Select Committee on International Development Second Special Report



The Government welcomes the Committee's Report. The Government thinks that the tone and content of the report are constructive, helpful and supportive of the broad thrust of government policy. The Government particularly welcomes the conclusion that the WTO is not an enemy of the poor and the Committee's judgement that there is no evidence to support the claim that the WTO is undemocratic or not transparent. It agrees strongly with the conclusion that the WTO is the only place where global trade policies can be developed in a way that is shaped by the developing world and that it is to be welcomed that at Seattle, developing countries' voices began to be heard.

The Government agrees with most of the points raised in this report. Its White Paper "Eliminating World Poverty: Making Globalisation work for the Poor" sets out how it plans to take forward policies on international trade and development.

(1) The failure to organise meetings at Seattle efficiently was a disgrace. The success of international discussions on matters of such enormous importance as world trade must never again be threatened by such incompetence (paragraph 3).

The Government agrees.

(2) David Batt, Director for International Economic Policy, DFID, told us "We went to Seattle with a draft declaration of well over 30 pages, with something like 75 paragraphs, of which about 73 were in square brackets [i.e. not agreed] and some of them irreconcilable. So the preparatory process clearly did not work as it needed to have done to bring matters to the point where Ministers could address the issues". How anyone could have expected delegations from 135 states to resolve such enormous differences over a period of five days is quite beyond us (paragraph 4).

The Government agrees.

(3) The delay in appointing a Director-General of the WTO and the half-hearted mandate that was subsequently given to Mike Moore seriously undermined his ability to prepare for the Ministerial Meeting in Seattle. The 'compromise' which resulted in the four year term being split between Mike Moore and Supachi Panitchpakdi was simply a political expedient, which did great harm to the WTO. With less than a year to go of Mike Moore's term, there is real danger that the handover will coincide with the launch of the next Round and, once again, jeopardise the preparatory process. WTO members must urgently consider how best to ensure continuity, preparation and focus in the leadership of the WTO (paragraph 7).

The WTO General Council is pursuing consultations on the process of appointment of the Director General. The Government believes there are grounds for optimism that agreement can be reached on modest improvements. The Committee is mistaken in its belief that Mike Moore and Supachai Panitchpakdi will each have two-year terms: in fact they will have three years each.

(4) The lack of adequate preparation for the Ministerial Meeting in Seattle was a major contributory factor to the failure to launch a new trade Round (paragraph 9).

The Government agrees.

(5) Any new Round should be preceded by intensive consultation and preparation in order to maximise its chances of success (paragraph 9).

The Government agrees.

(6) Irreconcilable differences between the major WTO powers, in particular the United States and the European Union, were a clear factor in the failure to agree a negotiating mandate at Seattle (paragraph 11).

The Government agrees but considers that the differences between the EU and US, though substantial, were and are not irreconcilable.

(7) It must be for developing countries themselves to assess the costs and benefits of WTO membership and to negotiate the means by which trade liberalisation should be pursued (paragraph 15).

The Government agrees.

Part 1: The Costs and Benefits to Developing Countries of WTO Membership

(8) Donor assistance is a vital catalyst to the development of poor countries. The volumes of such aid are not, however, enough to lever billions of people out of poverty. It is economic activity and trade which can generate the necessary wealth to provide schools, clinics and a decent standard of life (paragraph 17).

The Government agrees.

(9) As the above chart demonstrates, in 1998, sub-Saharan Africa accounted for only 1 per cent of world merchandise trade. This compares with a 42 per cent share for EU Member States. The 48 least developed countries, home to 10 per cent of the world's population, account for just 0.4 per cent of world exports. It is vital that trade barriers are brought down and low income countries encouraged to take advantage of the resulting opportunities to increase their share of world trade (paragraph 19).

The Government agrees.

(10) It is absolutely clear that the main engine for pro-poor growth in developing countries must be their ability to export products to previously closed or restricted markets and to encourage domestic industries. But economic growth is not enough to achieve the 2015 targets. It must be coupled with domestic policies to reduce inequality and improve human security (paragraph 23).

The Government agrees. It believes that economic growth must also be coupled with policies to protect the environment and promote sustainable development.

(11) There is a clear difficulty in establishing a precise causal relationship between trade measures and development outcomes. Whilst we do not consider the task of reviewing the impact of the Uruguay Round agreements on every single member country to be a useful or practicable one, we nevertheless think it is important that there be some form of empirical study, on the basis of a sample of countries, to assess the impact of the various existing WTO agreements on growth and development. Adequate resources must be provided to enable it to conduct such a review at the earliest opportunity. We recommend that the WTO state the funds necessary for this purpose (paragraph 29).

The Government agrees that there are many factors that determine a country's economic growth and many more for its human development and environmental sustainability. It is also the case that many of the Uruguay Round commitments have not yet been fully implemented and the benefits of trade liberalisation are most clearly seen in the medium to long term. If one were to wait for a conclusive impact assessment before launching a new Round, it would be 10-15 years before one could do so.

Paragraph 28 records the advice of Chris Stevens, that country studies should be done on the impact of changes in the international economic environment (which of course goes much wider than WTO agreements). The Government agrees that one could pursue studies along these lines, but this would not give a definitive assessment of the impact of the Uruguay Round alone and it would not be appropriate for these studies to be undertaken by the WTO. Therefore, the Government will continue to support research by appropriate multilateral institutions such as the World Bank and UNCTAD on the impact of trade liberalisation on growth and poverty.

Moreover, the Government is a strong supporter of Sustainability Impact Assessments (SIAs) as a tool to assist negotiators in the run-up to and during the next trade Round.

(12) Donors should be sensitive to the implementation costs of WTO commitments to developing countries and be ready, where appropriate to provide funding and technical assistance for compliance (paragraph 30).

The Government agrees. Referring to paragraph 15, the government also believes that developing countries themselves need to consider the implementation costs of taking on agreements.

(13) In principle, Special and Differential Treatment has been an important provision for developing countries in implementing the Uruguay Round agreements. There are, however, serious questions as to how these measures have worked in practice. Of course, Special and Differential Treatment will continue to be necessary for developing countries. But a review is necessary of the purpose of Special and Differential Treatment; when it is required; and what measures can be readily and practicably implemented to benefit poorer countries. Certainly the interests of developing countries need to be central to all discussions from the outset of WTO negotiations, not just a last minute consideration. Any Special and Differential Treatment agreed needs to have demonstrable effect, rather than merely providing token comfort (paragraph 34).

The Government agrees. Developing countries are concerned to ensure that there will be adequate flexibility in the implementation and phasing in of new rules. Without some reassurance on this, many countries will continue to resist a Round. The Government believes that new rules should recognise more explicitly that WTO members are at different stages of development. It believes that future special and differential provisions should be real and binding, and that any new WTO rules should reflect countries' implementation capacity.

(14) We recommend that WTO amend its objectives so as to include poverty reduction as an explicit aim of growth through trade liberalisation (paragraph 37).

The Government agrees. It is urging the WTO to commit itself to the International Development Targets. The Marrakech Agreement establishing the WTO clearly identifies trade liberalisation as a means and not an end ("with a view to raising standards of living ... and a steadily growing volume of real income ¼ the optimal use of the world's resources in accordance with the objective of sustainable development").

(15) We also recommend that no further steps in liberalisation take place without clear statements from the UN family and from the IMF and World Bank as to how they envisage such steps affecting poor people. Donors must also state, in each instance, how they are going to adjust their own activity so as to complement that of the WTO and ensure that the poor are not only protected, but also benefit from future growth (paragraph 38).

The Government welcomes the opinions and research of these institutions on the subject of trade liberalisation. The Government believes that there needs to be much closer co-operation between these agencies. But it would be inappropriate to give the UN, IMF and World Bank what would amount to a power of veto over progress towards WTO negotiations and further trade liberalisation. The WTO is an inter-governmental organisation and its decisions cannot be controlled by other international organisations. It is up to governments to advocate consistent policies for international institutions, rather than for the agencies to police each other. WTO negotiating positions should reflect joined up government, hence the active involvement of DFID and other departments in formulating the UK Government's trade policy.

The Government agrees that trade policy should be better integrated into the activities and dialogue of donors. It will work with multilateral agencies and others to improve and widely apply the analytical tools available for assessing the probable effects of the agreements reached in a new trade Round on the poor in each country. Through phased implementation and adjustment assistance, any short term negative effects on specific groups of poor people can be mitigated.

Part 2: Building Trust of Developing Countries in the WTO

(16) We welcome the increased assertiveness of developing countries at Seattle (paragraph 40).

The Government agrees.

(17) We welcome the decision in February by the General Council of the WTO to conduct consultations on the package of confidence building measures proposed by the Director-General (paragraph 42).

The Government agrees.

(18) We urge the UK Government to encourage EU member states to agree to the proposal for tariff-free access for least developed countries for all imports apart from those associated with the arms trade, and to press for rapid implementation of the necessary measures to put the commitment into practice. This will be a significant gesture which will surely make a major contribution to the rebuilding of developing country confidence in the WTO (paragraph 45).

The Government agrees.

(19) Pro-poor trade liberalisation requires the rich trading blocs to liberalise first, to make sacrifices, to demonstrate a desire to see the developing world enter the trading system (paragraph 46).

The Government agrees that this is important for building confidence. However, liberalisation on the part of rich trading blocs is not necessarily a sacrifice, at least at the macroeconomic level: reduction of tariffs can lead to beneficial reallocation of productive resources within a country's own borders, irrespective of what it extracts out of others for doing likewise.

(20) The UK should push forward discussions within the Quad group, encouraging Canada, Japan and the USA to allow tariff-free access for least developed countries (paragraph 47).

The Government agrees.

(21) We note that the ACP countries had agreed the "essentially all" position which the EU adopted at Seattle. There are clearly concerns within the ACP group, particularly among small island states and vulnerable economies, over tariff-free access for least developed countries. Careful negotiations will be necessary to meet ACP concerns. We would welcome the Government's comments on the possibility of extending tariff-free access to other vulnerable but non-least developed states such as small island states and those which are dependent on one commodity (paragraph 48).

The impact of duty- and quota-free market access for the least developed countries depends on the form of the final agreed proposal (still being discussed in the Commission) and the speed at which least developed countries can respond. Some ACP countries have legitimate concerns about the impact the proposal may have on them. We have encouraged the Commission to ensure that these concerns are addressed in the formulation and implementation of the proposal. It has been known for some time that market conditions are changing and the ACP countries need to adapt accordingly. We will work with vulnerable countries (particularly Guyana, Jamaica, St. Kitts, Mauritius and Fiji) through the EU, the multilateral agencies and other donors to ensure that those affected are given adjustment support.

WTO rules allow WTO members to give preferential treatment (that is better than Most Favoured Nation Treatment) to developing countries, provided that there is no discrimination in that treatment between developing countries except as regards the Least Developed Countries, who can be given better treatment than other developing countries. Extending LDC treatment to some other vulnerable developing countries would be incompatible with WTO rules. The Government has considered the possibility of the creation of a new category in the WTO, but believes that such a change would be difficult to achieve. Nevertheless, the Government is committed to working for the improvement of preferential arrangements for all developing countries through the EU's Generalised System of Preferences (GSP).

(22) The situation where more than half of the least developed members of the WTO do not have any representation at the WTO's headquarters in Geneva should be rectified as soon as possible, as should the lack of proper representation of some members at Ministerials. The European Commission has recently been developing proposals for assistance to be provided to an ACP collective office in Geneva. This is a positive step, but much more needs to be done. There must be an assessment of the costs necessary to establish representation for all developing countries at the WTO. There must then be an agreement as to how these costs can be fairly met by donors and by developing countries themselves, within an agreed timetable (paragraph 52).

The Government agrees that the question of representation in Geneva is an important one. Together with other donors we are looking at ways in which we can strengthen our support to countries that have difficulty participating fully in the WTO. This may include strengthening the services provided by organisations such as AITIC (Agency for International Trade Information and Co-operation). We also fund two advisers on trade matters in the South Centre, an intergovernmental organisation of developing countries based in Geneva, and the Commonwealth Secretariat. The Government would encourage all developing countries to establish appropriate representation in Geneva as soon as they are in a position to do so, but donors would not normally provide any direct subsidy to the cost of diplomatic missions.

(23) We consider that the sizes of negotiating teams at the WTO needs further examination to make such negotiations more equitable (paragraph 55).

The Government believes it is unrealistic to impose limits on delegation sizes and that doing so would not necessarily reduce their influence.

(24) NGOs can not have it both ways. They either want civil society involvement in trade negotiations or they do not. Civil society does not just mean western NGOs. For developing countries, we consider the involvement of non-governmental actors in negotiating teams to offer at least a partial solution to the problems of lack of technical expertise and negotiating skills. We would therefore oppose any proposal to restrict participation in delegations to government officials and ministers (paragraph 59).

The Government agrees.

(25) We believe strongly that the principle that the WTO negotiations are ultimately between governments must be retained. We would be concerned if private sector interests were the only ones taken seriously by the UK Government and the EU in preparing for and taking part in WTO negotiations. We would urge our own Government to consult as widely as possible in all sectors in developing its own policy. We welcome the fact that the British delegation drew on expertise of both NGOs and the private sector (paragraph 60).

The Government agrees.

(26) There is a clear need for the technical expertise and resources of some developing countries to be significantly increased, in order for them to be able to benefit from their membership of the WTO, to participate fully in its negotiations, and to meet the commitments they make in its agreements. It is crucial for development more generally that developing countries are able to understand and develop trade and economic policies that will result in pro-poor growth (paragraph 64).

The Government agrees. It has recently announced an expansion of its trade-related technical assistance activities.

(27) Capacity building cannot be restricted to representation and negotiating capacity. It must encompass all aspects of trade development and expertise (paragraph 67).

The Government agrees.

(28) In our view, trade-related technical assistance is best delivered by multilateral agencies, rather than by industrialised countries which are party to the same negotiations and inevitably have their own interests and agendas. Such assistance should be provided not only by the WTO, but also by the other multilateral agencies, in particular, UNCTAD and the World Bank, which already has resident missions in most developing countries and is well-placed to provide such assistance. We recommend that technical capacity building becomes a key strand of any World Bank development programme (paragraph 70).

The Government agrees that multilateral agencies play a key role in providing trade-related technical assistance. To this end, the Government is working closely with the agencies responsible for the provision of trade-related technical assistance, in particular to ensure that it takes place within a coherent development strategy in particular the Poverty Reduction Strategy. The Government is working with other like-minded donors to improve the Integrated Framework for least developed countries in order to mainstream trade in their development programmes. An effective Integrated Framework will also help to enhance the delivery of trade-related technical assistance by bilateral donors, which the government believes need not lead to a conflict of interest.

(29) There are already some excellent initiatives in place within the WTO, in concert with other multilateral agencies, for providing effective technical assistance to developing countries. But the resources available to the WTO for technical assistance are minuscule when compared to the demand. Funds for technical assistance available to the WTO must be increased significantly in the immediate future. Furthermore, if the WTO is to be able to plan and deliver good quality technical assistance to those who require it, it must have access to a permanent budget. For these purposes, which are central to its work, it should not have to rely on ad-hoc extra-budgetary contributions from member states. We recommend that a permanent technical assistance budget is established with the aim of providing courses free of charge to developing countries (paragraph 76).

The Government agrees. However, the WTO is not a development assistance institution and should not always take the lead on technical assistance activities.

(30) We welcome the contributions which have been made by the Department for International Development towards multilateral technical assistance programmes. We would urge DFID to continue this work and to encourage its counterparts to make similar contributions (paragraph 77).

The Government agrees.

Part 3: WTO Reform

(31) We find little to substantiate the claim that the WTO is undemocratic. Whereas voting in the World Bank and the IMF is weighted according to members' shareholding, the WTO requires one member one vote, and unanimity in agreeing trade liberalisation measures. The Lords, in their report, quoted Martin Wolf of the Financial Times who stated that none of the charges made against the WTO "is as mistaken as the proposition that the WTO is undemocratic. The WTO is not a State - and cannot be judged by the standards applied to States. It is something quite different: an agreement among States" (paragraph 83).

The Government agrees.

(32) We have found WTO representatives (including Mike Moore) willing to account for the work of the organisation. In this respect, we agree with the Lords' conclusion that the UK Government, the EU and the WTO itself have been commendably open over the issues, and that the complaints of NGOs about lack of transparency must sometimes be interpreted as complaints that their lobbying does not have the desired effect. We do not consider there to be a problem with the external transparency of the WTO (paragraph 84).

The Government agrees that the WTO has been commendably open, but that more should be done, for instance on the further derestriction of documents.

(33) We do, however, consider that there is merit in the proposals currently being discussed between the WTO and the Inter-Parliamentary Union for a parliamentary assembly associated with the World Trade Organisation. It is vital, however, that the appropriate mechanisms are in place to ensure delegations are truly accountable to their national parliaments. There should also be a representative variety of views within parliamentary delegations (paragraph 85).

The Government believes that delegations should be accountable to national governments, which are then accountable to national parliaments. It is also concerned about how developing countries would finance representation at such a parliamentary body. On the issue of the accountability of delegations, it is worth noting further that they do not ultimately make decisions, rather it is Governments, accountable to their Parliaments, that sign the Agreements.

(34) The Green Room process at Seattle was a failure. The main problems were that the Green Room was used at too early a stage considering the lack of anything approaching a consensus on the broad issues; the flow of information in and out of the Room was inadequate; and the way in which delegates were selected to take part in the meetings was perceived at best as unclear, and, at worst, impartial (paragraph 92).

The Government agrees.

(35) The Green Room process, where a limited but representative number of delegates participate in negotiations on the finer details of an agreement, is not in itself flawed. In fact, it seems to be the only way to proceed at that stage of negotiations (paragraph 94).

The Government agrees.

(36) In future, the selection of delegates to take part in Green Room meetings should be conducted on the basis of a clear system of representation, where one country negotiates on behalf of a group of countries with shared interests. Such a system will only work if it is transparently organised and flexible so that different groupings can be formed for different negotiations. The key issue is that countries must be able to choose for themselves who will represent them, and those countries not party to discussion must have opportunities to lobby and have full access to information about proceedings in the meetings, including the possibility of observing meetings directly (paragraph 99).

The Government shares the view that better handling of informal consultations is necessary, but believes that this might best be achieved through flexible written guidelines. It has a fundamental concern to ensure that any system is responsive enough to handle all cases - including those where small countries have concerns not shared by any group. Any system should avoid being over-prescriptive, particularly as regards anything which suggests a regional group based approach.

(37) It is unlikely that member states will allow the principle of consensus decision-making to be abandoned in the foreseeable future. Any failure of the system to work to the benefit of developing countries is, in our view, more a product of the obstacles to their participation in negotiations than of flaws in the system itself (paragraph 102).

The Government agrees.

(38) The reform of the WTO will not be fully resolved in the immediate future. As Clare Short suggested to us in evidence, it will be an incremental and gradual process. It would not in our view be appropriate to delay future negotiations in anticipation of a day when reform is "finished". That said, there are some key reforms which must be implemented immediately, and before consideration is given to holding another Ministerial Meeting. These include: drastically improving the preparatory process leading up to the Ministerial; improving the Green Room meeting arrangements; and establishing clear rules of procedure to be agreed by all members (paragraph 105).

The Government is sympathetic and would again caution against making reform a pre-condition for a new Round.

(39) We are amazed that the WTO itself has no record of the extent to which the Uruguay Round agreements have been implemented in member countries, or of compliance with agreements (paragraph 108).

The WTO actually has a pretty good idea of the level of implementation and compliance with Uruguay Round agreements. One of the major functions of the subsidiary bodies is to monitor implementation and compliance, particularly as regards responses to the notification obligations which occur in the Uruguay Round agreements. The Marrakech Ministerial Decision on Notification Procedures established a central registry of notifications in the WTO Secretariat. This monitoring of compliance and implementation is also a fundamental part of the Trade Policy Review process. It is also worth noting that whether a country has implemented an agreement is often a matter of judgement and can sometimes only be tested in Dispute Settlement.

(40) The review of implementation of the Uruguay Round is a welcome step. Properly funded and properly conducted, it could go some way to addressing the concerns of NGOs and some developing countries and to building confidence in the WTO. We are astonished, however, to discover that this initiative has only now been agreed. In future, we recommend that the UK demand the inclusion in WTO agreements of mechanisms for monitoring the implementation of and compliance with agreements and adherence to WTO rules by member states. Appropriate resources must be provided to the WTO for this purpose. We would welcome comment from DFID on the possibility of peer reviews being conducted, similar to those which take place within the OECD (paragraph 109).

The Government also welcomes the Implementation Review Mechanism and hopes that it properly addresses the concerns of developing countries. It also agrees that implementation of new agreements should be properly assessed, both during and after negotiations. A number of current agreements have built-in reviews. The Government would like to point out that the Trade Policy Review Mechanism is a process of peer review in the WTO. It believes that this would benefit from more funding.

Part 4: A New Round?

(41) We support the UK's position that a new Round should be launched, and that the new Round should be conducted, at an appropriate pace, on the basis of a developmental agenda. The new Round should not, as we have already stated, be delayed in anticipation of the reform process being completed. However, several things must happen before a new Round can be launched which has any chance of success:

  • First, a review of the implementation and impact of the Uruguay Round agreements must be initiated. Without this, we fail to see how the WTO can make any claim to have learned from experiences to date and apply those lessons to the new Round.

  • Secondly, there must be an immediate and significant increase in technical assistance to developing countries, in order to allow them to participate fully and effectively in the new Round of negotiations.

  • Finally, we must emphasise that the chaos of Seattle must never be repeated. There must be adequate preparation for the new Round, and the meetings themselves must be properly organised so as to ensure access to negotiations for all members (paragraph 115).

The Government welcomes the Committee's support for its position on a new Round. The first point on implementation has been discussed in earlier parts of the response: the Government reiterates that a full impact assessment cannot be undertaken, but many model-based studies provide useful evidence; however the Implementation Review Mechanism is ongoing. For the second point on technical assistance, the Government has just announced a large increase in our budget, but it cannot force other donors to do the same; moreover the Government believes that any technical assistance must be provided in a coherent manner that complements the trade agenda of the country. The Government fully agrees with the final point.


(42) We disagree strongly with those who claim that the WTO is an enemy of the world's poor. This Report makes clear that if the poor are to have any hope of better lives their countries must be given greater opportunities to participate in the global trading system. Of course trade liberalisation must be planned, phased in, and based on clear rules. Of course it must be accompanied by increased trade capacity and domestic pro-poor policies. But the WTO is the only place where global trade development can take place in a way shaped by the developing world. Without the WTO we are left with the economics of the bully. Despite all the chaos, at Seattle the voices of developing countries began to be heard. That can only be a good thing for the future of the WTO (paragraph 116).

The Government fully agrees.

Department for International Development

30 January 2001

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