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Athens, 20 April 2005

“Great Expectations for 2005”

Keynote speech by
Dr. Kipkorir Aly Azad RANA
Deputy Director-General
World Trade Organization
Geneva

at the 9th Economist Government Roundtable on
“ENVISAGING A STRONGER EUROPE
THROUGH ITS LEADERS”
“Sharing Political, Economic and Business Leadership
in Times of Turmoil”

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Dear Ministers,
Excellencies, Distinguished representatives from the public and private sector, Honoured Guests, Ladies and Gentlemen,

KALIMERA

It is an honour for me to be amongst all of you today in Athens at the 9th Economist Government Roundtable.

The last time I visited Greece was over 20 years ago and I am happy to see that although a lot has changed, the people's warm hospitality has remained untouched.

I would like to take this opportunity to thank the organizers of this Economist Government Roundtable. With so many distinguished participants, this forum is indeed an excellent opportunity to assist the public and private sector in their efforts to develop the right strategies for economic growth through participation in global trade.

The theme of this panel is “Great Expectations for 2005”. So where is the World Economy in 2005? What is the role of trade and the World Trade Organization in an era where globalization has created both tremendous opportunities and pressing challenges? Why is 2005 such an important year for the WTO?

All these questions merit extensive answers; I will try to touch upon them in the time we have available.

Let me make a few remarks first on recent developments in the word economy. On balance, the world economy did rather well in 2004 and while prospects for 2005 may be slightly less bright, they still look good in comparison to the recent past. Latin America and Asia have been doing particularly well in terms of economic growth, with very good performances from China, India, Brazil and other emerging economies. China has sky-rocketed in recent years to become the world's largest trader after Germany and the United States.

After quite steep reductions in foreign direct investment over three years, 2004 saw an increase of 6 per cent in global FDI. This trend is predicted to continue this year. This a a welcome sign of renewed confidence in the global economy.

There are a number of reasons why growth and trade may be lower in 2005 than in the previous year. While higher oil prices had some dampening effect on economic performance in certain economies towards the end of 2004, the fuller impact of higher energy costs is likely to be felt this year. On the other hand, petroleum producing countries are benefiting from a significant improvement in their terms of trade, and this includes some low-income African countries. As a matter of fact, the prices of some other commodities, such as iron ore and other metals are also benefiting certain developing countries. Finally, interest rates are likely to show an upward trend in 2005, further dampening growth.

But as I have said, from a strong performance in 2005, with real global GDP growth at 4 per cent and export growth at 9 per cent, we can still expect economic growth of 3 per cent to 3.5 per cent and trade growth of around 6.5 per cent in 2005. These rates are well above the average since 2000, and also compare well with the 1990s.

While most of us almost always hope for better growth and trade performance than economies deliver - especially in the weaker performing economies such as Japan, Western Europe and some developing economies — I think we should acknowledge that current trends, for the most part, are supportive of reasonable expectations for 2005.

None of this, however, suggests that we should be complacent about the challenges we face in the WTO in advancing the Doha Round of negotiations. The year 2005 marks the 10th Anniversary of the WTO. These past 10 years have been critical for the WTO and the multilateral trading system, and have transformed the way in which nations interact commercially.

For the WTO, this is a pivotal year because it provides a unique window of opportunity to sow the seeds for a successful conclusion of the ambitious agenda we embarked upon late in 2001 — the Doha Development Agenda.

At the fourth Ministerial Conference in Doha, Qatar in November 2001, WTO Member Governments agreed to launch new negotiations, along with a work programme on a range of issues in parallel with the negotiations. The Doha Ministerial Conference was a milestone in the evolution of the multilateral trading system, incorporating an explicit pledge to place development at the heart of the Doha Work Programme. This was to be achieved by better serving the needs and interests of developing countries, and providing fairness and a level playing field for them as weaker trading partners.

We have come a long way since the Doha Ministerial meeting. Members have seen periods of progress and consensus; but there have also been times of divergence. For instance, the fifth WTO Ministerial Conference in Cancun, Mexico, in September 2003, was not able to reach a successful outcome.

Following Cancun, consensus among 148 Members at diverse levels of development and a negotiating agenda as complex and sensitive as the Doha round, was never going to be easy. In the lead-up to the July 2004 General Council, Ministers met in various formats and groupings around the world. They worked very hard, in a spirit of cooperation and compromise, thereby providing much needed support for the DDA. Members showed they were committed to making progress in the DDA, and they reached agreement on the “July Package” in the early hours of
1 August, 2004.

Since July last year, the Director-General and his deputies have had extensive direct contacts with Ministers and senior officials. I am pleased to report to you that in all these contacts, we have found a firm determination at the political level to press on vigorously with the negotiations. I am sure you all share this determination.

Let me share with you some of the sentiment I have detected as to where we need to be going. First, there is a strong feeling that we need to intensify our work. Second, it is widely recognized that we need to advance the detailed work in the negotiating bodies but at the same time continue to keep an eye on the big picture.

Third, our past experience has shown us that we are best able to make progress when we have the full political involvement of Ministers. We need the help of Ministers to focus effectively on key problems and priorities. We need this involvement to generate the political momentum to make advances in sensitive and difficult areas. The task is now to make full use of this time. The basic technical work will be done in Geneva, but it does need to be guided by Ministerial-level input.

Fourth, I have heard on many occasions about the need for balanced results. The DDA is a single undertaking and it is clear that we will not be able to conclude this round unless we make progress across the board. A breakthrough in agriculture will unlock the DDA. But progress in agriculture alone is not sufficient. We need the other areas of the negotiations to also make progress. The network of linkages between different areas and issues is well known. We certainly cannot afford to wait for results in agriculture before making further progress in non-agricultural market access (NAMA), Services, Rules and all the other areas.

My final point is that in order to achieve a good result at Hong Kong, we must move forward from what we did in 2004. This means that we need to achieve some serious results before the August summer recess in Geneva. This gives us just under four months. This is not much time.

Having set out the basis for our work in 2005, let me underscore what I see to be some of the key negotiating areas and issues where I believe we will need more focused attention.

With respect to agriculture, while far-reaching commitments were agreed on all three pillars of the negotiations — domestic support, export competition and market access — there remain a number of gaps to be filled and thorny issues to be resolved.

On export competition, despite the important commitment to eliminating export subsidies, we still need to fix an end date. With respect to domestic support, while it is accepted that countries with higher subsidy levels will reduce much more than those with minimal subsidies, the actual level of commitments to be assumed still needs to be carefully negotiated. On market access, while agreement was reached that reductions would be made through a tiered formula, we still need to negotiate the actual percentage reductions to be made by developed and developing countries. We also need to establish which products can be designated as “sensitive” and “special” and agree on disciplines to ensure that flexibility in this area is not used to circumvent significant market access commitments.

With respect to tariffs on industrial products (NAMA), the framework is only a half-way point towards a final agreement on modalities. We need to make more progress here, particularly as some countries have indicated that agricultural reform will be conditional upon market opening for their industrial goods. Much work remains to be done and difficult decisions need to be taken. Significantly, efforts need to be focused on agreeing the type of formula to be used to make reductions. We should try to be creative. Assuming an agreement is reached on the type of formula, the issue of the percentage reductions to be made by developed and developing countries also has to be negotiated. Other challenges include the thorny issue of preference erosion and whether participation in sectoral arrangements should be voluntary or mandatory.

In terms of preference erosion, the July Decision already instructs Members to take into consideration in their further work the particular needs of non-reciprocal preference receiving countries. However, there are other developing countries who are seeking tariff reductions on those very products on which African Members are wishing to preserve preferences. We will need to reconcile these two conflicting objectives in future modalities.

With respect to services, we have a deadline of May 31 to submit improved offers. And yet, at the end of March 2005, only 76 individual country Members had submitted any offers at all on services. One of the more troubling elements of the hesitation of some Members to participate is that they are hurting themselves. The data are clear on this point. Services make up more than 50% of economic activity for nearly all WTO members. In transportation for example, in 168 countries the barriers to access in provision of transport services are more onerous than tariff barriers. This constraint on competition means higher costs. In developing countries, transport costs are an average of 70% higher than in developed countries. Freight costs in Africa are twice as high as the world average. Telecoms services are essential to virtually all economic sectors and positively affect trade volumes. Advances in this sector means lower costs and greater access to other services. The quality and price of financial services are key factors in overall trading costs.

We need more offers and of higher quality before the target date of May 2005. The quality so far is probably not good enough to persuade the business community that there is something in the DDA for them. Without that support we will have difficulty in concluding the round. Should the deadline of May 31st be missed in services, it is inevitable that there will be a spill-over into other areas of the negotiations and the delicate balance and steady progress we have achieved will be undermined.

On development issues, the July package, apart from once again highlighting the centrality of developmental issues in the negotiating agenda, gives specific directions vis-ŕ-vis special and differential treatment for developing and least-developed countries, implementation issues, and technical assistance. Discussions on S & D have been long and arduous and we shall need to progress this work further in order to close the negotiations. There are currently 28 Agreement-specific proposals that are agreed to by Members, but making further progress has been difficult to achieve.

Additionally, work is progressing on other developmental issues such as in the redressal of concerns of small economies in accordance with the mandate contained in paragraph 35 of the Doha Declaration, as well as the work relating to Transfer of Technology and Trade, Debt and Finance.

I believe that there is a very conscious endeavour to ensure that development gains flow out of trade liberalization and to ensure that the multilateral trading system helps to address the developmental challenges. These are highly important issues for a considerable majority of the WTO membership and will need to be satisfactorily addressed if we are to succeed in bringing the Doha negotiations to a successful conclusion. At the same time, it cannot be denied that many of these issues are complex and often elicit divergent views and responses. Tackling them will therefore remain central to fulfilling the development dimension of the DDA.
This is a snapshot of where we are in Geneva in some but not all of the areas for negotiation. As you can see, the road ahead could still be a rough one.

In an interview last week in Geneva, the Director-General reiterated that the success of last July was due to the fact that the European Union, the United States and some other developed and key developing countries pushed hard in the early months of 2004 to help resolve disputes that have split rich and poor. There was strong leadership. We need that this year as well. We need leadership that is visibly committed to another successful July Agreement and a successful Hong Kong.

I urge governments to empower negotiators in Geneva to build upon the achievements of last summer and reduce the number of differences among them. Gaps can then be narrowed further during the autumn, thereby ensuring that in December Ministers in Hong Kong will face a manageable number of politically difficult issues for resolution. I realize it is an ambitious target that will call for a lot of dedicated work and determination. But it is the only way negotiators at the Hong Kong Ministerial conference can attain the objectives they have set for themselves, and the only way we can conclude this round by the end of 2006.

Bringing the Doha Development Agenda to a speedy and successful conclusion, is without question the major challenge facing WTO Members as the system moves forward into its second decade. A successful and ambitious outcome should provide the rising tide which would help lift the economies of all participating Members. Certainly, it is key to helping developing countries grow their way out of poverty, by providing new market access opportunities as well as an incentive to open up their own markets and make them more dynamic, efficient and competitive.

Advanced countries too will reap the benefits arising from expanded trade. An ambitious agreement would result in greater market access for services providers, farmers, and manufacturers, as well as wider options for consumers. Increasing prosperity among developing countries is a win-win situation, as these countries will become the markets of tomorrow.

The World Bank has estimated that global gains from trade reform post-2004 will be significant. Freeing all merchandise trade and agricultural subsidies is estimated to boost global welfare by nearly $300 billion per year by 2015 (1). Now that's just an estimate. I won't stand here and tell you that the Doha round will abolish all trade barriers. But such a striking figure serves as a strong reminder of the economic potential that awaits us, and should inspire the political will and leadership required to prevail.

Thank you

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Note:
1.
 Agricultural Trade Reform and the Doha Development Agenda: Kym Anderson and Will Martin, 21 February 2005. back to text