WTO NEWS: SPEECHES — DG PASCAL LAMY

Commodity Trading Challenges with China

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Pascal Lamy’s speeches

  

Ladies and gentlemen,

I am honoured that you have asked me to deliver the “closing remarks” for this year's Trading Forum. My remarks will not be long. Their main aim will be to connect your world — the world of commodity trading — to the world of trade rule-making, which is the WTO's core business.

Many of you present here today engage in either the physical or the financial trading of commodities. At the World Trade Organization, 153 Members engage in setting and implementing the rules for world trade. In other words, they establish the regulatory background against which your world operates.

And while the rules that WTO Members have thus far created are not perfect, they nevertheless prevent the “law of the jungle” from prevailing in international trade relations. If you consider commodity markets today to be volatile, just take two seconds to reflect on how much more volatile — if not unfair - they would be were the world trading system to cease to exist. Were there to be no rules for tariffs, no rules for subsidies, and no end to the fortresses that countries could construct to seal themselves off from the rest of the world.

But of course, I forget, I am talking to many traders here! Many of you like and want volatility! I have not forgotten the years that I myself spent in banking. However, I am certain that even you would agree that completely wild fluctuations, ones that disconnect us completely from market fundamentals, can come to haunt us.

A number of important commodity traders remain outside the WTO system, like Russia, Iran and Kazahstan for example. But we certainly hope to be able to count them amongst our Members in the not too-distant future. China, which has been the focus of your conference today, if not the focus of commodity markets more generally for the past several years, is itself a fairly recent entrant to the WTO.

China joined in 2001 — in the same year, and in fact at the same conference, that launched the Doha Round of trade negotiations. The Round that we are struggling to complete, and which would update, clarify, and improve the background landscape against which you operate. This message was apparent at the meeting that UNCTAD organized in Geneva on commodities this Monday. UNCTAD's competence and expertise in the field of commodities is, of course, widely recognized.

Ladies and gentlemen, over the past 50 years, commodity prices have followed a cyclical pattern of rising and falling prices of varying amplitudes and durations. After a period of steady decline from 1995 to 2002, international commodity prices reversed course.

From 02 to 08, there were sustained price increases — sometimes to unprecedented levels; leading for example to the food crisis that we all saw. But since then, prices have begun to fall sharply. However, the OECD and the FAO warn us that with respect to food, some of the structural factors that led to the recent price hike will keep real food prices at higher levels than before. In this picture, we cannot afford to lose sight of the poor, of the hungry, nor of the need for sound agricultural development policies that allow supply to respond to price rise. For other commodities such as minerals, the financial crisis, I am told, took a particularly heavy toll on “exploration.” Trade-finance, that had dried up temporarily, also reduced trade flows.

Since I am in the “long-term” business of rule-making, allow me to make a few comments on long-term trends in commodity trade. In this picture of price fluctuations that I just painted, what is surprising is that there is something that has not fluctuated for at least two decades. And I speak here of the shares in international trade of the developing versus the developed world in ores, metals, minerals and even food. Roughly speaking, while in the 90s, the developed world imported and exported about 70% of these commodities, and the developing world traded in the remaining 30%, this continues to be the ratio. While behind these aggregate figures for the developing world, the shares of countries such as China and India are certainly changing, for the developing world as a whole the share is about the same.

This is where your world of physical and financial trading comes to interact with ours — the world of rule-making. Could there be barriers to international trade in commodities that contribute, at least in part, to this ratio having been fixed for so long, I ask? While trade barriers are by no means the exclusive determinants of patterns of trade, with income and population growth, as well as technological change, being critical factors, they do nevertheless play a role.

Since the creation of the Multilateral Trading System, some 60 years ago, the world's average industrial and agricultural goods tariffs have declined significantly. Rules for subsidies and fair competition were created. Rules for the sanitary and phyto-sanitary regulations, that affect trade in commodities such wheat, rice, and corn, were established. And the WTO rule-book continues.

But through the Doha Round of trade negotiations, WTO Members have an opportunity to dismantle even more of the trade barriers that hinder commodity trade. They have an opportunity to reduce the developed world's remaining tariff peaks (such as exorbitant tariffs on rice, potatoes and other foods that persist in parts of the Northern hemisphere). An opportunity to reduce the tariffs of emerging economies, as well as the agricultural subsidies of developed countries that distort international trade. These subsidies crowd out the developing world from international markets, and prevent it from fairly competing.

For some of the world's poorest countries, that are dependent on only one or two commodities in their international trade, the Round also offers an opportunity to deal with tariff escalation. The phenomenon of tariffs that rise with processing, and that discourage the developing world from industrializing. A legacy of colonial patterns of trade. In fact, were this Round to be completed, Least-Developed Countries would get almost entirely duty-free, quota-free, access to developed world markets.

There is also a window in the Doha Round, albeit a narrow one, for tackling export taxes and export restrictions in agriculture. Many of you have complained about these barriers to me during the food crisis in particular, where we saw such barriers erected on rice, and other foods. It is certainly true that there is an imbalance in the WTO rule-book between the stringency of the rules for imports, and their laxity for exports. For example, certain export prohibitions and restrictions that are designed to alleviate critical food shortages are allowed in the WTO. Countries may eventually wish to address this issue.

The Doha Round — when completed, will oil the wheels of international trade in commodities, giving the developing world its fair share of the market. It will improve the workings of what is no more, in the end, than a transmission belt, between countries where there is demand and countries where there is supply. For food trade, the climate crisis, makes a properly functioning transmission belt even more imperative. Droughts, and other natural catastrophes, should not deprive parts of the globe from food.

Trade in natural resources is, in fact, the topic of this year's World Trade Report — which is the WTO's annual flagship publication. We have launched an online discussion forum on this Report that I would encourage you to participate in, and to make your views known. You can help us shape the Report.

Ladies and gentlemen, I finish with the closing hope that the importance of the interaction between our worlds will be fully recognized, and that you will make your voice heard in the Doha Round as well as in all other activities of the WTO.

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