settlement that
these things have happened. Even in areas that are less politically
controversial, while the strike rate of adoption, ie changing
your behaviour to conform with outcomes of dispute settlement,
is pretty good there are still cases where it has not happened
and does not happen, and does not happen quickly. At the moment
on the saga of the cotton case, which has been going on for a
very long time, we have got an opportunity now to close a negotiation
on cotton as well. My suspicion is that if you do the cotton as
part of this negotiation, that will be the way in which this issue
is resolved. I do not want to give an incentive to people not
to live up to decisions of an organisation like the WTO when it
gives a decision, but I think you will find it will be a lot harder
to get implementation if you just rely on people abiding by these
decisions. There are quite a few others that are sitting out there
that still have not been actioned. You can delay this whole process
for years by appealing against an original decision, just not
implementing it and then undergoing a further review to see whether
you have implemented it. You always claim you have implemented
it and delay even longer. You can spin it out for five or six
years before you actually implement. When it is something that
is really deeply politically controversial and sensitive it is
a bit unrealistic to imagine that people are going to say, "Ah,
the WTO has decided against us. Okay, we will do that then".
Q511 Lord Haskins: Even though lots
of European governments would want the WTO to do that.
Ambassador Falconer: It depends on the
issue. One person's sensitivity is another person's boredom. It
might seem very sensitive to one Member State but for the rest
it is a plus or otherwise. There are some things on which political
constituencies are pretty uniform in their views. I believe a
lot in trade, and believe very strongly in it, but I think it
is a mistake to think that trade is the be all and end all, there
are other things that are just as important, or more important,
and they can genuinely conflict and you have to arbitrate conflicting
objectives. Trade does not exist in a vacuum and there has to
be a certain degree of realism about that.
Q512 Lord Maclennan of Rogart: I
am sorry to persist a little on the issue of what might unlock
the thing shortly. We heard from a fellow negotiator that progress
on the NAMA front has been quite good, but everybody else we have
been talking to has indicated that the key is agriculture. If
the Americans, and perhaps Europe, are going to be forthcoming
on that, do they have to know what the NAMA deal might be first?
It is a sort of mechanistic question, I suppose. The second subordinate
question is, on your side are the members negotiating about global
figures or are they negotiating about individual products? We
heard outside this room some speculation about distorting domestic
support being brought down from $16 billion in the States to 13
or 14 and that becoming negotiable. I do not know whether that
was the sort of thing you were talking about when you talked about
having an idea of a level at which domestic subsidy might be pitched.
I would be very interested to hear more about how it is done.
Ambassador Falconer: On the nature of
the bargaining, which is the first half of your question, you
are dealing with people who are negotiating and that is one of
the paradoxes of this. The whole notion of this is still essentially
a mercantilist notion of how you deal with trade, which was liberalisation
is a concession and painful when, in fact, economically you all
know it is the other way round, but that is the way we do it for
better or worse. When you have that mindset the attitude is, "Politically
the other guy has got to move and not me", pretty straight
forward. If you have agricultural objectives, which is you want
liberalisation, you want the other guys to stop spending so much
subsidy money, you say, "Well, that was pretty pathetic,
wasn't it, it's not a lot of use to me. Do you think I am going
to pay you for that? Sorry, all I'm getting is a container load
of rice into your market, but if you think I'm going to have your
Mercedes-Benz driving down my avenidas you must be dreaming".
That is essentially what they are doing at the moment. That is
a bit of a caricature, but it is not too big a one. To be honest,
there are certain political realities which, whether people concede
them officially or not, are real, which is at the end of the day
developed country members will have to do more than developing
country members, and there is jargon for that. They have to, it
is just a question of status and capacity to deliver. Politically
you can take the view that whatever is done on agriculture, particularly
on subsidy reductions, is going to be, I will use the language
of contractualising, making a solemn commitment to your trading
partners to live within certain limits, but doing so on levels
that you are not spending right now. On the subsidy side, that
is what is going to happen. As it happens, expenditure is really
low right now. That gives a view from the other side, which is,
"All you're going to do is promise me not to do what you
are already not doing, and you want me to pay for that?"
They say, "Okay, I'll pay for that, I promise not to do what
I am not doing as well". A lot of developing country members
are politically taking that stance right now. Not all of them,
there are variations within that, but that is basically it. In
reality, as far as industrials are concerned, what it comes down
to for most developing countries is to say, "We'll do a little
bit to open up our industrial markets, not a lot, because you
are not entitled, rich countries, to get a big piece of our market
for your industrial products because what you are going to do
on agriculture, while it's not too bad, isn't that dramatic anyway,
so don't think I'm going to do much in return". My feeling
is if we get a deal in July the reality is that will be the basis
of the deal, the only question is how much is that not very much
going to be. I would never talk it down. You are not going to
see a dramatic opening of markets in developing country members
for industrial products, just as you are not going to see a dramatic
opening of markets for agriculture in developed country markets
either, you will get what I call marginal change which keeps things
going in the right direction which on balance is better than not
having it and which politically is terribly important for stabilising
a multilateral system, all of which are plus reasons. It is true,
it is pretty hard to get CEOs of business firms excited about
that so that they go knocking on the door saying, "We've
got to have it". I think that is pretty much the kind of
political decision making that will be required. It may well be
that if you are a developing country member you say, "Okay,
if that's all you're offering, I'm not offering any more and I
will stand back and say `you rich guys didn't step up to the plate,
you didn't take your responsibilities, you should have done a
lot more because you are rich and can afford to do it and it may
be a political decision taken to say that's the way we'll play
this'. Nobody is going to pillory us for not opening up our industrial
markets but they will, for sure, find it a lot better to make
this negotiation fail over agriculture than over industrial products."
On the other side you see people in the developed world preparing
to take the other side and say, "What this negotiation is
about is richer developing country markets not being prepared
to take their responsibilities to put a deal through". You
have got the manoeuvring on either side for an escape ridden blame-game.
I hope that does not happen but I read the political signals and
I can see people manoeuvring to have that option just in case.
I think it would be most unfortunate but I could see it happening.
On the more technical side of the questions you asked, it is a
combination of both. There are generalised reductions, but, as
with everything that is generalised, in an organisation with as
many members as we have there are exceptions and add-ons. By and
large for subsidies we will have sort of general reductions for
those but you will have a very specific reduction for cotton because
it has been given a priority for targeting. Within the general
reductions there have to be what they call product-specific commitments
as well. The big number that gets the political attention is what
they call overall trade distorting domestic support, which is
a combination number from its component parts. That is a nice
simple number, that is the one you mentioned with the range between
US$13.5 billion and 16 billion for the US. It is a nice convenient
number. Inside it you have got categories: most trade distorting,
somewhat less trade distorting and non-trade distorting. For anybody
who is commercially interested in the deal, those numbers are
perhaps as significant or more significant than the overall number,
but politically the overall number gets the attention. What you
will probably read in the media over the negotiations as far as
the US is concerned is does the US go to the top, ie make a very
low commitment, or does it go to the bottom of the range in my
paper or, indeed, as some argue, under that range. Ditto for the
EU, but for the EU its room for manoeuvre is much greater because
it has already made the reforms and it can live with probably
just about any overall number that we negotiate.
Chairman: Thank you very much. I can see it
is going to be a very busy July. I would now like to turn to the
moment past the end of July, I guess, and ask Lord Moser to ask
his question.
Q513 Lord Moser: You spoke a few
moments ago in answering Lord Haskins about some of the other
things that the WTO might do in the future. Obviously in our meetings
here we have focused on the current Round to understand the chances
of a breakthrough, et cetera, but much of it has obviously focused
on the WTO. Taking a longer view of the organisation and perhaps
leaving the Doha Round on one side, how do you see the future
of the WTO? Do you see it substantially changed in its structure,
in its decision making operations, a sort of world role really?
Ambassador Falconer: It is hard for me
to envisage it being substantially changed in the next five years
or so, but it can certainly be marginally changed. In some ways
it is easy to pontificate. It will enlarge, it will get bigger,
it will get more members, there is no question about that, that
is happening almost week-by-week. Eventually we will run out of
them, and we are getting close to that, but we will certainly
end up with more members in the Organisation. It is a weird Organisation.
Unlike the UN, there is no formalisation of the groups. You do
not have a Western Europe and the G77, all of which, whatever
you make of the UN, are reasonably established ways in which you
broker a very large organisation to take decisions because you
effectively delegate decision making to within the groupings.
The WTO has never had that. Indeed, it has unanimity as its practice,
it is not the way in which it is written. The practice is that
you have to have unanimity of decision making, which is extraordinary.
Can you imagine a parliament operating on unanimity? It is extraordinary
for an international organisation to work that way and, thus far,
it has just kind of worked. It is pretty much at the limit on
the unanimity issue right now. It has got beyond the past practice,
it is de facto involving groupings. You have a grouping like the
G20, which consists of developing countries which has emerged,
you have a grouping called the G33, which is poorer developing
countries. They have not hardened into coalitions because they
are shifting and people belong to different ones for different
issues because in trade you have varying interests. You might
be agriculturally protectionist and you can be liberal on services,
it might be you do not really care very much on industrials. It
is very difficult to see how you could evolve in the direction
of a UN system exactly. I think the Organisation will probably
become closer to a UN-type organisation than it has been even
in the past in order to be managed to some extent. I guess it
is hard to imagine that it would not continue with a negotiating
function. What gets ministers' juices running is a damn good negotiation
and the longer the better. It will always have a negotiating function,
that has been its raison d'etre. My own gut feeling is
that you will have a more explicit acknowledgement of what I think
is already the reality, that the negotiations paint grey on grey,
they do not actually change things much. In other words, you do
not initiate new change from a multilateral negotiation any more,
scarcely at all. The exception is agriculture because agriculture
is still so relatively protected, and even there it is pretty
moderate. As I have been describing, even in agriculture what
you are talking about is contractually undertaking to your trading
partners not to do what you would otherwise have unilaterally
decided not to do. So as a sovereign state you are basically making
a promise and saying, "I will make a promise to my fellow
states in the international community not to do certain things".
It is a politically different thing from just taking a decision
not to do them, but that is more the essence of what the WTO will
be, I think, which is a body for consolidating national decisions
rather than something that changes the way people do things.
Q514 Lord Moser: The problem is that
trade relates to everything, so in our discussions we keep on
hearing about climate change and energy policy, of course. One
is conscious all the time of financial issues, therefore the World
Bank, IMF. Where does it place itself? Maybe we should not spend
time on this, but where does it place itself in this international
network?
Ambassador Falconer: People should be
turning their minds to that now. The Organisation is peculiar
in one sense. It is far more inter-related formally in terms of
sovereign state to sovereign state behaviour than just about anything
else. In actual fact, the commitments that are being made in this
area are far more pervasive and stable and accepted, if you like,
than in just about any other area of multilateral decision making,
and I would argue a lot more democratically arrived at because
they are arrived at by unanimity. The usual arm twisting goes
on, but at least at the end of the day you can veto it if you
choose. Good luck to you if you try, but you can. It is not even
as undemocratic as the Security Council, which is quite extraordinary,
but it has to interact with these other policy domains. In a certain
sense they are not so contractualised as the traders either. Working
out how you have what I would call a sort of contractualised set
of relationships between states in the trade area and a non-contractualised
set of relationships in other areas, and marrying the two together
should be one of the big challenges for the Organisation in the
next ten years, especially as I do not believe it has a real vocation
to fundamentally drive economic change in the trade area because
that is done unilaterally. India and China do that because they
have decided to do it and not because the WTO forced them to.
Because they decided to do it they are able to accommodate the
WTO and, in China's case, join it because it is now something
they can live with. I do not think that vocation is there any
more but the vocation of how you get along with the other policy
areas is there and goes to the question there are other things
you could be doing as an international community with a trade
perspective than just simply bargaining all the time. You could
actually be talking about how you manage your relationships in
an agreed or mutually supportive way without saying, "I'll
pay for this and you'll pay for that". The "I'll pay
for this and you'll pay for that" guarantees that it takes
you five or ten years and you become non-adaptive. If you have
something which evolves out of a, "What can we agree to do
to help each other and work in a way that is more mutually consistent?",
you can be far more flexible and do those things more quickly.
Do not get me wrong, that happens to be a particular personal
view and the chances of that happening in a very significant way
and very quickly are quite slight unless people with real political
responsibility sat down and said, "Well, actually there are
some more things we can do". There are some elements that
people are willing to do that. Ironically, a failed negotiation
will probably bring people to that point faster than a successful
one. I am not arguing for a failed one but I just think it is
a reality of life. If this fails I think people will say, scratching
their heads, "Hang on a minute, somebody else must have done
something wrong". That will be the first reaction and then
they will say, "Maybe we can try and fix something here".
If we have a success I think people will say, "Wonderful,
fantastic, let's just carry on doing what we have been doing".
That is not bad but eventually you will have to rethink it and
it will take a lot longer.
Q515 Chairman: That is an extremely
interesting answer. Can I just have a little pick at it because
it seems to me that the implication of what you are saying is
that there is only just enough juice, just enough to go for in
what people have not already done in trade terms to get through
one more Round.
Ambassador Falconer: I think that is
about right. It will not be something I have to worry about because,
given the pace of these things, I will be long gone, in my dotage.
There is more that will need to be done on agriculture at some
point, for sure, but, again, it will be driven by national decision
making, not by the negotiating environment. Yes, it is true, agriculture
still has a way to go. On industrial tariffs, let us assume a
successful Round, you can already argue it is pretty well non-existent
but after a Round they will all be non-existent, there is hardly
anything there on industrial tariffs for developed countries.
There is for developing countries but they are getting rid of
them anyway. It is the same issue there and that is why this Round
is such a paradox. They are going at it driven by their finance
ministries reducing their tariffs everywhere they possibly can.
Come here and they will not make a commitment on it because it
is politicised, it is a mercantilist mentality. I do not see there
is a big deal in the future which trades industrial tariffs for
agriculture. The truth is, and some of my colleagues will kill
me for saying this, but that is all right, I am a dead man already,
on services the WTO has never done anything. It has contractualised
what people have already done, but it has never fundamentally
changed the way anybody has run their services economy. Indeed,
I would argue it is pretty damn hard to imagine how it could because
at least in your services sector you have to drive that by your
national regulatory framework, and your own macro-economic policy
settings. You are not going to say, "I am going to liberalise
my financial services sector" or "I am only going to
liberalise my telecommunications sector because that is what the
WTO says I have got to do", of course not, you say, "These
things matter to my economy, I drive them myself". I do not
see any of those giving you a liberalisation driven Round in the
future in the same way as happened in the past. You could argue
the weird thing is that this far after 1947 we are still operating
on a 1947 agenda, industrial tariffs, agriculture, and services
are just sneaking around the edges. I think the reality will change
that eventually next time around.
Chairman: That is extremely interesting. There
is time for one question, if any colleague wishes to come in.
Q516 Lord Haskins: Can I follow on
services. Is not part of the problem with services that you are
into issues about national regulation, which is a de rigueur
word at any rate because whenever you talk about national regulations
that is bad enough, but international regulations is impossible,
and getting regulatory changes into services is going to be terribly
difficult?
Ambassador Falconer: It is very difficult.
To be fair, there is a process in place that tries to manage that
and, indeed, creating the whole services framework in the WTO
required an enormous effort in order to get regulators to think
outside their regulatory domains about how they would relate to
the trading partners and how it fits the architecture of state-to-state
commitments. There was a huge effort on their part and it was
a positive thing that happened. For any minister who has to negotiate
on this, they have to negotiate with their finance ministry, their
health ministry, their telecommunications minister. It is a much
more complicated thing to have to broker as a politician than
just dealing with tariffs or even just with agriculture. As I
say, it is relatively straightforward to contractualise what you
have done and say, "Okay, I will make commitments on accounting
or on financial services or on my investment regime as it relates
to such and such a sector". You can do that if you have already
done it and you are making a political decision to commit to it.
Everything is difficult politically, but to drive reform in a
sector by the demands of an international negotiation I think
is particularly difficult to foresee in services for all those
regulatory reasons. It is true, there are ways in which you do
not get too intrusive on the regulatory side by the way in which
the WTO is set up, but even allowing for that it is very difficult
to see it as a driver. I am not against it at all, it is perfectly
fine to contractualise it after the event, but you have to be
realistic that is what you are doing by and large. If that is
understood then I think you are going to have a far more realistic
way in which you do your negotiations than up to now.
Q517 Chairman: Terrific. Thank you
very much, Ambassador, that is most illuminating.
Ambassador Falconer: It is a pleasure.
It is nice to talk about something other than agriculture for
a change!
Chairman: I do not know whether to wish you
safe home to New Zealand at the earliest possible opportunity
or not! In all events, thank you very much for coming and good
luck for the next two or three weeks.
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