Statement to the IMF’s International Monetary and Financial Committee

Mr Chairman,

On behalf of the World Trade Organization, I would like to congratulate you on your appointment as Chair of this important body.

Consistent with the IMF macroeconomic outlook, the WTO is forecasting a continuation of the recovery of world trade. The strong rebound experienced in 2010 (+14.5%) mirrored the great trade collapse of 2009, drawing for global trade a V-shaped recovery in which the existence — and resilience — of large international supply chains in the electronics, automotive, machinery, and other large manufacturing sectors, played an important role in transmitting the up-and-downs of global demand from country to country.

Our expectation is that world trade flows in volume will grow by around 6.5% in 2011, roughly half the rate of growth achieved in 2010. This lower growth rate can be explained by several factors; including the fact that world expansion will be driven more by domestic demand, a welcome development which should make the recovery more sustainable and the redress of external imbalances easier. Still, this modest forecast also reflects less positive factors. The hangover from the financial crisis is still with us. Moreover, high unemployment in developed economies and sharp belt-tightening in many countries will keep fuelling protectionist pressure.

Hence, WTO Members, and the international community in general, must continue to be vigilant and resist these pressures. They should work towards opening markets than closing them.

The continued expansion of world trade cannot be taken for granted. Since the creation of the WTO, it has been the concomitant outcome of: more open economies benefiting from more liberal trade policies; the integration in the WTO system of outward-oriented economies such as China, and also Vietnam, Ukraine, and others; the multilateral zeroing of tariffs on entire, globally-oriented industries such as information technologies; and above all the powerful drive towards domestic economic reform that an increasingly globalized economy implies for every WTO member. The political leadership that produced such a favourable outcome paid off in terms of expansion of global trade as a key driver of global growth and reduced poverty. During the recent economic crisis governments could also further appreciate the value of the WTO system as an insurance policy against protectionism.

Today, despite renewed commitments and encouragements, the WTO system is in grave risk of not being able to conclude a round started almost 10 years ago, which would yield significant economic benefits for the entire membership. As if all the benefits I described were not the outcome of the political leadership and decisions of the past couple of decades; as if these benefits were permanent, and our system did not need to adapt and remain relevant to the needs and challenges of the times. With the membership stalling on the last hurdles of the WTO Doha Round trade negotiations, ie. Industrial tariff reductions for developed and emerging economies, we are not only just forgetting the lessons of the distant past, but also of the recent past, when the system shielded us from worst economic woes. 

Governments should look at the wider picture and keep some distance from narrow national interests.  Ministers of Finance have always played an important role in drawing the wider picture. Weakening the WTO system would serve no economic or political purpose, and will make it harder to launch new negotiations in the future. Weakening the WTO system will therefore result in a net loss of economic benefits if we agree that it had something to do with the global expansion experienced since the Uruguay Round was completed. The take-away message, if I may, is to go back to your capitals and ask your leaders to consider the cost of failure of these negotiations, both from a micro perspective, as from a macroeconomic point of view.

In short, my message to you today is do not weaken the WTO, one of the examples of reasonably effective global governance in today’s turbulent world.

Thank you for your attention.