Select Committee on International Development Minutes of Evidence

Examination of Witnesses(Questions 40-47)


  40. There is an interesting point, Secretary of State, it makes in its conclusions, which is that there should be a public sector option in the evaluation of reform options, and rather than simply having one choice, which is privatisation, that there should be more research into incentive structures and why good public sector models work when they do. Is this something DFID would agree—that there should be choice available for developing countries and there should be research where in fact there are good examples of where the public sector works well?
  (Clare Short) I do not know who this organisation is, I had not heard of them before I read the briefing this morning for this meeting, but what they are claiming about the World Bank is false. The position of DFID and the position we advocate with the Bank, which is agreed—because of course the Bank used to be under the pressure of different governments with different values and it is a public sector institution and when parties take control across the world with different values, the Bank will be influenced by that. We are in a consolidating period now and where we stand and where I personally stand very firmly is to be pragmatic about this and to look at where the best interests of good investment for poor people are. If you look at electricity in India; it is massively subsidised, grossly inefficient, there are constant power cuts so every business has to have its own generator, and there is virtually free electricity for rich farmers for irrigation, and all the public sector money that should be going into health and education for poor people is sucked into inefficient electricity generation. So in India we are working with others to try and help responsible privatisation of electricity so that some of those funds can go into health and education for poor people and, indeed, there can be more responsible distribution of the costs of electricity and so on. As I said earlier, we believe that case-by-case you should look at the interests of the poor and the best way forward for a country and use the tools, and that is the position of the Bank too, and that is the right position.

  41. If I may press you one last time. Clearly we are talking about choices and therefore you may wish, if you have only seen this evidence this morning, to consider what is suggested. Other areas —
  (Clare Short) No, I am sorry.

  Mr Colman: —There do need to be choices.


  42. Order, order.
  (Clare Short) The organisation is making absolutely false and untrue claims about Bank policy. I do not respect false claims. There is a lot of campaigning that goes on in development that seeks headlines by making false claims. I profoundly disrespect that so when that is happening I will say it is a false claim. On choice, it is our view that there should be choice. We do not prefer a private model; we prefer a model that will serve the poor and get better services. I have made that clear. Sorry, Chairman.

  Chairman: I think we are all clear where everyone stands on that issue. Let's move on to trade. Bob?

Mr Walter

  43. Secretary of State, if we can look at trade and trade-related capacity building, which is a relatively new area for the World Bank, and perhaps look at the question of what the appropriate role is for the World Bank in international trade policy and in trade-related capacity building. Uri Dadush, the World Bank's new Head of Trade has said that "unilateral trade liberalisation is good for all countries". How confident do you think we can be that the World Bank's trade-related capacity building will not simply become a sort of aggressive form of trade liberalisation, possibly at the expense of nationally owned strategies for poverty reduction, and at the expense of reciprocity, which is in the WTO regime?
  (Clare Short) The Bank was really slow to take up the trade question and the Integrated Framework—which is the six big international organisations building up capacity in countries to negotiate their trade interests in Geneva and to take up trade rights that they have (because this is a fantastically complex area of policy)—was slow to get going but is now moving. We were pushing the Bank for a long time to take the WTO round more seriously and some of the studies they have done on the potential impact of widening trade access for developing countries were belated, but are good and are very important. I have not seen that quote that you have just read out. It is not our policy and it is not the policy of many developing countries, or any that I can think of, to just open unilaterally. In fact, since Seattle and up to Doha the move of developing countries to stand together—and South Africa played a very constructive role in helping create an alliance of developing countries and demand gains for developing countries out of the next trade round—is an unprecedented sense of clarity about what they want for developing countries and their capacity if they stand together to make gains. It does flow from the formation of the World Trade Organisation being a membership-based rules-based organisation. So I think most developing countries are very focused on making gains out of the next WTO round and would rarely be tempted to open their markets unilaterally. Our own view is that if you look at the evidence, countries that are opened do better than countries that are closed—and you have only got to look at North Korea—but you can open too fast. You need to phase it and organise it and create capacity in the country to take up the opportunities or to adjust sectors that are flourishing behind protection that are often very inefficient. I do not think there is any pressure on the Bank in this day and age for countries to unilaterally open. Do you, Tony?
  (Mr Faint) I do not think so. On the contrary, the Bank has probably been rather slow, as you say, to get on to the trade agenda in the framework of the poverty reduction strategies. It is a fact that in poor countries tariff barriers and other barriers to trade do tend to be rather high and much higher on average than in developed countries. So there is an agenda for trade liberalisation in developing countries but much more important is the international liberalisation agenda and opening the markets of developed countries.
  (Clare Short) Developing countries have high tariff barriers between each other. Because of colonial patterns, countries regionally often do not trade in their own region in ways that would be beneficial, so there is an agenda to open up regional trade and then you have got technology and cheaper transport costs and so on. I do not think World Bank is advocating that. No doubt it is a brief from another helpful campaigning organisation!

  44. If I can use a different briefing to ask a supplementary on that, which is your own submission that you made to us prior to this meeting, and quote a couple of lines from it. On page 9 when you talk about the Development Committee and implementing the Monterrey consensus you say: "We welcome in particular the acknowledgement of the key role that trade can play in development and call on developed countries to do more to open their markets and eliminate trade-distorting subsidies." Then if I can come on to the joint statement that you and the Chancellor made, in your joint statement you said: "Our policies towards developing countries need to be coherent. For example, promoting agricultural projects will not lead to development while we maintain high tariff barriers against agricultural products from developing countries." Given what happened at the last European Summit and the fact that we seem to be stuck with a subsidy-based CAP now at least until 2016 with exactly the same structure and exactly the same spending, with a little bit of an increase each year for inflation, do you see that we are going to have some difficulties in implementing that particular statement that you made in your Communique?

  (Clare Short) There will be a ministerial meeting in Cancun in Mexico of the WTO in September of next year. That is going to be an absolutely crucial meeting as to whether the world is keeping to the development agenda that was agreed at Doha. I think if it goes sour and if we fail to deliver, there will be a bitterness in the international system and this whole momentum of the Millennium Development Goals, Monterrey, Doha and so on will shatter and we will be in a lot of difficulty and a lot of gains we have made will collapse. That is fantastically important. I agree with you that that is of enormous significance. What happened of course at the European Summit is that Germany—who is a net contributor and having some difficulties in its own economy and yet Germany wants the new countries to join because they are in their backyard in Central and Eastern Europe—did not want ever-growing costs of CAP, so, as I understand it, has made an agreement with the French that there should be no growth in spending. Now there is the mid-term review and the proposals from the Commission are to de-link subsidy from production, which must be the way forward for Europe and then you are not dumping food on world markets and we can keep to our commitments that were made at Doha. The French have difficulties with that because, of course, their farmers are very big beneficiaries from the Common Agricultural Policy. I understand part of the argument was about adhering to the Doha promises and that that was reaffirmed in the course of that spat which we heard about, although no one here was present at the meeting. I agree with you that this is a key issue for development. It is no good just improving aid if we cannot improve trade access. If we do not deliver on Doha the world will go backwards. Europe is key and Europe has to be willing to reform the Common Agricultural Policy in order for Europe to adhere to its Doha commitments. The American Farm Bill, which moved in the opposite direction, caused a lot of bitterness at the Bali meeting preparing for Johannesburg but since then they have made proposals towards the Doha round that are quite helpful. There is all to play for here. It is enormously important politically. The United Kingdom has got to use its influence in any way it can. France finds it particularly difficult. At Kananaskis, again at Johannesburg and again, as I understand it, at the European Summit a reaffirmation of the commitment to Doha was made. We have got to deliver that—and it will not be easy—otherwise Europe will be the barrier to Doha and that will be so shameful.

  45. We could go on discussing this for a while, but I know that we as a Committee are going to embark on another inquiry looking at trade shortly so we can come back and re-visit this particular question. One final question. You mentioned the Integrated Framework which is an important initiative, but will the United Kingdom as a major contributor to the Framework seek to ensure that a range of organisations—not just the World Bank but the UN, regional organisations, the private sector, academics and NGOs—are all engaged in trade-related capacity building to provide the necessary intellectual competition and variety to that?
  (Clare Short) My own view is that we need effective trade-capacity building, not necessarily "Uncle Tom Cobbley and all" doing it. We have worked very hard on the Integrated Framework, and it took ages to get it going, and we think it is going much better now and we have got the UNDP as the co-ordinating UN development agency, the World Bank, the International Trade Centre in Geneva, UNCTAD and so on. Certainly in the work we do and fund we use expertise and academics and so on but I do not think we need to spend all our time getting everybody in to offer training to developing countries. We have to make sure that we integrate those offers and help them take forward their capacity building. We have been working hard on that and we think progress is being made. As I say, it is a fantastically complex area of policy. It is both the capacity to negotiate and look at PRSP and think where is the possible growth in trade that would help us grow our economy. Then it is businesses in developing countries having enough knowledge to take up trading rights that might be out there but are difficult to take up. There is a real danger in the international trading system, especially in Europe where higher and higher (supposedly) food health or sanitary standards keep escalating and changing, which makes it very difficult for countries to export. So it is building all that sort of capacity. I am not drawn by your suggestion that every agency that feels it wants to get on the band wagon should be drawn in. I think we should take people as they add to effectiveness and for no other reason.

Hugh Bayley

  46. I agree, Secretary of State, that we should not allow the appearance of an agreement between France and Germany on the CAP make us reduce our sights about what is achievable in the CAP mid-term review because if what is achieved is the status quo at the present rate of subsidy, then that is, in my view, entirely inconsistent with the Doha commitment. And so while I agree with you, I would like to know what the Government generally, and your Department particularly, will be doing over the next few months with the Bank and with the Commission to ensure that the question of the final outcome of the Mid-term review remains an open question. The Bank is important because it was the Bank's Can Africa Survive report which first of all publicised that the amount of agricultural subsidy in the quad countries is greater than the GDP of the whole of Sub-Saharan Africa. Can we get the World Bank Board to put a bit of backbone behind the EU members? It is also important, I would have thought, in the Council of Development Ministers. Huge amounts of EU aid have gone to Eastern Europe. When the accession countries come into the EU, they will move, in part at least, from being aid recipients to beneficiaries from other strands of EU funding, including the CAP. Should we not be saying in the Development Council of Ministers that France, as one of the richest countries in Europe, with a higher GDP per capita than our country, should no longer be a net recipient of aid from the EU and that that needs to be taken into account in the CAP review? What arguments about the development needs for CAP reform are being advanced in the Agricultural Council of Ministers?
  (Clare Short) I think my understanding is that France and United Kingdom are very similar and the United Kingdom has just gone ahead of France on GDP.

  47. That reflects the Government's economic policies.
  (Clare Short) France has got very serious problems because of the nature of its agriculture. We must not allow the French problem to blow Doha away but we must not all gang up on France. We must help to find a way through to seek something sensible and realistic for France. They have got a different scale of farming. It would be easy for everyone to get together and have a go at France and we might get ourselves nowhere. I did not realise that you did not know that the Council of Development Ministers has been abolished, so we have got a not very effective EC development effort. Whatever it is now—
  (Mr Faint)—It is the General Affairs and External Relations Council.
  (Clare Short)—which might occasionally deal with development, which is not good news for strengthening the development agenda in the EC. Even more shocking is the fact that every cow in Europe gets more than two dollars a day subsidy and 2.4 billion people in the world are surviving on less than we subsidise the cows. That brings the whole thing down to its shocking reality. The Commission's proposal for a mid-term review de-links subsidy from production which would enable French farmers to continue to be helped but not encourage surplus production, and then the agreement between France and Germany means the budget cannot grow with the accession countries coming in. If the EU will stick with the Commission's proposals on the mid-term review the EU can adhere to the Doha commitments. That is where the argument lies. My Department has been doing work on this since 1997 when senior officials in the DTI got apoplexy at the idea of anyone in my department doing work on trade. We now have a very strong joint working relationship and a very strong commitment amongst United Kingdom trade experts to the development agenda. There really has been a big shift which is very important. They are leading players now in the international associations, of course, forwarding the UK's interest but looking at all our interests in more than just the international system. The Bank has moved from not talking much about trade to, with some prodding by us amongst others, putting forward the trade argument very strongly and then the Bank has to judge in what detail it gets involved in arguments with the Commission. I agree with the points that both of you are making. This is a crunch issue for the world and for justice for the developing world. We have got until Cancun in September and if the EU is not willing to change the Common Agricultural Policy the EU would throw away Doha and that would be a terrible responsibility. So there will be lots more politics and lots more tension about this and we must focus on it. The United Kingdom Government—from the Prime Minister, the Chancellor, my Department and the DTI—is very dedicated and has the same view as this Committee, that it is in the United Kingdom's interest and developing countries' interest—and there is no clash of interest here—that we must reform the Common Agricultural Policy in order to fulfil the Doha commitments.

  Chairman: Thank you very much for answering our questions. On this last exchange, we are going to be undertaking an inquiry into trade policy in the New Year. I suspect it will take quite a lot of next year. I hope that we will be able to hear as many voices from developing countries as part of that inquiry as possible via the Internet or via whatever other means because I think these are crucial issues. It would be a tragedy if all the work that had been done this year on Doha and Monterrey gets thrown away. We look forward to seeing you on 10 December when you are very kindly going to come and answer questions on Afghanistan as part of our current Afghanistan inquiry. We are staying here because we have to agree our report on DFID's Departmental Report 2002 and do a few bits that we have to do to keep the Liaison Committee happy and the world happy. Thank you very much.

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