Post-2015 Development Agenda

Lord Lilley Excerpts

Thursday 21st March 2013 Westminster Hall

[Mr Peter Lilley (Hitchin and Harpenden) (Con)]

I too congratulate the hon. Member for York Central (Hugh Bayley) on securing the debate and giving us the opportunity to consider what should replace the MDGs, which mature in 2015. He has played a central part in development policy ever since Tony Blair made the almost incomprehensible decision to try and run his Government without the hon. Gentleman. Providentially, that has enabled us to benefit from his contribution in this area.

The existing millennium development goals focus primarily but not exclusively on health, education and related matters, and rightly so. The goals have not all been met, but we are undoubtedly much nearer to meeting them than we were when they were established, and very much because they were established. We should not abandon the objectives, which will remain important to ensuring our further progress on those fronts; we should, however, now be looking beyond 2015 to set goals that will help countries to achieve self-sustaining growth, so that they will in the long run be able to finance their own health and education endeavours for the future.

As co-chair of the all-party group on trade out of poverty, I argue for the replacement goals therefore to centre their focus on creation of the opportunities for developing countries, the least developed and poorest in particular, to trade out of poverty. That should be a central focus of the goals, which should apply as much to the developed world, to create those opportunities, as to the developing world, to seize the opportunities as they become available. Aid and debt relief can and have helped to relieve poverty, but only trade can enable countries to leave poverty behind. Virtually all the development success stories, from Korea and China to Mauritius and Vietnam, have involved countries trading out of poverty, orientating their economies towards trade with their neighbours and countries overseas. By contrast, most of the remaining, poorest countries are the least orientated towards trade. The poorest countries contain a fifth of the world’s poor people and of its population, but they only account for one 50th of world trade, so they are hugely under-represented in trade.

By taking advantage of extremely low labour costs, the early starters such as the Chinas or Korea, which decided to develop through trade, were able to break into the markets of developed countries such as those in Europe and America. The late starters, the countries that have not yet taken off, are finding it harder to do so because although they have extremely low labour costs, they are competing not only with the high labour costs of the indigenous population in Europe and America but with the still quite low labour costs of the Chinas and so on, which are now able to deploy a considerable agglomeration of industrial wealth and capacity as well. It is all the more important, therefore, to give priority access to our markets to those from the least developed and poorest countries. The good news is that countries that some people had rather patronisingly written off as being incapable of starting the process of self-sustaining development are doing so. Six of the world’s fastest-growing economies in the past decade are in Africa.

When I started my career or, as my mother still says, when I had a proper job, it was as a development economist working on aid and development programmes in Asia and Africa. I used to get angry with people who assumed that those countries were incapable of development. Everything I saw taught me that people in the poorest countries have the same number of grey cells as those in the richest countries, the same desire to improve the lot of themselves and their families, and the same capacity for enterprise and so on. They started from a different point, but I was sure that, given the opportunity, they would be able to develop. It has taken a long time, but perhaps that is because they did not always have the opportunities they should have had. It is important that we give them those opportunities.

How do we do that, and what should be the components of the targets that the world should set itself post-2015? First, we should aim to have duty-free, quota-free access for goods from not just the least developed countries, but all the low-income countries of the world, to the markets of certainly all OECD countries if not more widely. That should be unconditional. We should not insist that they reciprocate, open their markets and remove all their obstacles and tariffs on our goods. It is for them to make the decision. If they think it appropriate to pursue the free trading route, let them do so; if they want tariffs and protection for infant industries, let them try that. The least bad argument for protection is the infant industry protection rule and we should not deprive them of that opportunity if they want it, but we should open our markets to them.

Most tariffs have come down during my lifetime, but the highest remaining in international trade are those on the sort of goods that the least developed countries are most likely to produce, such as labour-intensive and agricultural products. For example, the average European Union tariff on agricultural products is 14%. On textiles and apparel, it is more than 5%, and those are typically products that countries produce in the first stage of development. On other manufactured goods, the European Union tariff averages less than 2%. Tariffs in Japan are even worse. They are nearly 30% on agricultural products, 9% on textiles and apparel, but less than 0.5% on other manufactured goods. Bizarrely, the tariffs we retain are most discriminating against the sort of products that are most likely to be produced by countries to which we should be giving opportunities to trade out of poverty.

America has some very good policies, but they are narrowly focused on Africa. It levies seven times as much tariff on imports from Bangladesh and Cambodia as it gives to them in aid. It even levies more tariffs on imports from Cambodia and Bangladesh than those from France and the United Kingdom despite the fact that we export six times as much to the United States as those countries. The tariff structure in the world is absurd and it should be the objective of future world development policy to right that wrong.

Whenever I mention such facts in Brussels, EU officials preen themselves and say that we offer tariff-free, quota-free access to Cambodia, Bangladesh and the least developed countries through the Everything but Arms agreement. Fine; good; but we established that agreement at the same time as America established its African Growth and Opportunity Act, since when our imports of apparel and garments have declined slightly and they have increased dramatically in America. America’s imports from those countries were slightly higher than ours, but are now twice as high. Why? Because of the second thing we should focus on: the rules of origin. It is not a sexy subject, but extremely important. Countries that may have no tariffs on imports from least developed countries, none the less have rules of origin saying that goods will be defined as imports only if they have a certain amount of value added. If they are buying textiles from China and converting them into apparel it will not be allowed in tariff-free unless there is some value added.

The Commission for Africa calculated that the very process of complying with those rules of origin, even if they can be complied with, is roughly equivalent to the cost of a 10% tariff. We have created a system that is still hindering the growth of imports from developing countries. As world trade becomes increasingly complex value chains, it is all the more important to liberalise and make more generous the rules of origin that we apply to imports from developing countries.

A third area that we must look at closely is export subsidies. To the extent that Europe and other developed countries subsidise their export of agricultural surpluses, they damage developing countries’ potential to trade in agriculture, which in their initial phases they can most readily do. It is scandalous that America spends about $2.5 billion a year subsidising cotton produced by about 25,000 people in the States when it could be more economically imported from countries in west Africa where millions of people directly or indirectly depend on the cotton trade. I hope to go to America one day to persuade them to spend that $2.5 billion on paying off the farmers with lifetime annuities, so that they can move to more productive activities for their own economy while giving opportunities to those in Africa.

An outline agreement was pencilled in during the Doha round, which even the EU had signed up to, to abolish all export subsidies by the then distant target date of 2013. Unfortunately, as the Doha round got more and more mired in the mud, that was withdrawn, but clearly there would be a genuine possibility of reaching agreement if we had the collective world will and the political will to head in that direction, even without reviving the whole Doha round.

The worst barriers facing many developing countries are not imposed by the developed world, onerous and unjustifiable as they are, but by their equally impoverished neighbours. South-south trade barriers are often much higher than north-south barriers. In Africa, exports of agricultural products to neighbours bear a tariff of about 34%, and the tariff is 21% on other products. The reason is easy to understand. Import duty is one of the easiest taxes for a developing country to impose. The oldest tax authority in this country is Customs and Excise, and we used to rely heavily on it. Such duty obviously inhibits the growth of trade, and we should help countries as much as possible to wean themselves off over-reliance on high tariffs by developing domestic and internal revenue sources.

All sorts of obstacles to trade develop between neighbouring countries on the back of high tariffs, such as rent-seeking, corruption, delays at borders and so on. The result has been that whereas 75% of exports from European countries typically go to neighbouring European countries, only 10% or less of exports from African countries go to neighbouring African countries. If we can help southern countries remove the barriers between each other, the scope for growth of trade is enormous. Already south-south trade is growing rapidly, but so far 80% of south-south trade is internal to Asia, 10% to Latin America and only 6% to Africa. The scope for improvement and growth there is enormous.

The final area where we need to refocus our aid and development effort is the way in which the aid budget is deployed. Over the past couple of decades, the proportion of aid that has gone to financing infrastructure and economic development in developing countries has declined by about three quarters. Yet, if they do not have the infrastructure—both physical and institutional—to get exports to market, they are not going to be able to take advantage of opportunities that may open up in neighbouring or more distant markets. It is essential that we help developing countries through a refocusing of a proportion of the aid budget to build up suitable infrastructure.

One specific area that we need to look at, because time is running out, is the treatment of medicines. There has been agreement under the TRIPS regime for advantageous access of medicines and drugs to developing countries. It is important that that is perpetuated, so that developing countries have access to the cheapest and, where possible, generically priced medicines, while leaving incentives for the pharmaceutical industry in the developed world to develop patented medicines, primarily getting rewards in their own developed markets.

We also need to look at the availability of trade finance—whether it can be made more accessible and lower cost for those countries. We also need to focus on corruption and rent-seeking, and the extent to which that inhibits trade and development. I hope all those areas will be considered very seriously by those looking at the pattern of development goals that should be set for the future. I know the Prime Minister is very seized by the importance of trade as part of development strategy, as is the Minister who will respond to the debate.

I am grateful to the hon. Member for York Central for giving us an opportunity to raise these very important issues. We look forward to the Front-Bench contributions.