years have been full of promise for the world economy. The US economy
has grown in leaps and bounds, surfing on the crest of a seemingly
endless wave of technological innovation. The challenge for other
countries has been to capture some of that zest for themselves. Though
some people were afraid they would be left behind, the mood was
generally optimistic: high-tech start-ups sprouted up everywhere from
India to Israel, Germans and Japanese caught the Amazon bug, and
free-spending Americans helped to lift all boats by splashing out on
all things foreign.
year is different. Share prices on the Nasdaq, the barometer of
America's technology-fuelled optimism, have fallen back to earth. Its
European counterparts, such as Germany's Neuer Markt, have equally
suffered. The world economy suddenly looks fragile.
the moment, U.S. growth appears to have slowed significantly. A
downturn in America is ominous for the rest of the world. The portents
are particularly gloomy in Canada, Malaysia and Mexico, where exports
to the United States contribute significantly to their respective
GDPs. Big exporters of electronic goods, like South Korea and Taiwan,
are also nervous as American spending on information technology
declines. Developing countries with large current-account deficits,
like Brazil and other Latin American economies, are vulnerable if an
American recession causes a flight of capital to safety.
is Europe immune to America's ills. Admittedly, exports to the US are
only 2% of EU GDP. But Europe is also exposed to the American economy
through foreign investment. A slowdown in America is bad news for
companies with big American-based affiliates, such as Daimler
Chrysler. And it is worrying for the employees of American firms with
big operations in Europe, such as General Motors. Europe's economy
could also be hit by a sudden fall of the dollar. The weak Euro has
given European exports a helpful boost in recent years. A much
stronger Euro would give them a knock. An even bigger risk is that the
contagious optimism that has spread from America in recent years,
reflected in soaring share prices and sky-high consumer and business
confidence, could give way to gloom and doom.
upsurge in protectionism could make things much worse. Even during the
good times, there has been a worrying increase in anti-dumping and
anti-subsidy investigations in both developed and developing
countries. Over 400 were launched in 1999, up from only 166 in 1995.
And the OECD has noted that producer support estimates for agriculture
are rising again.
could turn nasty if companies squeezed by falling profits convince
governments that they need protection from foreign competition. The
virtuous circle of trade liberalization and economic growth could all
too easily become a vicious spiral of protectionism and stagnation.
need not come to that. The nervousness this year provides an
opportunity as well as a threat. The prospect of stagnant, or even
shrinking, domestic markets increases the lure of new, foreign ones.
This can help muster an export lobby powerful enough to overcome the
entrenched interests opposing freer trade. A growing risk of
protectionism makes the need for an insurance policy that protects
against it all the more pressing. For instance, car manufacturers that
start to fret that their supplies of cheap foreign steel will be cut
off may start to lobby vigorously for open markets. A shared sense of
vulnerability need not lead to beggar-thy-neighbour policies: it can
also encourage greater co-operation among governments. That, after
all, was the rationale for setting up the multilateral trading system
after the protectionist nightmare of the 1930s. Politicians should see
fresh moves towards trade liberalization as a way to tide the economy
through hard times.
the multilateral trading system, the stakes this year could not be
higher. In November, Qatar will host the next WTO Ministerial
Conference. Our aim is to launch a new round of multilateral trade
negotiations. It is a big challenge, but with focus and flexibility we
a new round would help steady nerves and send a powerful signal that
governments do not intend to let the huge gains from liberalization
slip away. The risk is that the global rules-based system based on
non-discrimination could give way to a patchwork of discriminatory
regional deals and even potentially hostile blocs, combined with
aggressive unilateralism by the big guys. Everyone would lose from
this. But the biggest losers would be the poor and the weak.
should launch a new WTO round this year. The economic case is
compelling. Cutting barriers to trade in agriculture, manufacturing
and services by a third would boost the world economy by $613 billion,
according to a new study by Robert Stern of the University of Michigan
and others. That is equivalent to adding an economy the size of Canada
to the world economy. Doing away with all trade barriers would boost
the world economy by nearly $1.9 trillion: the equivalent of adding
two more Chinas to the world economy.
countries would gain from further multilateral liberalization. Cutting
trade barriers by a third would boost Mexico's economy by $6.5 billion
and South Korea's by $14 billion. The United States would gain $177
billion, the EU and EFTA $169 billion, Japan $124 billion.
course, these are only estimates. Reasonable people can quibble about
the exact size of the gains from a new round. But the basic message
from study after study is clear: a new round brings huge benefits to
all parts of the globe.
political challenge is to ensure that we grasp the opportunity of
freer trade rather than succumbing to the threat of protectionism.
Negotiations in Geneva on liberalizing trade in agriculture and in
services are entering their second year. Progress has been good. But
we urgently need to broaden the agenda beyond the mandated
Because it creates political trade-offs. Take agriculture. The
European Union and Japan have stated that they are willing to
negotiate meaningfully on reducing agricultural protection. They are
committed to negotiate by Article 20 of the WTO's Agreement on
Agriculture. The looming expiry of the Peace Clause in 2003 gives them
a strong incentive to negotiate in earnest. Yet agricultural
liberalization is extremely sensitive politically. There is a much
greater chance of reducing agricultural support in Europe and Japan if
other countries are willing to make concessions in areas where Europe
and Japan have demands.
similar logic applies to implementation-related issues. Some
developing countries have concerns about the burden of implementing
their Uruguay-Round commitments and its perceived inequities. They
have raised a number of issues which are being discussed in the WTO's
General Council and in WTO committees. Modest progress has been made,
notably at a special session of the WTO General Council last December.
But I believe there is now a growing recognition that further efforts
relating to past agreements require new negotiations. Instead of being
a stumbling-block, implementation could thus become yet another
building block of a new round. Here we need more focus and flexibility
for Capitals to make progress. Unless developing countries have
confidence that their issues will be addressed in a meaningful way, no
new round will start and no new round will conclude.
potential building block is manufacturing, which has been at the heart
of every previous round. There are still many damaging trade barriers
in manufacturing. And most of their burden falls on developing
countries. Manufactures now account for around three-quarters of
developing-country exports, up from around 30% in the early 1980s.
Moreover, developing-country exports of manufactures face much higher
trade barriers than exports from developed countries. In one World
Bank study it is estimated that barriers to manufacturing exports
account for around 70% of the total export barriers faced by
developing countries and that three-quarters of the gains from further
manufacturing liberalization would go to developing countries.
Clearly, then, manufacturing could be at the heart of a new round if
it is truly to benefit developing countries.
the agenda for a new round is not just about including issues. It is
also about excluding some. From what I have seen, WTO members will
never agree to use trade sanctions to enforce labour standards. It is
a line in the sand that developing countries will not cross. They fear
that such provisions could be abused for protectionist purposes. They
also believe such matters are more appropriately considered in other
international fora. But that said, the social implications of
globalization are forcing governments to consider their priorities.
This is also a matter of jurisdictions. It is a matter of coherence
among institutions and we do need a better answer to those who protest
out of fear and anxiety. The fact that much of their anger is directed
at the wrong place is hardly comforting.
environment issue is different. Our work at the WTO dovetails with
environmental aspirations in potentially important ways. It is already
part of our process now. In areas like agriculture and fisheries, some
existing subsidies can compromise environmental quality. We should
work together to address these issues. More importantly, poverty is no
friend of the environment. The virtuous circle of open trade and
growth contributes to poverty reduction, and the WTO has a positive
role to play here too. But potential conflicts also exist, most
notably when it comes to environmental quality issues that spill
across national frontiers. Here we need greater cooperation among
governments. The WTO cannot solve these problems alone. Punitive
sanctions in the absence of international agreements are hardly the
answer. It should not be impossible for governments to square their
commitments at the WTO with those in MEAs.
now and July, we at the WTO shall make every effort to hammer out an
agenda for a new round so that ministers can put the final touches to
it in Qatar in November. And we need always to keep in mind that this
is about launching a round – not concluding a round. The agenda has
to be broad enough to have something in it for everyone, but must
exclude issues that are inappropriate or where compromise is
impossible. It has to be detailed enough to be meaningful, but not so
detailed that it becomes a pre-negotiation. By July, we need to have a
reality check, we need to have identified and boiled down our
differences to a few issues that we can then put to Capitals and
Ministers so they can resolve them at the highest level. We have
learnt that Ministerial Conferences cannot resolve dozens of
differences. If we have the same differences in July as we had in
Seattle, we will have the same result as in Seattle. We are in the
hands of our owners — the Members.
is short. That may be a good thing if it helps to focus minds. What we
need now is the political will from Members to compromise. Finding it
will be difficult and will require courage and commitment. But once
found, progress can be swift.
are many positive signs. The new US administration has made a new
trade round a priority. President Bush is a committed free-trader. The
new United States Trade Representative, Robert Zoellick, is a man of
the highest calibre and a strong supporter of the multilateral system.
As is Pascal Lamy, the EU's trade commissioner, and they have a good
working relationship. Their personal chemistry could be a crucial
catalyst for brokering a transatlantic deal. I welcome the real
progress they have made recently in their long-standing dispute over
European Union is also showing signs of flexibility. Its new approach
to a new round is more realistic.
countries too are being more realistic. Many of them have abandoned
their previous opposition to a new round. They increasingly recognise
that dwelling on the perceived injustices of the past does nothing to
prevent even greater injustices in future. They increasingly say that
the greatest threat to their economies is not globalization, but
marginalization. As a study by the Tinbergen Institute points out, the
potential benefits of a new round to the developing world are three
times what it receives each year in overseas aid. OECD subsidies is
equal to the total GNP of Africa.
storm clouds gather over the world economy, the prospect of launching
a new round is a ray of sunlight. Now is the time to move from words
of support for a new round to making the compromises needed to launch
one. Now is the time to question narrow, selfish interests in the
interest of the overwhelming national good. This takes courage and
vision. In Geneva, at every occasion, I am urging Governments to show
flexibility, to revisit old positions and to put old speeches in the
shredding machine. Now is the time to look beyond yesterday's battles
towards tomorrow's opportunities. The world needs a new WTO round.
Let's launch it as soon as possible, this year.