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WTO NEWS: 2004 NEWS ITEMS

GENERAL COUNCIL 22 OCTOBER 2004

Statement by the World Bank President

JAMES D. WOLFENSOHN, PRESIDENT OF THE WORLD BANK GROUP

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Introduction

Mr. Chairman, Dr. Supachai, my colleague, Rodrigo de Rato, distinguished Delegates,

I am pleased to be in Geneva again, engaging with you all on a theme that is dear to my heart: the topic of coherence in economic policy-making. Almost a year-and-half has gone by since my last visit to the WTO’s General Council for a similar meeting. These have been momentous months for the multilateral trade system with the unfortunate “detour” at the Cancun Ministerial and the recent good news on the framework agreements reached on August 1st, that seem to put the Doha Development Agenda back on track.

 

An Insecure World

This year, we are reporting record economic growth. And yet, somehow, we feel less secure about the future. This, of course, is intimately related to our concerns about terrorism and how the world is evolving. The danger, however, is that in our preoccupation with immediate threats, we lose sight of the longer-term and equally urgent causes of our insecure world: poverty, frustration, and lack of hope.

The numbers are well known. For example, 2.7 billion people — more than half the people in developing countries — live on less than $2 a day. Of these, 1.1 billion earn less than $1 a day. If we want stability on our planet, we must fight to end poverty.

The good news is that we know that development works. Over the last two decades alone, the proportion of people in extreme poverty fell by almost half – from 40 percent (1981) to 21 percent (2001). Life expectancy has increased from 60 years (1980) to 64.6 (2002). And adult illiteracy has been halved to 22 percent.

 

Trade and Poverty

Trade liberalization can be a force for poverty reduction, but the ultimate outcome depends on many factors, including initial conditions of the country undergoing reform, the nature of the reform, who the poor are, and how they sustain themselves. Most studies confirm a positive association between trade and growth, even though the magnitude of such a relationship is controversial.

But it is important to recognize that trade liberalization is not a “silver bullet” for development. Its limitations in part reflect the many other distortions that often characterize developing economies. Moreover, trade liberalization generates both winners and losers.

These considerations underscore the importance of complementary governmental policies to deal with trade-liberalization side effects. Implementation of social safety nets, trade-related institution-building efforts, and initiatives to promote improved supply-side response (e.g., trade facilitation projects) are some of the options to be considered.

 

Multilateral trade negotiations: moving forward

The July package is an important step in the right direction. The next stage of the negotiations will ultimately determine success or failure in delivering on the promise of a development round. Therefore, it is important to focus now on the substance of the agreements with a view to ensuring that they have a pro-poor orientation.

We all recognize that the political calendar in some of the main trading nations is not particularly conducive to bold political commitments in the near future. Still, it is important to keep moving since signals of progress in the multilateral front will help us to diminish the sense of insecurity that I mentioned before.

 

The Coherence Nexus

The responsibility for achieving an ambitious result in the DDA negotiations rests with WTO members. In pursuing their legitimate national objectives, however, countries should keep in mind that international spillovers from domestic actions can compromise coherence at the international level. The best known example in this context refers to agricultural policies in OECD countries and their impact on developing economies.

Subsidies, trade protection and other types of support to agriculture in high-income countries can significantly distort trade. Support to agriculture in OECD countries, including that provided through import barriers, runs at almost one billion dollars a day — more than five times all development assistance. Phasing out interventions that distort agricultural trade would lead to increases in annual income in developing countries on the order of hundreds of billion of dollars in the medium term with a potential significant impact on poverty.

This is not, however, just a North-South issue. Many developing countries also follow protectionist policies in agriculture. Agricultural trade barriers in middle-income countries, for example, are often of the same order of magnitude as in rich countries.

While the gains from global reform of agriculture are large, we must recognize that some countries now benefiting from preferential access and/or those that are net food importers may be hurt. But these concerns are not a reason to oppose liberalization by OECD nations — we must bear in mind that the majority of the world’s poor live in countries that do not receive trade preferences. Instead, this calls for carefully designed and sequenced reforms in the countries concerned, complemented by generous development assistance to facilitate adjustment alongside effective mechanisms to safeguard the poor.

Distortions in agricultural trade, while the most glaring example of policy incoherence, are not the only area where inconsistencies between the trade and the development agendas can be found. It is worth pointing out that:

  • Protection of non-agricultural goods remains an issue, particularly in the developing world. Despite steady progress in bringing down tariffs over the last 15 years, they are still on average 2-3 times higher in developing countries than in industrialized countries. Liberalization in developing countries can also be an important lever for additional growth in South-South trade.

  • There are also substantial benefits to be attained by increased competition and/or better regulation in all modes of service delivery. The pursuit of these gains should not be postponed. The multilateral process can help advance domestic reforms and constrain protectionist interests.

We also recognize the importance of special and differential treatment (S&DT) for developing countries. But S&DT should not be confused with an invitation to free-ride the multilateral trade system. After all one of the main benefits of engaging in multilateral trade negotiations is the opportunity of using the process to leverage domestic reform processes.

Another area that requires special attention concerns the impact of the proliferation of preferential trading arrangements for the multilateral trading system. As we argue in our upcoming Global Economic Prospects publication (to be released on November 16th), two main goals should be kept in mind when embarking on preferential deals: to make sure that these agreements work in an effective manner (avoiding waste of resources) and that they have minimal exclusionary effects.

Finally, we know that the trade agenda goes beyond border protection and subsidies. Higher standards demanded by consumers in the North must not lock developing country exporters into a cycle of poverty. And the quality of the infrastructure in the South should be addressed so that supply-side constraints do not continue to hinder the potential gains from trade. These considerations, in turn, underscore the possibilities for trade and aid to play a fruitful complementary role.

 

The Role of the World Bank

We have been working closely with the WTO, the IMF and other agencies in the trade and development communities to ensure that our efforts with respect to policy advice, technical assistance and information exchange are consistent. And I hope that our request for observer status in the Trade Negotiations Committee and its subsidiary bodies can be addressed shortly so that we can make our cooperation even more effective.

An important cooperative effort between our institutions, as you all know, is the Integrated Framework (IF) for Trade Related Technical Assistance to the least-developed countries (LDCs). IF activities have been launched in more than 20 countries in the past two years in cooperation with the WTO and other IF agencies (IMF, UNCTAD, UNDP, ITC). Following the completion of Trade Diagnostic Studies (DTIS), the IF has moved from diagnostics to implementation. We know that implementation remains a challenge, but that is an area where the pay-off from greater cooperation among agencies, donors and national governments can be substantial. The integration of trade-related actions into Poverty Reduction Strategies remains the best route to promote greater coherence in this area.

With respect to standards, in addition to our own operational work, we participate in the Standards and Trade Development Facility (STDF) that is managed by the WTO. The STDF operates both as a grant facility – and we have contributed to its funding – and as a coordinating mechanism in the area of sanitary and phytosanitary standards. We hope that the STDF will promote more strategic actions enhancing the sustainability of SPS measures in client countries.

Trade facilitation was one of the pillars of our announcement at Cancun with respect to our support to the Doha Development Agenda. In FY04, our Board approved 16 new projects with trade facilitation components for total commitments (assigned) for this area of more than US$560 million. This more than doubles the number of projects and commitments in FY03. Moreover, we foresee that this high level of engagement will continue in the years ahead (we expect Bank operations in trade facilitation to extend to more than 50 countries by FY06). In short, this is an area where we are already making a difference and we stand ready to further cooperate with you all in implementing this critical work program.

Another area where institutional cooperation is crucial concerns exchange of data and information on trade barriers. Non-transparent forms of protection – e.g., quotas, specific duties — make it difficult for developing countries to anticipate the impact of liberalization. Software developed at the Bank, and datasets developed by the ITC, UNCTAD and the WTO give us a much better ability to analyze the consequences of the detailed proposals being considered in the Doha Round. We need to further cooperate in mobilizing funds to improve data quality and to make more and better trade-related data publicly available.

With respect to the financing needs of the adjustment costs associated with multilateral liberalization and preference erosion, I want to reaffirm that we stand ready to discuss adjustment programs on a case-by-case basis. We welcome the opportunity of consultations with the WTO’s Director General with a view to explore alternatives to support the development of cotton-dependent economies. We have consistently underscored the unfairness of cotton subsidies that distort patterns of production and international trade. There are a series of IDA-credits currently supporting the reorganization of the cotton sector in Sub-Saharan Africa. And we have indicated to the countries affected that the eventual allocation of additional resources should be discussed in the context of their PRSPs.

Let me conclude by once again thanking you all for the opportunity to discuss the important theme of coherence in the context of the multilateral trade system. The World Bank will continue to participate in this dialogue not only as an interested observer in the trade negotiations, but also as a partner in our combined efforts to promote trade for development.

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