Regional initiatives should aim for a free Global Market, says Ruggiero

In wide-ranging address entitled “Implications for Trade in a Borderless World”, Mr. Ruggiero called for “open regionalism” in which regional groups would eliminate internal barriers to trade on the same timetable as the lowering of barriers towards non-members. “Each one of the existing and emerging regional groupings has to contribute with vision and determination to ensure that at the end of the process both regional and multilateral approaches will have contributed to full liberalization in a free global market,” he said.

On telecoms, Mr. Ruggiero said that as the WTO negotiations approached the 30 April deadline, the “commonality of interest of industrial and developing countries alike is clear”. The issues, he said, related not to the sovereignty of national telecommunications regimes but rather to “the need for all economies to be open to modern telecommunications in order to lessen the constraints of space and time on their traders and to widen the access of their citizens to the most important raw material of the 21st century - information”.

Regarding the agenda for WTO's first Ministerial Conference, to be held on 9-13 December 1996 in Singapore, Mr. Ruggiero stressed that in reviewing the implementation of the Uruguay Round Agreements, “the grave problems of the least-developed countries should have a special claim to our attention”. He also underlined the need to monitor progress in addressing the problems of net food-importing countries.

The full text of Mr. Ruggiero's speech is attached.

Implications for trade in a borderless world

Address by Renato Ruggiero, Director-General,World Trade Organization
to the World Trade Congress, Singapore, 24 April 1996

Nothing would give me more pleasure than to speak about the reality of a borderless world, if we were living in one - but as we all know that is far from the truth. Instead I want to concentrate on what trade, or rather the World Trade Organization, can do to help bring us closer to that ultimate goal. In so doing, I will focus on some of the issues which are likely to confront the WTO's first Ministerial Meeting, due to be held here in Singapore in December, and on the broader challenges facing the multilateral trading system. Let me also take this opportunity to commend the Singapore Government and the International Herald Tribune for their initiative in organizing the present conference, which I am sure will make a considerable contribution to improving the understanding of those issues and providing a useful intellectual background of the work of the Ministerial.

From a Singapore vantage point, the borderless world may, perhaps, seem closer at hand. Few other economies have embraced the opportunities offered by global economic integration with the same vision and determination. Singapore's contribution and growing economic strengths are more and more in those areas where globalization is furthest advanced - services, high-technology, and intellectual capital of all kinds. However, for other Members of the WTO - those dependent on agriculture or textiles exports, for example - the borderless world might appear a more remote goal. It can seem a long way away in African or other least-developed countries whose immediate problem is to integrate with the trading system as it is today.

The WTO, with its membership of 120 countries, has to help shape the economic and trade agenda of the 21st century, while not overlooking the continuing need to find solutions to problems which have been with us for many years. Its agenda must therefore be a broad and balanced one in line with the consensus principle on which the WTO works, but it must be a constantly evolving one.

The economic reality against which the WTO agenda has to be developed is the continuing and unstoppable momentum of global economic integration. Recent trade data shows that the globalization of economies is continuing at a rapid pace, making nations, including developing countries and economies in transition, ever more interdependent. World trade is growing at a rate that is nearly three times that of growth in world output. In 1995, world merchandise exports expanded by 8 per cent in volume terms, while the growth of world merchandise output was 3 per cent.

Global economic integration is best reflected in Asia. Asian developing countries have become a major focus of global commercial activity; they are also the fastest growing markets. The volume of imports into Asia as a whole grew at an annual rate of 10 per cent between 1990 and 1995. In 1995, the imports of the ten leading Asian developing economies amounted to almost US$750 billion.

Asia's import growth of 13 per cent in 1995 exceeded the world average for the fourth consecutive year. 1995 was also the fourth consecutive year in which the volume of imports into Asia expanded more rapidly than Asia's exports.

In the next five years, the increase in the volume of merchandise imports into the ten leading Asian developing countries could well be as large as that into the EU and the US combined. More than a third of the real increase in global imports could go to just these ten markets.

In Geneva, the preparatory process for the Ministerial is now under way. Its first achievement has been an agreement on the structure of the meeting itself. This will be a flexible and balanced framework which provides an opportunity both for the broader political statements that ministers will wish to make and for substantive treatment of issues with the aim of producing solid results.

Discussion of the meeting's agenda has just begun, and it has done so in a positive climate. Certainly there are different priorities and emphasis among the members, but none that seem at this stage to be irreconcilable.

In my view this positive climate results at least in part from an evolution in the way issues are approached in the WTO. This is showing up in two main ways. Firstly, we are seeing that it is now possible to undertake very important sectoral negotiations without necessarily having in all cases to construct a wide-ranging cross-sectoral package as we did in successive GATT Rounds. The necessary elements of give and take can exist within the sector, as we have found in the recent negotiations on services.

Secondly, these sectoral negotiations of global significance have confirmed and advanced the achievement of the Uruguay Round in putting industrial and developing countries on the same side of the negotiating table. Take the example of financial services: it was clear that the interest of the industrial countries lay in opening up access to the growing markets of developing economies. But it was equally clear that the interests lay in the same direction, since by agreeing on a more open, transparent and predictable structure for financial services they both maximize their investment appeal and ensure one of the basic conditions for growth across all economic sectors.

The same is true in telecoms, where we must reach a success next week. As we near the end of the negotiation the commonality of interest of industrial and developing countries alike is clear. It is also clear that what is at stake is not the sovereignty of national telecommunications regimes; this is a concept which fast and radical changes in technology are requiring us to rethink. The issues here relate instead to the need for all economies to be open to modern telecommunications in order to lessen the constraints of space and time on their traders and to widen the access of their citizens to the most important raw material of the twenty-first century - information.

In both financial services and telecoms we are truly trading into the future.

Though the technologies involved are older, I could make much the same points about the continuing negotiation on maritime services. There, too, the fundamental importance of the sector to most forms of economic activity in practically every country makes it unthinkable to accept failure.

These points are not just true of the services sector. Consider trade and the environment, once considered dangerously divisive of industrial from developing countries - there, too, we are seeing an emerging common ground.

This is the encouraging background against which we are approaching the Ministerial agenda. A basic structure for discussing it, broadly based on an earlier proposal by Minister Yeo, appears to be winning a wide level of acceptance. I would like to make a few brief comments on some of the items on that list.

First and foremost is implementation. This must not mean just a quantitative stocktaking exercise but also a renewed political vision and commitment. It must mean in particular how we are all taking into account the situation of developing and especially least developed countries.

The grave problems of the least developed countries should have a special claim on our attention at the Ministerial. In the light of the Marrakesh texts we have to see what further specific actions might be taken to assist them by opening markets, fostering investment and promoting the enhancement of institutional and human capacities through an ambitious programme of technical assistance in co-operation with other agencies.

Lastly, we must not forget that we also have an obligation to monitor progress in addressing the problems of net food-importing developing countries.

Let me now turn to the so-called new issues. The first thing to point out is that so far there is only one which is really new - that is the US proposal to take up corruption in the WTO. It would be hard to deny that this is a concern which is at least worth considering seriously.

Among the others, I would like to focus especially on trade and investment.

Unlike, say, trade in goods, investment does not imply a relationship which is time-bound. Once the goods are delivered and paid for the exporter's interest may move elsewhere - but when investors put money into a country they acquire a stake in its success. Investment represents a very effective mechanism for diffusing knowledge and expertise, as well as growth around the world. It is essential in order to release the untapped production potential of developing and transition economies, while at the same time opening up new markets for those exports of goods and services which generate the best-paid jobs in exporting countries.

In a world where budgetary constraints increasingly limit traditional development aid financing, foreign direct investment is more than ever the key to development. However, significant imbalances remain in investment flows; only some 35 per cent of all FDI goes to developing countries. Even this figure paints an overly bright picture, since it hides the fact the lion's share of FDI goes to only 10 major developing countries.

These figures show the size of the task involved in encouraging investors to spread their confidence more widely. Clearly this is a shared effort; the countries involved also have to welcome investment and ensure its basic security in a credible way. It is hard to see how this can be done effectively or equitably outside the multilateral trading system.

I fully recognize that some members see difficulties - even political problems - in the idea of a negotiation on investment in the WTO. Their concerns may be understandable, but it is worth recalling that the existing experience of international agreements on investment shows that there are always elements of flexibility. There is surely no reason to refuse to contemplate taking up this vitally important issue in the WTO - and thereby denying the majority of the world's countries the possibility of taking part directly in shaping decisions on its future international treatment. This silent majority, I would remind you, includes those who are most in need of the benefits of investment. Like the other sectors I have mentioned, the approach to investment in the multilateral system should start from the premise that these are issues which can and should bring us closer together rather than divide us.

Other so-called “new” issues have been discussed more outside than in Geneva, and I do not want to go into them in detail.

I would simply like to note that the issue of trade and competition becomes more significant the more trade barriers are reduced - we have seen this in practice on recent occasions. Competition questions have a history in our system - they were taken up in the Havana Charter, and are now an important element in the telecoms negotiation. Thus, whether or not we recognize it, competition is making itself part of our agenda. It is just a question of when and how this becomes explicit.

On a very different and very complex issue, trade and labour standards, I just want to note that in the last informal meeting in Geneva, both the EU and US delegations have made the important statement that any WTO discussion must not have as an objective the enforcement of core labour standards through trade sanctions, nor put into question the comparative advantage of low-wage countries.

Lastly, following Minister Yeo's outline, we come to further liberalization - a topic which brings home how much remains to be done before we are entitled to speak with conviction of a borderless world.

If the seven long years of the Uruguay Round negotiation taught us anything, it is that the existing barriers in long-established industries like textiles an agriculture are some of the hardest to reduce, not least because they have built up extensive and powerful political constituencies over the years. Achieving a world which, if not borderless, at least does not simply replace one form of trade restriction with another, demands a constant effort. This effort will need the renewed support of Ministers here in Singapore in December.

As they consider the points on the Singapore agenda, governments should also have in mind the need to respond to three major challenges which confront the multilateral system as we approach the new century.

The first is to respect and strengthen the fundamental contract that now unites countries at all levels of economic development. The industrialized world has to keep open its markets and improve their openness in the years ahead. On their side, the developing countries have to continue with their liberalizing reforms and increase their integration into the global system. And together, both industrialized and developing countries have to work to improve the situation of the least developed.

The second challenge is to accept the shared responsibility, shared among existing WTO members and those countries wishing to become members, for constructing a truly universal system which all the present and future candidates can join in and contribute to.

Lastly, the third challenge is to ensure that national barriers are not just replaced by regional ones, but that, on the contrary, regionalism and multilateralism converge at the end of the road. I see this as the main challenge facing the multilateral system at present one which will shape its future and help shape the world of the 21st century.

The trading system is now moving forward on two tracks - regional and multilateral. Regional trade initiatives are expanding and have ambitions to expand further. It would be wrong to assume that the multilateral system is in a period of dormancy. I have given you some examples of the system's dynamism. Where we are perhaps lacking, however, is in showing a level of ambition at least equivalent to that of the major regional systems. Let me explain what I mean.

Some recent regional initiatives are truly gigantic, at least in perspective; take for instance the European project to create a preferential trade area with all the Mediterranean countries by 2010; or the framework agreement between the EU and MERCOSUR or the plan set out in the Miami Declaration to create a free trade area of the Americas by 2005; or, finally, APEC's commitment to create a free trade area in two stages between 2010 and 2020.

The multilateral system has no comparable road map towards the elimination of all trade barriers. However, some of the newer regional groupings (such a APEC and MERCOSUR) contain a commitment which is very important for the future of the multilateral system: this is “open regionalism”.

Of course, we need to be clear about what open regionalism means. Among the different possibilities, I see two basic alternatives.

The first is based on the assumption that any preferential area under consideration will be consistent with the legal requirements of the multilateral system. This would mean that such areas could at the same time be legally compatible with the WTO's rules and preferential in their nature, which means they would be an exception to the m.f.n. clause which is the basic principle of the multilateral system. The possibility of making such a legal exception to the principle within the rules was conceived in a completely different time and situation. Today, with the proliferation of regional groupings, the exception could become the rule, and this would risk changing completely the nature of the system.

The second interpretation of open regionalism is the one I hear from a number of governments who are members of APEC or MERCOSUR. In this scenario, the gradual elimination of internal barriers to trade within a regional grouping will be implemented at more or less the same rate and on the same timetable as the lowering of barriers towards non-members. This would mean that regional liberalization would be generally consistent not only with the rues of the WTO but also - and this is very important - with the m.f.n. principle.

The choice between these alternatives is a critical one; they point to very different outcomes. In the first case, the point at which we would arrive in no more than 20 to 25 years would be a division of the trading world into two or three intercontinental preferential areas, each with its own rules and with free trade inside the area, but with external barriers still existing among the blocs. Is this the sort of world any of us would want?

I leave you to imagine the consequences of this vision in terms of economic and political equilibrium; the problem of those who did not fit into any of the blocs would be a serious one - and where would China and Russia be in such a world?

The second alternative, on the other hand, points towards the gradual convergence on the basis of shared rules and principles of all the major regional groups. Each one of the existing and emerging regional groupings has to contribute with vision and determination to ensure that at the end of the process both regional and multilateral approaches will have contributed to full liberalization in a free global market. At the end, we would have one global free market with rules and disciplines internationally agreed and applied to all, with the capacity to invoke the respect of the rights and obligations to which all had freely subscribed. In such a world there could and must be a place for China, Russia and all the other candidates to the WTO. The global value of a system based on rules and disciplines will be a limited one as long as some major player remain outside.

Only a free global market and a free global trading system can cope with the global challenges of our time. In the next 20 years the world population will grow by some two billion people. Already at present we have almost two billion people in Asia, in Latin America, in the economies in transition and in parts of Africa who are joining the global market economy.

In the face of facts of this magnitude, it is clear that there is no rational alternative to an increasingly integrated global market within the rules and disciplines of the multilateral system. It is not a case of imposing aims or timetables on the system from outside; if we choose the global option, as I am convinced we must, these will be part of the organic evolution of the system, and will respond to the logic of global needs.

Achieving a genuine world free trade area would make a tremendous contribution to promoting growth and ensuring a safer world in the century to come. This is the message that I hope will be passed on from this very timely conference by participating governments, business and media alike.