Ladies and Gentlemen
It is a pleasure to meet again with the Federation of Indian Chambers of
Commerce and Industry (FICCI) – the largest and oldest business
organisation in India, with a history closely linked to India's
emergence as one of the fastest growing economies in the world. FICCI
has been a staunch supporter of a strong multilateral trading system.
You will therefore not be surprised if I tell you that I feel at home
here.
I would like to begin my remarks today by looking at the state of the
world economy. I think it is fair to say that in the last months we have
witnessed a mix of good and bad news.
The good news first. Coordinated fiscal and monetary stimulus has worked
to bring back the global economy from the edge of a depression. There
has been a return to economic growth, led by particularly strong growth
in several emerging economies such as India, Brazil and China. Steps
have been taken to strengthen financial sector regulation, which as we
all know was at the heart of the crisis. We have seen progress in the
reforms of the World Bank and the IMF, through greater representation of
dynamic emerging markets and developing countries, making them even
stronger institutions for promoting development and global financial
stability respectively.
The recent G20 Summit in Seoul agreed to place the interests of
developing countries, and in particular low income countries, at the
heart of the G20 agenda, with the adoption of the “Seoul Development
Consensus”. Finally, the G20 also took much needed first steps, if yet
insufficient, in addressing macro-economic imbalances.
But what about the bad news? Economic growth in advanced economies
remains sluggish and risks remain on the sovereign debt front. But the
most serious challenge today is that of unemployment. For it is
generating employment which is at the heart of the strategy of some
countries to keep their currencies undervalued. Just as it is also at
the heart of other countries' loose monetary policies.
What lies behind concerns about macro-economic imbalances is in reality
a concern about unsustainable and socially unacceptable unemployment
levels. Whether it is the worker in Bangalore, in Ohio or in Guangdong,
the real issue is jobs.
The Havana Charter of 1948 which envisaged the creation of the
International Trade Organisation, but never came into being, considered
employment as an integral part of a global trading system. In its
Article 2 it recognized the fact that “while the avoidance of
unemployment or underemployment must depend primarily on internal
measures taken by individual countries, such measures should be
supported by concerted action”. What was true more than 60 years ago is
even more so in today's globalised economy.
This is why the G20 has repeatedly emphasized the importance of
international cooperation in global economic issues. Cooperation means
listening to each other, understanding each others' constraints, and
entering into compromises towards commonly identified goals. Today the
constraints of countries may be different, the individual actions
required from individual countries may be different but they must all be
directed towards these common goals.
Consider, for example, the issue of macro-economic imbalances.
Addressing them will be inevitably complex. It will require looking into
monetary policies, investments in social safety nets, competitiveness,
public finances or taxation systems to name but a few. No single
indicators will be enough to address the issue. And it will require
time, since this is a medium to long term collective enterprise. But
make no mistake! These imbalances do not originate in trade. And
therefore addressing them through trade restrictive measures will not
work. Worse, it will trigger tit-for-tat protectionism.
In the short term, the uneven growth in the world and high unemployment
carry the risk of countries diverging from global solutions and
embracing go-it-alone measures. Such uncoordinated 'beggar-thy-neighbour'
policies, however, will not result in increased employment. Hence, for a
sustainable global recovery, there is a need for coordinated policy
action across countries, which would lead to a progressive reduction of
these global imbalances and to a greater number of jobs.
Let me now turn to global trade. Trade - both exports and imports - can
increase income or output levels through efficiency gains from
specialization based on comparative advantage, through greater
competition and through economies of scale. In turn, an increase in
incomes creates jobs in different sectors by increasing demand. A recent
report on the benefits of trade for employment prepared by the OECD, the
ILO, the World Bank and the WTO cites cross-country evidence suggesting
that a 10 per cent increase in total trade openness is found to reduce
unemployment by about 1 per cent.
Trade is also likely to contribute directly to the reduction of
unemployment in the recovery phase following the crisis. This is because
the share of employment which depends on exports and imports is
typically large. Recent studies for India show that nearly 14 million
jobs were created directly or indirectly as a result of increased
exports between 2003 and 2008. Furthermore, rough back of the envelope
calculations for India suggest that on the basis of the average
pre-crisis growth in real merchandise exports, an average of 7.5 million
jobs may be created from exports each year.
Any negatives? Well of course, greater import competition associated
with trade opening may lead to job loss in certain sectors of the
economy. There are both winners and losers. This is also true with more
competition stemming from structural reforms within a country.
Programmes of worker training and greater mobility in labour markets can
enable those displaced to find jobs in the more efficient, expanding
sectors of the economy. And social safety nets can help them bear the
burden of transition in the short-run. In India, the National Rural
Employment Guarantee Act (NREGA) of 2005 is an important example of a
social safety net for the unemployed.
In sum, economic evidence tells us that opening up to international
trade is better for growth than remaining a closed economy. However, to
maximize the development-enhancing effects of trade opening, the process
needs to be accompanied by actions and policies that leave no-one
behind.
The recent G20 and APEC leaders' summits in Seoul and Yokohama
recognised the importance of open trade for the global recovery. They
sent strong signals of political resolve to conclude the Doha
Development Round. Leaders recognised the 2011 window of opportunity to
achieve this goal. They called for intensified engagement and for
negotiations across the board to conclude the end game. They also
committed to seeking domestic ratification once an outcome is reached.
In short, they provided a clear signal that they expect the Doha
Development Round to be a deliverable next year.
And I would like to take this opportunity to publicly acknowledge the
engagement and support of PM Dr. Singh and Minister Sharma, whose
initiative to convene trade ministers last year helped re-invigorate the
Doha Round.
The question ahead of us is clear: how to supplement what negotiators
have already put on the table, with new give and take in order to build
a final package that each member would take to their respective
Parliaments.
WTO members are now working to translate this political will into the
negotiations in Geneva. In recent months they have been testing
flexibilities in various formats. This process must now intensify in
order to “walk the talk”.
Experts and commentators in the media would stress the “mercantilist”
aspects of concluding the Doha Round: they will talk about concessions,
market access and give and takes. Fine with that. But few will talk
about the hidden face of the Doha Development Round: the importance of
the multilateral system which represents the collective cooperative
effort of 153 members.
If the Doha Development Round was to fail, it would be the first in the
history of the GATT/WTO since 1948. It would weaken the only institution
which governs the rules of world trade and has the ability to adjudicate
in the event of disputes between countries.
Economic crises are a reality of the world we live in. They have
occurred in the past and will in the future as well. At present, the
global economy finds itself recovering from one of the worst in history.
Economic crises, naturally, create problems at home. It is in these
times that proponents of unilateralist, populist policies which
discriminate against foreign workers and goods become more vocal.
Instead, during tough economic times, those of us who believe in
multilateralism must let our voices be heard. Some may call us naïve, or
even idealists. But the lessons of history are there: they show us that
it is coordinated action through international cooperation that
maximizes benefits for citizens of the world.
I hope that when this crisis is over, it will be this lesson of
cooperation that will have prevailed. Other options would certainly
leave each of us much worse.
Thank you for your attention.
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