Speaking on the
theme Trade Liberalization and the Rule of Law in an Interdependent World, Mr
Ruggiero highlighted some of the significant quantitative and qualitative benefits of the
Uruguay Round results, but stressed that the full and effective implementation of the
agreements was the first test of the commitments of the member governments. He pointed to
two immediate and crucial priorities confronting the members: their commitments to the new
rules and procedures, especially those for settling disputes, since they are the legal
underpinning of the whole multilateral trading system; and the financial services
negotiations where failure could lead to a weakening of the principle of
non-discrimination - the keystone of the whole system.
The burden is on
the members of the system to use it properly and to respect it, he emphasized.
What is at stake is first and foremost the credibility of the commitments they
themselves have entered into.
the more far-reaching perspective of trade liberalization, Mr Ruggiero pointed to the
challenge of making the WTO a truly global organization by bringing into the system new
members, including China and Russia. This will be the real test of our commitment to
open trade, he said. The alternative of keeping these countries outside the
global market and outside the multilateral rules is unthinkable in any rational view of
the future. It would make the world a much more dangerous place.
The full text
of Mr Ruggiero's address is attached.
The Choice for
Openness: Trade Liberalization and the Rule of Law in an Interdependent World
by Renato Ruggiero Director-General, World Trade Organization
to the Herbert Quandt Foundation
Thursday, June 22, 1995
First of all
let me thank the Herbert Quandt Foundation and my good friend Horst Teltschik for inviting
me to take part in this most interesting discussion.
I would like
to start by enlarging, with your permission, the scope of my remarks beyond the points set
out in the programme. My basic theme is the necessity of maintaining and extending open
markets in the increasingly integrated global economy of today. It is a necessity which is
at once economic and political, and it is the key to most of our hopes for a prosperous
and stable future. Germany has a particular rôle to play in insuring that this necessity
is recognized and acted on. Within Europe, Germany has consistently been a force for
integration and the removal of barriers, and it has helped significantly to keep Europe
looking out beyond its borders in a spirit of engagement with the world. This force is now
more than ever needed.
multilateral system which is the guarantee of an open trading environment faces many
challenges, and it is vital that the newly-created WTO continue to receive the active
commitment of those trading countries - like Germany - which did so much to bring it into
back-drop to what I want to say is the global market. This is not some economist's
abstraction but a reality that we live in every day. You are living the global economy
from the minute you are woken up by your Japanese-brand radio alarm made in Malaysia. On
with your Italian suit made from Australian wool and drink a cup of Colombian coffee while
watching American news on television; then get into your German car (assembled in
Slovakia) to come to your office in a multinational firm whose headquarters were designed
by a Chinese architect. There, your office equipment comes from Korea, Taiwan, the United
States, Europe - or sometimes all of these combined in the one machine. You might have
lunch in a Mexican restaurant run by Moroccans, and go back for a tele-conference meeting
that links up half-a-dozen national telecommunication systems.
I don't think
I need to take you all the way back through the Finnish sauna to your Japanese futon bed.
The point is clear. And it becomes clearer every day, as interdependence between economies
Much trade no
longer fits the textbook model, in which goods are produced by one country and then
transported to the buying country. Many firms make components in one country and assemble
finished wares in another. UNCTAD has calculated that one-third of all trade consists of
intra-firm transactions. Moreover, the best way for firms to enter foreign markets is
often to set up shop in them. In many service industries it is hard to sell to locals any
integration which is the driving force of the global economy takes many forms -
integration of companies, of products, of services and production processes - but its most
profoundly important aspect is the integration of developing countries into the
countries as a group have increased their share of world trade enormously in recent years.
They now account for an estimated 25 per cent of world trade, compared with 19 per cent
two decades ago and 21 per cent one decade ago. A key feature has been the increasing
share of developing countries in world trade in manufactured products; it was 20 per cent
in 1993, double the level a decade ago.
individual country level, the most dynamic 15 trading nations over the period 1980-93 were
developing countries. Export and import expansion has gone hand in hand with faster
economic expansion. Among developing regions, economic growth has been consistently higher
in Asia, where real GDP growth has averaged more than 8 per cent over the last three
dynamic exporters are also dynamic importers. For example, whereas in 1980 China ranked
29th and 21st, respectively, on the lists of the world's leading merchandise exporters and
importers, last year it was the 11th largest exporter and the 11th largest importer.
participation of developing countries in the multilateral trading system is essential for
their own economic growth and for that of the industrial nations as well. The fact that in
1994, Hong Kong, China, Singapore, Korea, Mexico, Malaysia, Thailand, Brazil and Indonesia
were among the 25 largest world exporters, and that these countries also joined the list
of the world's top 25 importers, points out the stakes of all countries in this process.
World export-led growth will come above all from the emerging markets of the fast-growing
The fact of
the global market confronts governments with an historic choice: to respond by opening
their economies and accepting the challenge of international competition, or, as some
people appear to want, to retreat into national or regional protectionism. For me, and, I
am confident, for German industry too, the correct choice is clear: to opt for openness
and liberal trade régimes.
long-term prospects for practically everything that our societies value depend on
maintaining sustainable economic growth. One of the truly reliable means of stimulating
growth without the risk of undesirable inflationary side-effects is increasing trade. This
is what the World Trade Organization is all about: ensuring better competitive conditions
for trade. We must remind ourselves that open trade is not an end in itself but a means to
an end: creating an environment that will permit a more efficient allocation of resources,
more rapid growth, and rising standards of living.
international experience confirms that trade has consistently been the leading edge of the
world economy, moderating the global slowdown after 1989, and now boosting recovery. For
example, world trade expanded strongly in 1994 - the volume of world merchandise exports
grew by 9 per cent - growing more than twice as fast as in 1993. The pace of global output
growth was also stronger - 3.5 per cent - but remained well below the growth of trade.
Higher trade growth than output growth is a reflection of the continuing integration of
national economies. Countries are relying more and more on external markets as sources of
economic growth; the domestic market is no longer sufficient.
promotes growth through many channels: developing increased specialization; allowing the
realization of comparative advantage; increasing the diffusion of international knowledge;
and encouraging increased efficiency in the domestic economy as a result of international
competition. Trade openness drives growth both directly, through its impact on resource
allocation and efficiency, and indirectly, by raising the returns to investment. The trade
liberalizing rules and commitments embodied in the WTO bring a new dynamism, through
improved trading opportunities. They also bring a new stability, through reinforcing the
rule of law in international trade.
in the world, in particular major exporters like Germany - the world's second largest
trading nation - gain much more from an open and stable trading system than a closed one.
A stable international environment is crucial to economic growth. Trade and investment
depend very much on clear multilateral rules that help ensure the business community a
fair environment for doing business.
But there is
a challenge for governments to reflect upon. Competition in the emerging global
marketplace is bound to be intense. New entrants will challenge established enterprises.
More emphasis will be placed on R&D, product innovation and cost control, in turn
boosting growth prospects. Successful enterprises will expand employment and career
development opportunities for their employees. But there may well be enterprises without
the capacity to adapt. Their continued existence, already precarious in the home market,
may prove untenable in the long-run in the face of expanded competition from abroad. These
enterprises may turn to their governments for import relief, subsidies or other forms of
policy dilemma can be simply stated: to delay adjustment, and perhaps reap political
benefits in the short-run, or to facilitate adjustment. To delay adjustment opens the door
to protectionism, first at home, then abroad, progressively choking off the possibility
for mutually beneficial trade.
To make trade
the engine of global growth in the coming decade, all sides must co-operate in maintaining
the more open and secure markets that are the hard-won result of the Uruguay Round. The
challenge of adjustment must be responded to with policies aimed at facilitating it rather
than preventing it. And priority should be given to sustaining the momentum of the world
economy over the long term by continuing the process of economic and trade liberalization.
One case in
point is the EC-Japan agreement, or as it is called consensus, on motor
vehicle trade which is to expire at the end of 1999. The expressed aim of this agreement
was to facilitate structural adjustment of EC manufacturers. The multilateral commitments
undertaken in the Uruguay Round, in particular in the safeguards area, in the pursuit of
freer trade in the global economy, will require opening up to international competition.
There should be no illusion that Europe can seal off this important sector for ever. All
restrictions should go by the end of 1999. Under the WTO Safeguard Agreement all grey-area
measures have to be phased out by that date.
We should not
deceive ourselves, however, - the existing pressures for protectionism in developed
countries may intensify as the trade barrier reductions agreed in the Uruguay Round are
countries, there are still voices calling for protectionism, as part of a generalized
attempt to hide from a new and challenging world. With high levels of unemployment,
appeals to keep cheaper foreign products off the supermarket shelves and make the taxpayer
help exporters compete may sound like a seductively easy way out. In fact, they are a
trap. Resisting adjustment will impoverish our societies, rather than lay the grounds for
creation of well-paid new jobs. What is really needed to make high living standards
available broadly throughout society is steady, non-inflationary real economic growth.
That will come from improving productivity and competing openly for a larger share of the
is insidious; it is a constant threat to trade liberalization. Those in favour of
protectionism ascribe the west's social ills to open trade with developing, low-wage
economies. Hence the clamour for protectionism grows louder when unemployment is high and
the pressures of economic adjustment are most pronounced. We need constant vigilance to
Much of the
argument for protectionism simply equates to interest-group politics: it comes from
well-organized groups that fear the loss of an entrenched and often privileged position
and want protection, whatever the consumer or the national interest. All too often in
trade politics, producers count more than consumers. The benefits of a trade restriction
are usually concentrated on a relatively small, well-organized, and well-informed group of
producers, while its costs are usually spread thinly over a large and diffuse group of
consumers. As a result, the beneficiaries of a trade restriction are usually much more
effective politically than its victims.
views also feed on misinformation concerning the effect of trade liberalization on
employment. The facts point the other way. In the G7 countries, close to 23 million jobs
are supported by merchandise exports, and many more by exports of services, for which
reliable figures are not available. In Germany, France, Italy and the United Kingdom,
export-dependent jobs are estimated at around 7 million. Governments may try to preserve
some jobs in uncompetitive industries by using trade barriers, but they will do so at the
cost of jobs in the efficient export sectors. Studies also indicate that the annual cost
of protecting a job by import barriers is typically anywhere from three to eight times the
annual wage of that job.
In the end,
it must be seriously doubted whether efforts to protect uncompetitive industries and their
jobs can succeed more than temporarily. Experience suggests that protected industries fail
to adapt quickly enough and they come more and more to rely on costly protection.
Alternatively, countries should accept that trade liberalization can stimulate inefficient
industries to become more competitive, and also create jobs in more efficient export
helps to create jobs. Trade creates jobs in the export sector and, via the income gains,
throughout the economy as a whole. And jobs in the export sector pay more on average than
jobs in the inefficient import-competing sector (17 per cent more in the United States,
according to recent estimates), since on average they are higher-skill jobs.
also costs jobs in unprotected industries, although we never see these job losses directly
reported. It is a fallacy to believe that the only effects of protection are the visible
effects - jobs apparently saved in protected industries. The jobs lost in other industries
are just as real. Protection increases costs, reduces sales (because it taxes consumers)
and leads to fewer jobs in unprotected industries.
fundamentally, if countries limit their economic relations with world exporters and
importers, they are limiting their possibilities to grow.
vital for all countries. For example, in 1994, European Union merchandise exports reached
US$1,503 billion and imports US$1,525 billion. Around 42 per cent of these exports went to
countries outside the EU, and more than 40 per cent of these imports came from countries
outside the EU. Over the 1991-93 period, intra-EU exports declined by 5 per cent, while
exports to Latin America, North America, Central and Eastern Europe, and Asia rose by
between 9 and 23 per cent. There is thus no room for doubt that the emerging markets are
very important to the European Union.
as well as for the European Union and all countries in the world, both exports and imports
are a source of economic growth. Trade is not a zero sum game.
It has indeed
been known for a long time that protection given to some industries actually taxes
exporters. But it is not just exporters that pay. We all do. Protection means everyone
loses income. Protection reduces our income because of lost opportunities. This loss is
invisible; it does not appear in the national accounts, and that is one of the reasons why
protectionist arguments can be seductive.
also some broader considerations that argue decisively against denial of the global
market. More and more developing countries and economies in transition have opened their
economies or are in the process of implementing autonomous trade liberalization measures.
These countries have realized that opening their trade régimes was in their own interest,
and are now willing to participate in an international market economy. We should
facilitate and encourage their full participation in the multilateral trading system. If
we close our markets to their products, the risk is that the progress painfully achieved
so far can be eroded. The political stability of these countries can also be put at risk
if we do not let them reap the benefits of increased trade. And economic growth is crucial
to assisting the consolidation of stable political and economic structures of the
economies in transition, including some of Germany's near neighbours.
and political considerations both combine to prove that the only rational choice is to
maintain and increase the openness of our economies. This is not only the enlightened
option - it is the option of enlightened self-interest.
The case for
openness in trade is, I think unanswerable. But let me be very clear: this openness cannot
mean the absence of rules and disciplines in trade. On the contrary, it needs a firm
framework of internationally-accepted rules and disciplines in order to survive; without
such a framework, openness would degenerate into anarchy. Open trade must be trade within
the rule of law.
This is why
the WTO and the system of multilateral trade rules it embodies and administers is so
vitally important to the world. This system is the only body of agreed trade rules whose
coverage approaches the global - and the more economies become global, the more they need
global rules. The outstanding achievement of the Uruguay Round is to have set up, in the
WTO, the framework for ensuring that trade rules and their effectiveness can keep pace
with the evolution of the world economy.
It is already
apparent that a fundamental shift is occurring in trade policy from the quantitative to
the qualitative. As the efforts of GATT negotiations over fifty years to reduce tariffs
have borne fruit, and industrial countries' tariffs have dropped from an average of over
40 per cent to under 4 per cent, other obstacles to trade have become more prominent.
The need to
develop rules on international investment and competition policy for example, becomes more
apparent the more business enlarges its scope beyond national or regional frontiers. The
same point applies to improving the multilateral harmonization, or the mutual recognition,
of standards. These are issues where the multilateral system needs to make progress if it
is to stay relevant. They are clear candidates for discussion in the preparation for the
WTO's first Ministerial Meeting, which will be held in Singapore in December next year.
concluding my remarks, however, I want to focus on the immediate priorities that the WTO
faces. The way they are handled will have a profound influence on the shaping of the new
multilateral system and on its fitness to meet the challenges of the global economy.
purely economic gains from the Uruguay Round Agreements, effective implementation of the
commitments to new rules and procedures - especially those on dispute settlement - is
crucial. They are the legal underpinning of the whole system. This is the light in which
present and future trade disputes should be seen. One dispute in particular is holding the
headlines at present, that between the United States and Japan. I do not want to comment
specifically on this case, other than to note that both sides have brought it to the WTO
and have said that they will respect its rulings.
generally, I would like to make the point that it would be a mistake to see the existence
of disputes, even of difficult ones, as a failure of the system. Disputes, unfortunately,
have occurred in the past and will occur in the future - in trade as in other areas of
life. This is precisely why we need a dispute settlement mechanism, and why it has been
strengthened in the Uruguay Round. The burden is on the members of the system to use it
properly and respect it; what is at stake is first and foremost the credibility of the
commitments they themselves have entered into.
There is also
unfinished business to complete, such as negotiations to liberalize market access in a
number of services sectors. The most urgent is financial services, where the negotiations
are due to finish in just over a week, on 30 June. I want to emphasize how important it is
to get a good result in these negotiations.
thing, it is the first important test of the new system and the commitments of its members
to making it work. Failure in the financial services negotiations would surely damage the
WTO's prospects - in my judgement this risk presents a more serious threat to the system
than bilateral disputes do. For one thing it could lead to a weakening of the generalized
most-favoured-nation principle - the principle of non-discrimination, in other words -
which has been the keystone of the GATT system as it is of the WTO.
to bilateral or discriminatory approaches in a sector which is so important for the future
economic health of both industrial and developing countries, would send all the wrong
signals to governments and investors alike. Furthermore, a failure in financial services
negotiations would cast a deep shadow over the negotiations on basic telecommunications,
which are due to be concluded next year.
It is in
no-one's interest to let these negotiations fail, and certainly not in Germany's, or
Europe's. In recent weeks I have met with governments in many of the countries involved,
from Asia to the United States, and urged them to show the flexibility and the breadth of
vision necessary to achieve a successful result. I am repeating this call today, knowing
that in Germany it will not fall on deaf ears.
conclusion, let me put the liberalizing imperative in its broader perspective. This
perspective must be a dynamic one, not a static one, for the multilateral system is still
far from complete. I have mentioned sectors which are still wholly or partly outside it -
but there are also certain countries which are not yet within the system. And as long as
the multilateral system is not complete - in other words until the World Trade
Organization really is the World Trade Organization - then the global market is not
complete. The challenge is to bring into the system the 25 applicant countries - including
giants such as China and Russia - and then reach out to the similar number of potential
candidates beyond them.
This will be
the real test of our commitment to open trade. It means bringing these countries under the
rules and disciplines of the multilateral system -with all its benefits and obligations -
as the guarantee that their markets will open up and stay open. This could create an
unprecedented prospect of growth - but certainly also some major challenges of adjustment.
We must be prepared to meet these challenges, because the enlargement of the WTO system is
both essential and unavoidable. The alternative of keeping these countries and their huge
populations outside the global market and outside the multilateral rules is unthinkable in
any rational view of the future. It would make the world a much more dangerous place.
If China or
Russia, for example, remained outside the mainstream of economic growth and multilateral
rules, it would be almost inevitable that they would feel forced to use their weight to
extend their influence unilaterally. The implications of this could be considerable, and
they would not necessarily go towards creating a more stable world.
questions go far beyond the specifics of trade or economic policy. In the world of the
21st century, access to the sources of growth will be a fundamental political issue which
will determine the kind of world it is. In Asia recently, a respected statesman told me
that European concerns about employment, serious though they undoubtedly are, relate
essentially to questions of technological change and the distribution of resources;
keeping European markets open, on the other hand, could in the long run be a choice of
peace or war.
Germany, I am reminded that at the end of the Second World War, we Europeans were also
faced with an historic choice: to follow the old balance-of-power scenario again, or to
build a new foundation for security and peace through the integration of markets.
Beginning by opening our borders to goods, then gradually to services, capital and labour,
we have created the growing sense of European solidarity which was at the heart of the
vision of men like Adenauer, De Gasperi, Monnet and Schuman. From a basis in free trade,
we now have a European Union which is a secure and stable partnership.
On the global
scale, the problems are clearly more varied and more difficult than Europe's. But the
logic that we must follow to build a more peaceful and secure world has to follow the same
path. It will not be easy, but it is worth the effort.