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Organisation for Economic Development and Co-operation
(OECD)
Sixth Annual Consultations
Report of the Informal Consultations between the OECD Trade
Committee and Civil Society Organizations
October 19th, 2004
Paris, France
Rapporteurs:
Aaron Cosbey, International Institute for Sustainable Development
Marc Paquin, Unisféra International Centre
Disclaimer: This report was prepared at the request
of the Department of International Trade. It is the work of the
author and does not necessarily reflect the official policy or position
of the Government of Canada.
A: Introduction
On 19 October 2004, the 6th Informal Consultation between the
OECD Trade Committee and Civil Society Organisations (CSOs) took
place at the OECD in Paris. Present for the meeting were members
of the Trade Committee, representing the various OECD countries
and observers, as well as the regular advisory bodies to the OECD:
the Trade Union Advisory Committee (TUAC) and the Business and Industry
Advisory Committee (BIAC). Several members of each were present.
There were two invited international CSOs: Consumers International,
and the International Federation of Agricultural Producers (IFAP).
Only two countries had national NGOs present: Austria (Austrian
Federal Economic Chamber; Vienna Chamber of Labour) and Canada.
From Canada there was:
- Aaron Cosbey, International Institute for Sustainable Development
(co-rapporteur)
- Marc Paquin, Unisféra International Centre (co-rapporteur)
- Bob Friesen, Canadian Federation of Agriculture1
- Edwin A. Mallory, Forest Products Association of Canada (observer)
- Caroline Émond, Canadian Dairy, Poultry and Egg Producers
(observer)
- Susan Joekes, International Development Research Centre (observer)
- Serge Lebeau, Union des Producteurs Agricoles (observer)
Alexander Lofthouse, Canadian Chamber of Commerce, attended the
meeting as part of the BIAC delegation.
The subjects under discussion were addressed in two separate sessions.
The morning session considered the impact of the July 31 framework
on the forthcoming negotiations of the WTO’s Doha Development
Agenda. The afternoon session considered business outsourcing and
international trade.
B. The July Framework and the Doha Development Agenda
Discussions centred mainly on sectoral progress, or lack thereof,
represented in the July framework (JF). The notes below organize
the discussions around the themes of agriculture (which received
by far the most attention), non-agricultural market access (NAMA),
services, trade facilitation, sustainable development and other
issues.
General Remarks
Many expressed the opinion that the JF represented a useful breakthrough,
at a time when observers were wondering how (or whether) the momentum
of the Doha Development Agenda (DDA) would ever be revived. At the
same time the sentiment was expressed, particularly from the business
community, that the JF had not gone as far as some had hoped it
would, tempered with acknowledgement of the difficulties of the
negotiating process. Labour and agricultural groups in general expressed
more cautious sentiment, wondering how the impacts would play out
in terms of their constituencies, and pointing out the need to pay
attention to the plight of those who lose from trade liberalization.
The Chair noted in opening the meeting that the JF “accomplished
what needed to be done.” He pointed out several sources of
negotiating difficulty. First he noted a reluctance on the part
of some developing countries to negotiate. Second he noted disagreement
on some fundamental issues among OECD countries. And third, he pointed
out that those with vested interests in the status quo obviously
made progress difficult. He argued that there had been a transition
of the epicentre of tension, from what in the past had been transatlantic,
then transpacific, and now migrating to a South-South tension.
Agriculture
As noted above, agriculture received by far the most attention
during the morning session (and some groups expressed concern with
the lack of balance to this effect in the JF as well). Business
groups welcomed the JF, in particular praising the promised reductions
to trade-distorting support. They stressed the need for reciprocity
in the negotiations, asking for both developed and developing country
commitments to be meaningful. And they praised the analytical work
of the OECD on tariff escalation.
Producer groups made a number of strong interventions. In some
general remarks, one group cautioned that we need to focus on whether
the benefits of liberalization are actually going to reach the farmers,
given current distortions in market structure. The theme of market
distortion was addressed several times in the context of discussions
on State Trading Enterprises (STEs), which the JF slates for negotiations.
Several intervenors made the point that it made no sense to eliminate
STEs—the only available instruments of farmer market power—but
at the same time leave untouched private downstream traders who
have consolidated market power at the international level. The result
would be detrimental to both producers and consumers, and would
make liberalization that much harder to sell. One government representative
responded that this was indeed a problem; with competition policy
out of the negotiations we would need to find a place to address
it, whether within or outside of the WTO. Another expressed the
opinion that STEs were clearly distortionary, and needed to be addressed
in the Doha Round negotiations. He complained that requests to some
STEs to release confidential business information had been turned
down. One group called for OECD research into ways in which farmers
could garner more market power within the confines of trade rules.
In more general remarks, a producer group noted that trade was
only a means to an end, and cautioned that agricultural liberalization
would only lead to improved farmer well-being if there were the
capacity in any given country to actually exploit the opportunities
offered. He also noted the need for domestic institutions such as
anti-poverty programmes to deal with adjustment. And he argued that
agriculture produces a number of public goods not provided by the
market. He proposed more lenient rules for domestic support accorded
to countries that export a low percentage of their crops. A government
representative expressed interest, but noted that this would still
impede market access for others.
Another intervention focused on the need to regard agriculture
as a special case in international trade. Agriculture, it was stressed,
is unlike other forms of production in a number of ways: it produces
not only food and raw materials, but also can contribute to environmental
conservation, to rural stability and development, being vital for
the survival and development of rural economies. As such, it was
argued, in developing rules for agricultural trade governments need
to give agriculture special treatment that takes full account of
the various types of costs and benefits that might result.
Several speakers asked for better analytical work to sort out the
connection in practice between domestic support, market access and
export competition. They stressed that it would be difficult to
move forward in negotiations without better understanding how existing
and proposed levels and types of support actually affect market
access and export competition. It was argued that the negotiations
should give countries agreed final outcomes, and leave flexibility
for governments to achieve those outcomes with a variety of instruments,
as appropriate to each country’s circumstances.
Some specific proposals were made for the agricultural negotiations,
based on the text of the JF. One group recommended:
- Scrapping the idea of caps on product-specific support; it was
argued that a cap on overall support (as currently enforced) provided
for more flexibility, and that basing product-specific caps n
historic support levels (as per the JF) penalizes those that have
significantly reduced such support in the past;2
- Scrapping the idea of reducing de minimis support;
it was argued that this facility is relied on by countries willing
to show restraint in domestic support. The focus rather should
be on reducing countries’ aggregate measure of support.3
Several participants argued the need for solid criteria to define
green box spending as minimally trade-distorting, in order to deter
the wholesale transfer of amber box support into the green box—a
result that would entail little final impact on support levels,
market access or export competition.4
It was pointed out that the redefined blue box would significantly
expand the US’ allowed support. In a similar vein, it was
calculated that an overall reduction of trade-distorting support
of some 55% would be required to bring the US allowed support down
to 2001 actual levels. This contrasts to the proposed 20% initial
reduction in overall support.
There was some discussion of food aid, the negotiations on which
aim to prevent commercial displacement. One delegation reported
that there was concern among some developing country governments
and civil society groups that food aid appeared to be “under
attack.”
Non-Agricultural Market Access
Discussion on this area was limited by the limited progress represented
in the JF text. Business groups in particular noted this as an area
of key priority, and urged more ambitious results, both in the area
of tariff barriers and non-tariff barriers. One labour group called
for significant flexibilities for developing countries in the NAMA
negotiations.
Services
Many expressed disappointment with the results to date in the services
negotiations, given the lack of initial offers and the shallow nature
of those on the table. Business groups expressed their desire to
see more results in this sector.
Several groups went beyond the JF to comment on the current negotiations,
cautioning that they did not go far enough to carve out basic public
services from the scope of the obligations. They also argued that
there should be explicit recognition of the right to regulate in
the text, expressing their concerns that GATS Article 6:4 on domestic
regulation threatened that right in important ways. They argued
further that lack of such specificity was partly to blame for the
lack of concrete offers; how, they argued, could countries make
offers when the context in which they were doing so was still unclear?
Several government representatives argued that there was no threat
to the right to regulate in the current text, and that the fears
expressed were overblown.
Trade Facilitation
Business groups called trade facilitation one of the key fields
of importance in the DDA. They cited estimates that a successful
conclusion to the negotiations would free wasted resources currently
amounting to 7 – 10% of the value of world trade. They argued
the ancillary benefits would include a reduction in corruption overall,
and freed up resources for governments to devote to important public
policy goals. They proposed three principles for further negotiations:
transparency, non-discrimination and least-trade restrictiveness.
Sustainable Development
Several CSOs argued that the July Framework failed to adequately
pursue the development that was, according to the Doha Declaration,
the heart of the negotiations. They pointed out that the JF failed
to work toward any sort of mechanism to ensure that what liberalization
was achieved would actually lead to development, let alone sustainable
development.
One argued that the JF made no mention of two instruments that
might be used to help guide negotiations in a desirable direction:
sustainability impact assessments,5
and the operationalization of paragraph 51 from the Doha Declaration.6
Both are part of the Doha Development Agenda, and yet three years
on there has been no movement on either. Neither was technical assistance
as currently practiced sufficiently broad to aid countries in assessing
these impacts at the national level. Without recourse to such mechanisms,
it was argued, we have no way of knowing the full impacts of the
scenarios we are considering in the negotiations, and thus are operating
blind.
In a similar vein, it was argued that the weight of economic evidence
denies any automatic link between liberalization and economic development.
The final result will depend on a number of domestic factors, such
as governance, infrastructure, macroeconomic stability, regulatory
capacity, etc. As such, it was proposed that the only way to ensure
that liberalization under the DDA would achieve its objectives in
developing countries was to formally link liberalization to the
capacity of those countries to benefit from liberalization. Some
form of special and differential treatment (S&DT) was needed,
it was argued, that considered capacity on a country-by-country
basis, and triggered the assumption of obligations in a tailored
fashion as a result. It was pointed out that Annex D of the JF proposes
just such a mechanism in the context of trade facilitation.
Some government representatives argued that this would take the
WTO far beyond its mandate and expertise—that the exercise
of capacity assessment and capacity building was best left for agencies
such as the World Bank and UNEP. Others picked up on the discussion
of S&DT, noting that little progress would be made in designing
meaningful S&DT until there was a progress toward a meaningful
definition of developing countries. One developing country government
representative warned that trying to make progress in this area
would derail the already difficult talks, since the WTO agenda was
already overloaded.
Another CSO approached the same issues through the lens of value
chain analysis – an approach that analyzes the various actors
in the chain of processes that brings a good from primary producers
to consumers. He asked for more research on how liberalization affects
the distribution of rents within a given value chain. It was argued
that often the results of liberalization were not the intended results—as
when the middle men in a value chain concentrate their market power—and
that this fact, if confirmed, needed some way of feeding into the
negotiating process.
Other Issues
The discussions touched on a variety of other themes. In talks
that ranged beyond the impact of the JF, several labour CSOs noted
the problems of the Uruguay Round-mandated end to quotas on textiles
and clothing (coming January 1 2005). They predicted massive adjustment
costs. One government representative agreed that this was a problem
and noted the need for the consequences to be addressed not only
by development agencies, but also within the realm of the trade
community, to the extent possible.
Several labour CSOs argued that the problems were made worse by
the dominance of China in the market for textiles and clothing,
given its disregard for workers’ rights. As well as constituting
an unfair “subsidy,” they argued, this chilled efforts
to improve workers’ rights in other countries. The same argument
was made with respect to export processing zones which, it was argued,
are proliferating. It was alleged that the results of the ILO’s
World Commission on the Social Dimensions of Globalization had been
ignored by the trade community. The chair noted the need for better
cooperation between the ILO and the WTO on core labour rights.
A developing country labour CSO asked the OECD countries to do
more to support restructuring in their own countries, so that there
would be less Northern popular resistance to increased market access
for Southern countries. Such access was critical, she noted, to
economic development in the South; South-South trade was no panacea,
since between many Southern countries the patterns of production
are similar.
On the question of non-reciprocity, she noted that it was not a
question of lack of political will in the South, but rather a simple
matter of necessity; Southern countries were often not able to take
on the same types of commitments as their Northern counterparts.
C: Business Outsourcing and International Trade
Participation on this issue was more limited than during the morning
session. Representatives from BIAC and TUAC were the most active
speakers. About seven OECD members and observers expressed their
views on the matter.
At the suggestion of the Chair, the discussions on this theme were
divided into two parts: the meeting first considered the potential
benefits of business outsourcing and then focused on the concerns
it raises. Rather than summarizing the discussions along these lines,
these notes will rather present them by intervenor.
To guide the discussion the Chair posed a series of questions to
the participants at the onset of the session. These included:
- What are the main benefits of outsourcing?
- What are the benefits of outsourcing to developing countries?
- What can countries do to maximise these benefits, both in OECD
and developing countries?
- What are the main concerns raised by outsourcing?
- To what extent can this debate affect the Doha Development Agenda?
An OECD Member stressed that “outsourcing” somewhere
also means “insourcing” elsewhere (both from country
and industrial sector perspectives) and, as a result, outsourcing
is both positive and negative at the same time. He then explained
that from a historical point of view, many transnational corporations
would probably not have survived if they had not resorted to international
outsourcing (e.g. textile, automotive, electronics). For this participant,
outsourcing made good economic sense, but he stressed the need to
address the related social issues. His views were shared by other
OECD members.
The Labour Perspective
From the labour perspective one of the main issues that needs to
be addressed is the heightened sense of job insecurity amongst many
groups of workers as a result of accelerating international offshoring
and the relocation of industrial and service sector activities.
According to these intervenors, a breakdown of confidence in the
long-term relationship between companies and their employees is
taking place as a result of employers threats to relocate activities
in other countries to secure concessions from their employees (contrary
to the OECD Guidelines for Multinational Enterprises) combined
with the hype surrounding the scale of the changes taking place.
They argued that this situation, coupled with some countries’
laissez-faire approach may well lead to an erosion of support
for the liberalization of trade and investment. Global Framework
Agreements signed between a Global Union Federation and a multinational
enterprise constitute a step forward in addressing these issues.
In the union representatives’ view the main question that
should be posed with regard to the benefits of outsourcing is: To
whom will those benefits accrue?’ Their concern is to make
sure that outsourcing does not only lead to the “displacement”
of the work force. In such a scenario employees will be losers,
as some will lose their jobs and the others will gain access to
jobs with reduced working conditions. In this regard, targeted regional
and industrial policies need to be put in place, along with active
labour market policies, to help those communities whose jobs may
be affected by change. In other words, long-term planning rather
than short-term business decisions must govern the governments’
approach to these issues.
Unions expressed the opinion that outsourcing leads in some instances
to a “race to the bottom” in employment standards that
calls for a “whole of government” policy response encompassing
the international institutions. They were especially concerned with
the proliferation of labour rights abuses in export processing zones
and ensuring that China abides by core labour standards. For labour
unions opportunities are being missed by negotiators by not working
more closely with the International Labour Organisation (ILO)
on such issues as core labour standards and trade.
Finally, unions underlined the importance of the work undertaken
by the OECD on trade and structural adjustment and proposed that
the OECD establish a clearinghouse to improve the current dissemination
of data, information and analysis on the implications of changing
production patterns.
The Business Perspective
For the business representatives, outsourcing is not a new issue.
What is new is that challenges that were mostly confined to the
manufacturing sector now confront the service sector and higher-value
activities on a global basis. They underlined the fact that outsourcing
results from a series of challenges that nowadays condition private
sector activities: rapid changes in production processes and technologies,
increasing competition and new sources of competition (e.g. China),
constant pressure to reduce costs and improve productivity, mounting
labour compensation costs, mismatches between job requirements and
labour skills, increased costs generated by enhanced supply chain
security requirements, etc. These factors, they argued, explain
why business is outsourcing: in order to maintain competitiveness,
make profit and stay in business altogether, since outsourcing means
lower costs and increased product customization.
At the same time, business finds itself increasingly in a defensive
position against both public opinion and policy makers. The business
sector agrees that appropriate structural adjustment programmes
are an important policy tool to address the disruptive impacts outsourcing
has on affected workers and that governments must indeed find ways
to respond to these challenges, because otherwise negative social
reaction will affect political support for open trade and commerce
and might limit the possibility of further pursuing the trade liberalization
process. Business is calling for intelligent structural adjustment
policies and getting the right policy mix that encompasses a range
of complementary measures, including: promotion of free trade as
key to stimulating economic growth; investment in education, training
and re-training; policies that foster innovation and broader structural
reforms.
In this regard, they too welcomed the OECD study on trade and structural
adjustment, and proposed a series of issues the OECD should focus
on, including: misperceptions about outsourcing and the contribution
of outsourcing to development and, regulatory frameworks affecting
entry and exit to labour markets.
Business representatives stressed the importance of not limiting
governments’ policy efforts solely to trade-related impacts
but to consider broader structural reforms. For example, BIAC conducted
a survey of its members examining what steps could be taken to improve
employment rates in OECD countries. The key concerns raised in that
survey included: the heavy burden of taxation and social security
contributions, over-regulation and lack of flexibility in the labour
market, overly bureaucratic regulations for the hiring of temporary
employees, imbalances between available skills and market demands
and low activity rates of certain parts of the population.
Concerning the benefits of outsourcing to developing countries,
a business representative mentioned that even when profits are repatriated
to the outsourcing country, an insourcing country benefits from
the investment through job creation (wages), employee training,
infrastructure development (buildings), etc. This was also the opinion
of one OECD Member.
Other Perspectives
Another Member was of the opinion that the debate about outsourcing
is not new but that the difference lies in the type of jobs being
impacted. The situation is now touching white-collar employees who
felt they were insulated from the effects of trade liberalization.
He stressed that the recommendation to raise the “feeling
of security” was quite positive in this regard.
It was mentioned by another Member that businesses should be the
ones deciding where to produce – not governments – and
that governments should focus their energy on minimizing the downside
effects of these business decisions. Japan’s experience with
the promotion of new lines of investments was portrayed as a successful
approach governments may take to offset the negative impacts of
outsourcing in certain sectors. Along these lines, another Member
underlined the fact that a country’s competitiveness results
not only from lower wages but from a number of attributes, such
as a transparent economy, an educated workforce, a stable government
and an independent court system.
For another participant, two elements distinguish the current outflow
resulting from outsourcing from the one that occurred in the ‘70s
as a result of foreign direct investment: scope and speed. The information
and communication technological revolution now allows companies
to plan production and labour division at a global scale, thereby
increasing the scope of the changes markets are undergoing. This
is accentuated by the rapid integration of China and India into
the world market.
Finally, a couple of participants underlined the fact that OECD
countries have traditionally prevailed over low cost competition
through innovation and a better skilled workforce, but that these
factors are becoming increasingly less relevant as developing countries
erode the OECD monopoly on value-added products and services.
In his concluding remarks the Chair underlined the fact that a
broad dialogue on politically sensitive issues took place during
the meeting, including a good dialogue during the morning session
between representatives from the agricultural sector and governments.
He reminded everyone that this event was just a beginning, and that
work at the substantive level must continue. He also mentioned that
the meeting had not touched on the important issue of trade and
migration, which presents daunting challenges.
D: Conclusions
While the dialogue was indeed healthy, it was undoubtedly not
what it might have been had there been more extensive CSO participation.
Canada, as noted above, sent a credible delegation to the meetings,
and Austria sent two CSOs as well (though they did not intervene).
But no other countries were represented, calling into question the
overall value of the event to the governments that took such pains
to organize it. Clearly there is room for more proactive efforts
to elicit CSO participation. A theme to which the meeting
was repeatedly drawn was the need to have the results of research
and analysis feed into the Doha Round negotiations. This was addressed
in the context of liberalization’s impacts on environment
and on social and economic systems, in agricultural and other aspects
of the Round. Where there are potential costs, the talks should
find ways to avoid or mitigate them, and/or to soften the blows.
And where there are potential benefits, they should be actively
pursued. But none of this will happen without the requisite analysis,
and the dedicated mechanisms by which that analysis can influence
the final outcome of the Doha Round.
- Also submitted a written statement.
- To provide some background: the JF proposes
that the existing cap on overall amber box (see below) support
be replaced by caps on product-specific support—support
measures for individual agricultural products. Almost all amber
box support is of this type anyway, meaning the two approaches
in the end accomplish the same goal.
- To provide some background: under the Agreement
on Agriculture all countries are allowed a small amount of trade-distorting
domestic support that is not subject to reductions. The permitted
levels of this “de minimis” support are expressed
as a percentage of the total value of production of the good supported.
Under the Uruguay Round results, developed countries are allowed
a 5% de minimis level of support, while developing countries are
allowed 10%. The aggregate measure of support (AMS), on the other
hand, is the sum of all trade-distorting (amber box) support.
This support, it is argued, should be the real focus of reduction
efforts.
- “Amber box” support is trade distorting
(usually meaning linked to levels of production), and was subject
to reduction commitments under the Uruguay Round results. “Blue
box” support consists of direct payments made under production
limiting programs, and is not subject to reduction under the current
arrangements. “Green box” support--supposed to be
non-, or minimally trade-distorting--is not subject to reduction
under the current arrangements either. It consists of such things
as disaster insurance/assistance and R&D spending. Some argue
that the definitions of what can go in the green box are too loose.
- The goal of sustainability impact assessment
of trade negotiations (also called environmental reviews or environmental
assessments, depending on the practicing entity) is the integration
of sustainability concerns into the development of trade policy.
In order to maximise the contribution of trade liberalisation
to all pillars of sustainable development, SIA, as a tool for
policy decision-making, aims at assessing the full impacts of
proposed liberalisation and trade measures.
- Paragraph 51 gives a mandate to the Committee
on Trade and Environment, and the Committee on Trade and Development,
to “act as a forum to identify and debate developmental
and environmental aspects of the negotiations, in order to help
achieve the objective of having sustainable development appropriately
reflected.”
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