WTO NEWS: SPEECHES — DG PASCAL LAMY

National Assembly, Finance Committee — Paris

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Thank you for inviting me to join you to discuss international trade. Before answering your questions, and in the light of the turbulent developments of the past few days, I would like to make some introductory comments on the following two subjects:

  • The role of the WTO in regulating the international economy; and

  • the state of play in the Doha Round negotiations.

The role of the WTO in regulating the international economy

In order to situate the role played by the WTO in regulating the international economy, let us for the moment compare it with financial and environmental regulation.

As far as finance is concerned, the events of the past year have, to put it mildly, highlighted the absence of effective international regulation. By that I mean the absence of a system of standards that would bind the countries that had negotiated and accepted them to multilateral obligations governing their domestic and international conduct. The current financial crisis stems from a lack of financial regulation in the United States, where the authorities did not want or did not manage to contain the creativity of those involved in the loan market within an effective prudential framework. There are, of course, forums in which to address such matters. I am not referring to the IMF, whose operational responsibilities are currently limited to matters involving balance of payments or exchange, but rather the bodies which gravitate around the Bank for International Settlements (BIS) in Basel, including the Financial Stability Forum established in 1998.

However, in the absence of any substantive agreement between those advocating truly mandatory rules and those preferring to rely on the self regulation of financial operators, the discussions held in these fragmented forums have only led to minimum standards, while the provisions already in force involve the sovereign nation States — more often than not concerned exclusively with their own particular interests — only very indirectly.

In brief, there has been no political consensus on a regulation objective, let alone on the scope or the instruments of such regulation, the forum in which legally binding instruments would be negotiated or who would be responsible for supervising their implementation.

With regard to the environment, another area just as vital for global regulation, the situation is different. When examining the critical issue of greenhouse gas emissions, and in particular CO2, we see that the laws of physics, which are better-established than those of the economy, have led to collective awareness which in 1992, in Rio, gave rise to both the Kyoto Protocol and the post-Kyoto negotiations currently being held under the auspices of the United Nations Intergovernmental Panel on Climate Change. In this case, discussion does not revolve around the need for international regulation, which is something everyone accepts, or the competent authority, but focuses on how efforts are to be shared among the nation States and on the binding instruments required to ensure compliance with the negotiated objectives. If agreement was reached in this respect, the only thing left to do would be to tie these obligations in with other international obligation systems, in particular that of the WTO. The multilateral environmental agreements currently in force, which may include measures affecting international trade, show that such co-existence is possible; perhaps we will return to this issue during our discussion.

When it comes to environmental matters, there is therefore a willingness, political energy (thus far absent in relation to finance) and negotiating and monitoring forums (the secretariats of the various agreements), and negotiations concern each parties' commitments in the face of a common objective, particularly those of the developed and developing countries, which clearly have different “contribution” capacities.

Compared with these two examples, the WTO represents a mature, tested and sophisticated regulatory system.

Mature, given that it is over 60 years since its Members, having learnt from the disastrous protectionist experiences of the 1930s, accepted, at what was then the GATT, to subscribe to international trade disciplines that determine the multilateral limits to their sovereignty in this area.

Tested, because these rules were regularly updated throughout the eight rounds of negotiations between 1947 and 1994 — the ninth round, the Doha Round, has been under way for almost seven years now — and because the value of the system has been confirmed by its growing number of Members, which has risen from 23 at the outset to 153 today.

Sophisticated, because the system comprises:

  • An agreement on its underlying principle: the negotiated and gradual opening up of trade works better than its impromptu or underhand closure;

  • rules in the form of agreements, covering numerous aspects of international trade in goods and services;

  • surveillance mechanisms within technical bodies made up of Members;

  • a binding dispute settlement mechanism, the first of its kind in international law; and

  • a number of specific provisions aimed at compensating for the disadvantages experienced by developing countries.

For these reasons, the WTO is often seen as a cornerstone of international economic regulation by both its supporters and its critics. Its supporters point to the importance of the global public asset represented by a system that submits its participants to common rules that are all the more valuable as globalization creates commercial interdependence, which is a factor for growth, development, and poverty reduction and could be seriously damaged by protectionist tendencies. Supporters often cite as an example the contrast between the crisis of 1929 and the crises in Asia at the end of the 1990s which were resolved, by and large, by keeping international markets open, thus enabling the countries affected to emerge rapidly from recession.

The WTO's critics see in the consummate nature of the system the dominance of the principle of opening up trade, when, in their view, other areas, such as social standards, require international regulation efforts that are just as vigorous. Despite certain shortcomings in the WTO system, and in a moment I will turn to the current negotiations, the fact is that it provides the real economy, the everyday economy, with a collective insurance policy against the disorder caused by unilateral actions, whether open or disguised; a guarantee of security for transactions in times of crisis, henceforth an element of resilience that is vital to the running of a globalized world. In short, a global insurance policy for a global real economy. This is why it is extremely important to continue with the Doha Round amidst the turmoil currently affecting the world of finance, but which might just hit the world economy tomorrow, so that the WTO can continue to act as a “shock absorber”.

The state of play in the Doha Round negotiations

A round of WTO negotiations should be seen as a long journey, an itinerary featuring dungeons and dragons, a cross between the Odyssey and the Quest for the Holy Grail, which can only end when all the travellers have completed all the stages.

I will not go through the list of the 20 issues under negotiation, which I have transmitted to the secretariat of your Committee. One thing is certain: there will be no final agreement on any issue until there is consensus on all the issues. This has not stopped the negotiations from progressing in fits and starts and through accumulation for almost seven years. An elephantine gestation period, you might say! One consistent with the size of the giant that is to be delivered, I would reply!

One decisive stage in concluding the Round was almost completed last July in Geneva, and yet the ministers present stopped just short of an agreement, even though a number of key obstacles had been removed in the space of a few days. They came unstuck over the precise definition of the parameters of a clause intended to protect the developing countries from import surges that could pose a threat to their agricultural production systems. This clause brought two parties up against each other: the United States, on behalf of exporters of agricultural raw materials, and India, on behalf of subsistence farmers.

Since July, the ministers' experts have resumed their work in an attempt to reach an agreement before the end of the year on the issues left unfinalized following the July negotiations: in agriculture, the famous special safeguard clause, and certain other issues, including American and European cotton subsidies; as far as industrial goods are concerned, several technical points also remain undecided, notably the list of sectors in which the reduction of customs duties would go beyond the general formula applicable to products as a whole.

Despite this worrying setback, the outline of the final Doha Round package is now clear enough to be able to assess its economic, political and systemic significance.

On the economic front, the results would mean a 50 per cent reduction in the industrial or agricultural customs duties currently imposed — two-thirds of these in developed countries and one third in emerging economies, with the poorest countries remaining exempt. This would involve an implementation period of five years for developed countries and ten years for developing countries. The higher these customs duties are, the greater the measure's impact on trade would be. Estimating the impact of additional openings in services is a more complex matter.

For the European Union, this would mean a reduction of around US$20 billion in export taxes and a US$5 billion saving in agriculture and agri-foods over a five to ten year period.

With regard to agricultural subsidies, disciplines on the type of government support described at the WTO as “international trade distorting” — in the case of the European Union, around a quarter of its total support — would be considerably reinforced, as requested by the developing countries. The current ceilings would be lowered by 70 to 80 per cent. As for export subsidies, these would be banned once and for all.

Other issues are yet to be finalized, despite there being progress, which continues to be uneven depending on the issue, in respect of anti-dumping regulations, fisheries subsidies, customs procedures and certain aspects of intellectual property protection, to name but a few examples.

From the political point of view, the key aspect of the outcome of the negotiations is the readjustment of WTO rules, as demanded by the developing countries which feel that the legacy of the eight previous rounds bears the mark of past power relationships that hamper their integration into international trade, hence their growth, and therefore the reduction of poverty in areas where they have since acquired comparative advantages in respect of industrial goods, agriculture or services.

Given the weight they have progressively acquired around the negotiating table, the developing countries consider the WTO to be the most appropriate forum in which to negotiate the redistribution of the geo-economic, and thus geo-political, playing cards which they struggle to obtain in other forums such as the United Nations Security Council or the Bretton Woods bodies. To put it simply, times have changed and the United States, the European Union, Canada and Japan no longer lay down the law at the GATT or the WTO, and the Doha Round must, in this regard, be considered a precursor to a system of more equitable rules, where emerging economies (China, India, Brazil, South Africa, Indonesia, etc.) must stand ready to assume their share of responsibility.

The third and final aspect of this Round, the systemic aspect, brings me back to my starting point: concluding the Doha Round is, certainly, all about reaping the economic benefits of a new generation of market openings, equitably distributed in accordance with the contributory capacity of the participants. But it is also, and above all under the current circumstances, about consolidating one of the few regulatory systems which are effective at the international level. Failing to conclude the Round, on the other hand, would weaken a public asset that has been built up with as much patience as pain over more than half a century, and has brought transparency, predictability and stability, all of which are needed by our globalized planet to limit the danger in many other areas, including, as is clear today, the world of finance.

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