Please note that this is BBC copyright and may not be reproduced or copied for any other purpose. RADIO 4 CURRENT AFFAIRS ANALYSIS THE TRADE TRAP TRANSCRIPT OF A RECORDED DOCUMENTARY Presenter: Diane Coyle Producer: Chris Bowlby Editor: Nicola Meyrick BBC White City 201 Wood Lane London W12 7TS 020 8752 7279 Broadcast Date: 24.11.05 2030-2100 Repeat Date: 26.11.05 2130-2200 Tape Number: Duration: Taking part in order of appearance: Duncan Green, Head of Research, Oxfam Peter Sutherland Former Director General of GATT and WTO Chairman of BP Chairman of Consultative Board on Future of WTO Harold James Professor of History, Princeton University Clare Short Former British Minister for International Development Ngaire Woods Director of Global Economic Governance Programme, University College, Oxford Christine Lagarde Trade Minister for France COYLE: They can decide what food you’re able to eat and which clothes you can wear. They might affect the security of your job, and millions of others. In their hands, too, prospects for an end to poverty and a more peaceful world. But their decisions rarely feature outside the specialist financial press. The officials and ministers taking part in World Trade Organisation talks in Hong Kong starting on December 13th will determine the success or failure of an ambitious plan to remove trade barriers. Duncan Green, head of research for Oxfam, has high hopes. GREEN: You want a world in which the poor countries can trade their way out of poverty and that needs certain flexibilities and certain rules, and that the rich countries should have the maturity to see that that’s in their interest as well as in the interest of reducing poverty. COYLE: But will the promise of reducing poverty through trade be fulfilled? Or will the rich countries decide instead to protect themselves against what they see as the chill winds of globalisation? Peter Sutherland launched the World Trade Organisation, the WTO, in 1994, after overseeing the successful conclusion of the last global round of trade talks. SUTHERLAND: Protectionism is on the march. It’s on the march in Europe and it’s on the march in the United States, and this is very dangerous. COYLE: One sign of this protectionism was the recent row over imports of Chinese clothes and shoes to Europe and the United States. Another controversial area is agriculture, with subsidies to EU farmers under attack from our trading partners. In fact it’s been just one damn row after another ever since the current round of talks, known as the Doha Development Round, was launched in 2001. Supporters of the Doha Round say the WTO is already living up to the promise it holds out for developing countries. Acting in the interests of the world’s new economic powers like China, India and Brazil, the WTO frequently punishes the US, EU and Japan for unfair trade rules. But most of us remember it for its spectacular failures, above all in Seattle in 1999, when campaigners rioted outside the meetings as the negotiations broke down acrimoniously inside. According to Peter Sutherland, it’s vital not to have another failure in Hong Kong. SUTHERLAND: Now the evidence is clear - trade liberalisation works. It works for the benefit of both sides of the equation. And, on the other hand, the evidence is equally clear that protectionism doesn’t work. It has created the sort of societies that were exposed when, for an example, the iron curtain fell, or one can find in various countries in the world. For example in Delhi when you see people driving round in what appear to be 1950s Morris Oxfords. I mean the reality is protectionism doesn’t work. COYLE: As the founding father of the WTO, you’d expect him to say so. But Harold James, professor of history at Princeton University, says the evidence of the past is that trade does benefit the world economy. JAMES: In general, periods of growth are associated with great liberalisation and in those periods of growth trade has grown more than industrial production, manufactured production. This is the lesson of every era of growth that we’ve seen from the 19th century to the present. Trade grows more quickly than the economy at large and the economy grows because people are trading. COYLE: If it’s good for the economy, why do we get backlashes against trade? JAMES: Some people are always badly affected when trade is liberalised in the way people are also affected by technological changes. It’s always actually quite difficult to disentangle the effects of technical change from the effect of more trade. In both cases, old ways of doing things literally put out a business and the people who are put of business are obviously upset and angry at the results. COYLE: There’s a powerful economic argument for trade liberalisation, as the experts describe the process of cutting tariffs and allowing more imports. Exchanging goods and services, with each trading partner specialising in whatever it is they can do best, brings mutual benefits. Both theory and evidence support the claim that more trade means faster economic growth, so much so that most economists favour freer trade. Not so those campaigners from non- governmental organisations, or NGOs, who played their part in the present backlash by marching against the WTO in Seattle. Clare Short, Britain’s Minister for International Development at the time, is a veteran of those clashes. SHORT: Well development NGOs have been shifting their position a bit. In Seattle, they were on the streets with the American trade unions and the environmental lobby saying trade rights must be conditional on labour standards and environmental standards, which was absolutely opposed by all developing countries because it would have set standards so high that they were knocked out of international trade, a position I think was deeply reactionary and against the interests of developing countries. Since then, there’s been some movement and the NGOs now demonstrate for a programme that would be helpful to developing countries. COYLE: Duncan Green of Oxfam is one of the campaigners whose views on trade have shifted. He’s still concerned, though, about whether the World Trade Organisation is actually going to deliver the promised economic benefits. GREEN: Many more NGOs see the potential in a global trading system with fair rules and I think probably there’s a growing consensus among the NGOs that what we’re seeing in the Doha Round isn’t going to bring about that potential, isn’t going to realise that potential. COYLE: Do you think politicians from developing countries themselves think freer trade would be a benefit? GREEN: The big exporters clearly see that free trade would be an excellent way to increase their export revenues and use those revenues to develop their countries. Some of the other politicians in more vulnerable economies see free trade as more of a threat. They see themselves being forced to open their markets and seeing domestic industry being wiped out by very cheap competition. I think this is one of the interesting discussions at the moment, is when is it right in a country’s development path for it to liberalise? Clearly when you liberalise, there are benefits to consumers, but there are also costs in terms of making it much harder to develop local industry, develop local agriculture. The research that Oxfam’s been doing recently seems to suggest that as the economy develops, so it makes more sense for it to liberalise. What we’re worried about is that actually the cart’s been put before the horse and countries are being forced to liberalise before their economy is at the right level of sophistication to deal with it. COYLE: So you’re in favour of trade liberalisation but not too fast and in the right way? GREEN: That’s right. You liberalise as you develop, and then you can get the best combination of intelligent protection and intelligent liberalisation. COYLE: That sounds reasonable enough, but it’s hard to argue with advice to find the best possible combination of policies. Peter Sutherland, currently chairman of BP but still involved in consultations on the future of the WTO, says the momentum must be in the direction of liberalisation. SUTHERLAND: The WTO has never been about free trade. It has been about liberalising trade in a variegated way. It has never called on the poorer countries to make the same concessions as the richer countries. I think actually one of the big failures of the developed economies has been to ignore the need to press the developing countries to liberalise their own economies. Often for political reasons, particularly during the Cold War, countries were carved out in effect of the multilateral system and nobody said boo to them because they were afraid that it might alienate political relationships, and the result is that you have real problems. I mean why is it the GDP per capita of Egypt, which was in 1955 about the same as that of Korea, is now about one sixth or one seventh of Korea – not that Korea was the epitome of free trade and liberalisation either? It’s not that the developing countries were pressed to do too much. They were pressed often to do too little in their own interests. COYLE: You might have expected that pressure to be coming from big companies. After all, we’re told often enough that they’re eager to exploit cheap labour overseas. But that perception makes business wary of lobbying for freer trade, to the frustration of Clare Short. SHORT: My experience is that the big companies didn’t take very much interest and might have been irresponsible in not trying to help the trade round forward because of course if you look at how are you going to get technology transfers in the poorest countries, it is investment from big multinationals. If you look at labour standards in the developing world, big multinationals tend to have better labour standards than a lot of local, small companies. So I’m in favour of the kind of baseline of regulation, but I think big investment flowing across the world can speed up development and I think actually the big companies have got an interest in fair global rules against sort of cowboy capital. So I think there is an alliance to be had between the real interests of developing countries and big, responsible multinationals. And I’m not sure the multinationals have played their role in advocating that because they’re a bit embarrassed by the accusations that they’re somehow reactionary and exploitative. COYLE: Paradoxically enough, poor countries are eager to attract investment from foreign multinationals for the reasons Clare Short explains, but they’re sceptical about the potential that trade holds for them. They’ve got too much bitter experience of how hard it is for their exporters to get goods into the European and American markets. This is exactly why campaigners are arguing now for fair trade, to improve the terms on which poor countries can sell their exports. But even this fair trade, which is supposed to share out the benefits more equally, is stacked against developing countries. SHORT: The fair trade chocolate bar is made in Europe because there’s a big tax that comes in if you process it, so the only bit that’s fair trade is the actual raw cocoa. I think when people know that, they’re really shocked and they think that’s unfair and they want those countries to have a chance to get the jobs and value added and be able to grow their economies. COYLE: That’s an eye-opener for those of us who believe we’re doing our bit to make poverty history by reaching for the fair trade items on the supermarket shelves. Ngaire Woods is director of the Global Economic Governance Programme at University College, Oxford. If even fair trade doesn’t do much for the poor, what’s her judgement on the benefits of a trade round for developing countries? WOODS: In all trade negotiations, the devil’s in the detail, and free trade is just the rubric under which all of that negotiation goes on. But there’s no company or no firm in the world that is going to the wall to argue for free trade as a general proposition. What they want is access for their particular goods and they might want a very particular set of arrangements where some of the things that they use or need or wish to export, they want protected, and other things they want freed. And that’s what governments are dealing with. They’re dealing with very particular ranges of interests. So in any free trade agreement, for example, there are very clear and obvious winners and losers on both sides. So it’s not irrational for any consumer or any citizen to say actually I’m not so sure about free trade. They shouldn’t be so sure about it because there’s no free trade agreement which is actually about completely free trade. COYLE: It’s all the harder for poor countries because of the sheer amount of detail involved in trade negotiations. There are constant talks in Geneva, where the WTO is based. Every aspect of trade has its own committees, spending hours each day and every day discussing the nitty-gritty arrangements, which, as Ngaire Woods says, will determine the winners and losers. WOODS: It’s really difficult for any small country to influence trade negotiations because the bigger the trade agenda, the more issues that are being negotiated, the more committees you’ve got sitting in Geneva trying to write up the different trade agreements. And just thinking practically, a country that only has one or two people sitting in Geneva can’t hope to be sitting in all those different rooms at the same time negotiating in very finely grained detail all of these different agreements. They can’t really even hope to catch up on what’s going on in all those different rooms or follow all the different negotiations. And what that means in the end is that the bigger and broader the trade agenda, the more it will always exclude smaller and poorer countries because they simply do not have the capacity to be part of every one of those trade negotiations. COYLE: And who then does end up writing the details? WOODS: The big countries, the big countries with a lot of staff that can be there, that can be sitting at the negotiating table, that can be writing the detail and pushing the agreements through. That means the United States; it means the European Union. COYLE: And to make matters even worse for those under- resourced officials from developing countries, the trade agenda is getting wider and more complicated. Since the first post-war trade round was launched in 1946, tariffs and restrictions on manufactured goods have been falling steadily, although as we saw with this summer’s Chinese bra wars, trade in manufactures can still be controversial. It’s vitally important to poor countries to move on to freer trade in agriculture now, but the sensitivity – and political clout – of American and European farmers is making progress extremely hard. And as if it weren’t enough to be tackling this thorny topic, the US and EU have added the liberalisation of trade in services to the menu of discussions, because better access to overseas markets will benefit some of their important industries like finance. According to Oxfam’s Duncan Green, this opens up a Pandora’s box of difficulties. GREEN: Services is far more complicated than agriculture. It’s 60% of the world economy; it covers everything from insurance to migrant labourers coming to build houses in Britain. The issue on services, I think, is that there are not enough of the concerns of developing countries in the services discussion, so the key one for many developing countries is migrant labour. They want to have an increased ability to send temporary migrant workers overseas. It’s a crucial source of income to many countries in Latin America and Asia and that is not actually being taken seriously. On the contrary; what the developed world is pushing for is more access for its utility companies, more access for the finance sector, and developing countries have very mixed views about whether that’s a good thing in the long-term. The developing countries are saying we might give you something on the financial sector if you give us something on migrant labour and that is all part of one particular piece of the Doha Round. It’s a strange architecture. COYLE: If trade liberalisation required relaxing controls on the migration of labour, that would soon set alarm bells ringing in Europe and America. It seems a big jump from importing more t-shirts to increasing immigration. But perhaps it’s inevitable. After all, trade talks do form part of a wider debate about managing globalisation. Are the fears aroused by globalisation, the flow of people and money as well as goods across national borders, weakening political support for freer trade? Christine Lagarde is trade minister for France, the country at the most protectionist end of the European spectrum especially when it comes to agriculture. She was previously a high-flying international lawyer, but not even such an eminent member of the country’s pro- globalisation lobby can ignore the cultural and political muscle of the French farmers. LAGARDE: We’re not talking only about agriculture. We’re talking about services, we’re talking about industry and we’re talking about rules, we are talking about the facilitation of trade. We are talking about development and the WTO round is going to be based on a fine equilibrium between what has been offered in services, what is being compromised on in agricultural products, what is being put on the table in agriculture and so on and so forth. Failing this multilateral approach to regulating trade around the world, failing that then it will be the route for bilateral agreements between two countries of different strength, of different power, of different positioning. Another option would be a rise of protectionism around the world, which is a very unpleasant option given what is happening in the world and what has historically happened in the case of rising protectionism. COYLE: So even France’s minister is alarmed about protectionism. It’s always been the case that special lobbies protect their interests effectively, while it’s harder for broad constituencies such as consumer interests to come together and campaign in favour of trade liberalisation. Historian Harold James of Princeton University points out that domestic political sensitivities have often affected trade talks, as he sees now in the United States. JAMES: There is I think something that looks unfamiliar in the politics because it doesn’t fit very neatly political categories that we’re used to in the advanced industrial countries. Most people in advanced industrial countries still think of politics in terms of a Left and a Right, but there are people who are on the Right who are in favour of protection and there are people who are on the Left who are in favour of protection, and very often you get odd coalitions between small businesses, often very traditional in their orientation, and labour unions who may think of themselves as being more radical. The politics of it fits uneasily in countries with two party systems like the United States. We have protectionist pressure in the Democratic party but also in the Republican party. COYLE: American politics are making it harder than ever to bring the current round of talks to a successful conclusion. Congress has delegated the authority to negotiate to President George W Bush but that permission runs out in mid-2007. If there’s no agreement before then, any deal the rest of the world can agree to would have to be approved by Congress. Few people believe either that American politicians would give approval, or that other countries would be willing to negotiate on these terms. But European governments are no more immune than the United States to voters’ fearfulness about the shifting landscape of the world economy. Peter Sutherland. SUTHERLAND: I don’t think you will find many heads of government who are openly critical of the liberalising agenda, but I think now that there is a certain fear amongst the political class of a backlash and therefore we find traditional free traders sometimes advancing policies, whether it’s in steel in the United States or textiles or agriculture or whatever, because they’re afraid of their constituencies. It’s certainly true to say that the French referendum on the European Union was more in my opinion of a backlash against the uncertainties of globalisation and interdependence in economic matters than it was to do with any constitution, and this sense of disorientation by society is evident in a lot of different areas and it will lead to political reactions which I fear may be more protectionist than open. COYLE: How can we possibly get a trade round geared towards increasing cheap exports from developing countries if voters in the developed world are running scared of globalisation? Oxfam campaigner Duncan Green worries about what these powerful domestic lobbies mean for next month’s discussions in Hong Kong. GREEN: I think the rise in protectionism is very much coming from Congress and some of the member states of the EU in terms of straightforward, commercial, short-term pressures in the lobbies. I don’t think it has a lot to do with what the NGOs are saying. The NGOs are saying much more broadly that they support a multilateral trading system with fairer rules and I’d say in the end we’re likely to become one of the defenders of the multilateral system against the kind of protectionism we’re seeing in the North. COYLE: So you think definitely WTO and not the kind of bilateral deals between countries we’ve been seeing? GREEN: We’re in a least worst kind of world, so definitely the WTO is more pro-development than things like the free trade areas, the Americas or some of the bilateral agreements, and therefore we want to get as much development content as possible into the WTO rather than let the thing collapse and let all the bilaterals take over. COYLE: So the WTO has been transformed in the eyes of campaigners from the greatest enemy of the world’s poor to their best defence against the even greater evil of bilateral trade deals. There has been a proliferation of these agreements between the big powers and smaller countries in recent years, even as a new multilateral deal is supposed to be under negotiation. The EU and US both have dozens of them, which is making their trade arrangements so complicated that one leading academic has described it as a spaghetti bowl. Ngaire Woods, an expert on the way the global economic system is governed, gives one example of how bilateral trade agreements favour the rich and powerful. WOODS: If you look at the free trade arrangement talks between the United States and Morocco, one of the issues they raised was about chicken. And here the issue was not just about whether you free up the trade in chicken between these countries. It’s about whether you free up the trade in parts of chickens – chicken wings or chicken feet, parts of chickens that in the United States are considered waste products and so just get thrown out and therefore can be very cheaply exported to a country where they will be eaten. But the trouble for a country like Morocco is that if you start importing chicken wings and feet from the United States that cost almost nothing because they were otherwise going to be thrown away, you consign a whole section of Moroccan chicken farmers into complete poverty. COYLE: Even when powerful lobbies like the American farmers dictate such unfavourable terms, small and poor countries often feel they have no option but to go ahead and sign anyway. Until the WTO round is finalised, it’s the only way they can gain better access for their exporters to the lucrative American and European markets. But do accords like these, which favour the big powers’ domestic industries, mean they have less interest in bringing the talks in Hong Kong to a successful conclusion? French trade minister Christine Lagarde, one of the politicians thus accused, denies that sordid self-interest is threatening to undermine the multilateral negotiations. LAGARDE: There is a clear determination to see the Doha Round succeed in the spirit of what was intended initially, which has to do with putting the focus on development for these least developed countries and the developing countries, and working on all fronts which include the service industry, the non-agricultural products and the agricultural products. But I think that it is incumbent on the governments and those who sometimes have to be brave to the risk of not being a hundred percent as popular as they wish to take the ambition forward. COYLE: Tony Blair, always one of Europe's strongest political advocates for trade liberalisation, has recently been risking this unpopularity. In his annual Mansion House speech in the City of London, he urged other world leaders to fulfil their grand pledges to reduce poverty by making some difficult compromises in the trade talks. But Duncan Green wonders whether politicians in the US and EU will have the vision and courage they’ll need to get an agreement in the interests of developing countries at the forthcoming summit. GREEN: What we want to happen is to see a result in Hong Kong which actually lives up to the promises of Doha. What we fear may happen if the politicians in charge can’t rise to that challenge is we either get a very weak agreement and the politicians declare victory and go home, or we get a round that runs on into the next decade where actually the developing countries are going to have to wait another ten, fifteen, twenty years to actually have a fair deal on trade. COYLE: We seem to be in a situation where everybody you talk to says this is very important and we want it to be a success, but we think it’s going to fail. How can this be? GREEN: Because everybody wants the other player to move first, so you’re in this ridiculous situation where it’s like two people are trying to go through a door and everyone is saying “After you”, “No, after you”, “No, after you”, and in the end you both go at the same time and you bang heads. And that seems to be what Hong Kong is starting to look like. WOODS: I’m not so sure that it matters if the Doha Round fails, and why I say that is because the Doha Round could be so many different things. COYLE: Ngaire Woods. WOODS: It could be an agreement which satisfies the needs and benefits of Europe and the United States and consigns a lot of poorer countries to a continuing position of both lacking access and lacking the right kind of assistance to benefit from global trade and global markets. And so I think those who say oh it would be a disaster if the Doha Round fails have a whole set of things they hope the Round will achieve, but it’s success for whom? COYLE: Even if the talks succeed, the balance of costs and benefits might turn out not to favour developing countries, so she’s not too alarmed by the prospect of failure. But people like Peter Sutherland who see trade as the great engine of post-war prosperity are far more pessimistic. SUTHERLAND: I hesitate to contemplate the failure because prophecy in apocalyptic scenarios isn’t good for anybody. But I do see it undermining the globalisation which has provided the world with significant growth and taken hundreds of millions out of poverty. I worry a great deal about that. COYLE: From this perspective, the trade talks will shape the kind of international community we have in future. Are we heading for a world of co-operation and mutual advantage? Or one of national interests expressed in economic and political hostility? We do tend to focus on the bread and butter issues in discussing trade, but it’s not just economic growth at stake, important as that is for the poorest countries in the world. Harold James, who’s studied the collapse of trade in the turbulent world of the 1930s, sets the possible failure of the Doha Round in the wider context of international relations. JAMES: I think we wouldn’t have a framework with which we could integrate new economies like those of China or India, and that as a result Chinese and Indian politics would become much more volatile and much more explosive. In that sense dealing with Doha is not just about consumer products and not just about getting cheap underwear in the European Union, but it’s about a vital aspect of the international political system. This is why people are really terrified about the possibility of a round of trade negotiations collapsing completely because there are consumer benefits to increase trade, there are benefits for poor countries from increased trade, and those are really important to the lives of many, many people. But there are also these very, very big security concerns where there are big countries that are in the trading system and where their stability is something that can’t be taken for granted. SHORT: I think Doha matters enormously. COYLE: Clare Short. SHORT: All the multilateral institutions in the world are breaking up and if this continues we’re going to get more and more disorder at a time when we need to manage the change of globalisation and ensure the benefits are spread across the world and that we’re in a position to manage the mounting environmental crisis. So if the trade round breaks, the sense of disorder and break up and a failure to address the injustice of current trade rules would be very destructive for any sense of international progress and order. COYLE: Amidst all the complicated detail, the chocolate bars and chicken wings, lurk many devils. They’re the devils of hunger and poverty in developing countries unable to sell us their products. The devils of protectionism and hostility between nations. The demons of globalisation threatening our way of life. The years of complex and painstaking talks in countless committees culminating in next month’s meeting in Hong Kong have really been talks about the basics, about whether billions of people have enough to eat and whether we can run an orderly, and steadily more prosperous world. No matter how difficult the negotiations, failure to reach an agreement will be the worst result of all. 6