WTO NEWS: SPEECHES — DG PASCAL LAMY

‘Asian Century’ means shared prosperity, responsibility and multilateral agreements, Lamy tells conference

Asia has enjoyed a surge in trade in proportion to its economic size, is increasingly involved in global supply chains and has turned to free trade agreements to pursue its trade agenda. The time has come to “multilateralize” those agreements, WTO Director-General Pascal Lamy told a conference on “The Future of the World Trading System: Asian perspectives” on 11 March 2013

The conference was organized by Asian Development Bank Institute (ADBI) and Centre for Trade and Economic Integration (CTEI) at the Graduate Institute of International and Development Studies, Geneva in collaboration with World Trade Organization. This is what Mr Lamy said:

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Ladies and gentlemen,

I am very pleased to join you this morning — looking at the future of the world trading system from Asian perspectives.

 

The Asian Century

I would like to thank Kawai-san and his team at the Asian Development Bank Institute for coming up with the theme of the conference, which in my view, is of a topical one “at the right time” and “at the right place”. 

It is the right time as WTO members are preparing for the upcoming Ministerial Conference in Bali, Indonesia in December.  Asia is a region whose share is projected to grow and dominate over a half of world output by mid-21 century.  Some have characterised this century as the Asian Century.

It is also the right place, at the heart of the global trade community, given that trade has played a key role in shaping the transformation of Asian economies in the recent history.

Asia is a vast continent with large heterogeneity — physically, culturally, linguistically, politically and economically.  The region includes some of the world’s most competitive and sophisticated economies, as well as large emerging ones which are fast becoming important global players.  At the same time, they co-exist with numerous small, poorer and vulnerable economies, including land-lock or island states.  However, even with its diversity, today’s Asia shares one overriding common trait — the pursuit of rapid economic and social development.

The consequences of this region’s growth have been dramatic: hundreds of millions have been lifted out of extreme poverty. Yet Asia is also facing important challenges, ranging from rising inequalities within countries, the risk of falling into the “middle income trap”, competition for finite natural resource, disparities across countries and sub-regions, global warming and climate change, just to name a few.  Asia also remains the home to nearly a half of the world’s poor. 

Asia is a living example of how trade can contribute to economic development. Trade share of GDP in Asia has grown more than four times, from 13% in 1960 and reaching to 70% by 2007.   An Asian Development Bank study suggests that by 2050, Asia could account for more than half of global GDP, trade and investment, and enjoy widespread affluence, with its per capita income rising six-fold to reach the global average and being similar to European levels today. 

However, the Asian Century is not only about Asia. It is a century of shared prosperity, with Asia having to take its share and responsibilities commensurate with its economic weight in the global economy.

 

Development of supply chains as the basis for Asian integration

Integration — both regional and global — has been central to Asian prosperity.  Let me start with regional integration.

Asia’s rapid economic growth owes much to the development of webs of supply chains and production networks, often known as “Factory Asia.”  A 2011 joint study by the WTO and IDE-JETRO highlighted a degree of complementarity among Asian industries, which is both a cause and a consequence of deepened economic interdependency between countries.  This is reflected in an increasing share of intra-regional trade, growing from about 20 per cent in 1960 to over 50 per cent of Asia’s merchandise trade in 2011.

This success owes much to services, including transport, communications and other business services which become key components in the operation of supply chains.  The same can be said of relatively low tariffs on industrial products and little escalation in the tariff structures.  FDI has also played a big role in the expansion of trade in intermediate goods in Asia. 

Today, nearly 60% of the volume of world merchandise trade is trade in components.  In Asia, the figure is closer to two-thirds. The period of increased intra-regional trade has mirrored an expansion of Asia’s in world merchandise trade, growing from around 13 per cent in 1960 to over 30 per cent in 2011.  In other words, regional trade integration has been the backbone of Asia’s growing webs into the global supply chains.

There is a debate on the casualty between the growing supply chains and the number of Free Trade Agreements (FTAs) in Asia. Since the development of supply chains and production networks in Asia has been driven by businesses, the key driver of regional integration through these FTAs is to reduce the costs of trading, including the quantity and quality of infrastructure, the quality of logistics, the quality of institutions and the competitiveness of the economy.  As tariffs are generally not a significant barrier anymore, these agreements have increasingly focused on non-tariff trade facilitation measures, both at and behind borders.

 

Case for multialteralisation

Why are FTAs so popular in Asia?  Since the proliferation of FTAs has coincided the period of difficulties associated in concluding the WTO Doha Development Agenda negotiations, some point at disenchantment with multilateral trade negotiations, which, of course, are not about the WTO as an institution.  They say that the Asian are being their usual Asian way of doing business, using FTAs a means of pressing ahead with their trade agenda.

I will not dwell on pros and cons of bilateral versus multilateral. I would rather look at a key feature of trade in the XXI century: as tariffs decrease, non-tariff barriers become crucial. Differences in standards, in technical regulations, in standards, in certification procedures, in services regulations, in prudential rules and so many others can have a major impact in the ability of companies to trade.

In my view there is a need to find a path towards gradually multilateralising these FTAs.  The recent efforts to consolidate intra-regional FTAs into a broader regional agreement — the Regional Comprehensive Economic Partnership (RCEP) by the ASEAN+6 members — could be a stepping stone in that direction.  But while it is a welcome move to disentangle the Asian noodle bowl, it is important that such consolidation efforts would not end up in an agreement of a lowest common denominators or a closed agreement, but would eventually lead to multilateralisation.

The case for multilateralisation is particular strong in Asia.  First, the idea of “open regionalism” was originated in the APEC context in 1996, as an option to extend the benefits of ASEAN FTA accords to non-members on a non-discriminatory basis.  This idea was not formally adopted, however, the original members have been pursuing multilateralisan of their accords not just within APEC but also on an MFN basis on a range of products.

Second, the majority Asian FTAs, including RCEP members, constitute inter-regional bilateral agreements, outreaching other regions of the world, especially to the other side of the Pacific ocean and Europe, and adding to the inter-regional fora such level APEC and ASEM.  Multilateralisation makes sense, especially in light of the recent announcements about launching the negotiations of other agreements such as the one between US and the EU, Japan and the EU or membership expansion in the on-going Trans-Pacific Partnership negotiations, all pointing to the same trend.

Third, it is important to remind ourselves that unilateral liberalization is one form of multilateralisation which has been practiced extensively as part of domestic reforms.  In fact around 65% of trade liberalization between 1983 and 2003 constituted unilateral actions. Locking in this opening provide credibility, transparency and predictability, which are central to a smooth operation of supply chains.

Given its huge economic and systemic interests involved in the maintenance of an open, well-functioning trading system, Asia must proactively contribute to strengthening the global trading system by bringing back their negotiating energies back to this house, ensuring greater coherence and synergies in their trade opening efforts at the regional and global levels.

 

What WTO can help deepen Asia’s regional integration?

Is there anything that the WTO can do to facilitate the integration efforts of Asian countries? The answer is of course, yes. While regional connectivity has improved in Asia, more needs to be done on infrastructure connectivity, including transport, logistic services and customs. 

I believe that the conclusion of the Trade Facilitation negotiations in WTO can help deepen Asia’s integration effort by halving logistical and other costs associated with border and customs procedures.

I also believe that the WTO can partner with the Asian Development Bank in ensuring that Aid for Trade helps build trade capacity in poor Asian countries, including to implement a WTO trade facilitation deal or to ensure availability and affordability of trade finance.

Let me conclude by saying that Asia has been at the heart of the trade and development model which has inspired many other countries around the world.  I do hope that the region will continue to inspire the trade community in the next decades to come.  I hope that the debates over the next two days will bring out new perspectives, ideas and proposals from Asia which to help shape the future of the world trading system.

Thank you.

 

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