WTO NEWS: SPEECHES — DG PASCAL LAMY

“Trade in a globalizing world” — Geneva

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Welcome and good morning to you all. It is my pleasure once again to present the WTO’s annual flagship publication, the World Trade Report. This year’s report is entitled “Trade in a Globalizing World”. It takes a hard look at trade, re-examining what we know about the gains from trade and where they come from. The Report sets the trade discussion in the wider context of globalization. It reaffirms the significant contribution that globalization and trade have made in bettering the lives of many millions of people around the world. But it also recognizes that the benefits of greater integration and inter-dependency have not reached everyone. There are those that are excluded and left behind. Our capacity to remedy this — and extend the reach of improved living standards more widely — is crucial to our prospects, as a global community, for continuing to benefit from specialization, exchange and growing prosperity.

This Report could not come at a better time in the context of what we are striving to achieve here in the WTO. The Doha negotiations are in a decisive phase. We should be clear. What Members achieve together next week will be judged as an indicator of the international community’s willingness and ability to share in the management of globalization in an effective and equitable manner. In addition to the shared benefits in prospect from a successful Doha Round — which are far from trivial in themselves — a bigger question looms. It is simply this: what will fill the void left by a broken multilateral negotiation of the dimensions and centrality of the Doha Development Round? I am not suggesting that any deal is better than no deal. But I am suggesting that on the basis of what is on the table, an inability to come to a mutually beneficial and substantive deal would be a dark signal indeed.

Globalization will not come to a halt. It is driven by technological advance as much as by broader political changes, economic policies and evolving business practices. But it can certainly be helped or hindered in many ways. Trade has been a central element in the integration process. Recent surveys on globalization in almost 50 developing and developed countries show that large majorities of people continue to believe that international trade benefits their countries. But accompanying this belief are fears about the disruptions and downsides of participating in the global economy, be it job loss, inequality or increased marginalization.

The Report gathers the available evidence on these questions. It reminds us that the gains from global integration outweigh their costs and trade policy-makers convening here next week may take comfort in these results. But the Report also underlines that increased international competition creates winners and losers, even if nations as a whole gain, and that policy-makers would be well advised not to leave these concerns unattended. Clearly, we need to find a balance between open markets and flanking policies. Much of what needs to be done is in the hands of national governments. But international initiatives also play a role, including in the WTO context, and I will come back to this point in a moment.

Let me first elaborate on some of the key messages contained in the Report that are usefully kept in mind.

First, the promised gains from trade have panned out in practice. I am particularly encouraged by the amount of solid empirical support from developing countries. These studies show that countries have specialized in activities that they are comparatively good at and that this has raised incomes. Both consumers and producers have benefited from a wider choice of products and inputs at lower prices. Firms are operating at a more efficient scale and industries have become more productive. Through these and other channels, such as knowledge spillovers, trade has also led to technological progress, as a key driver of economic growth

Second, some countries do not share as much in these gains as they could and should. Much of this has to do with trade costs in the widest sense: tariffs, non-tariff barriers, transportation, communication, insurance, contracting, monitoring costs and so on. Overall, trade costs have come down in the last half century for both policy-related reasons, such as the reduction of trade barriers, and technological reasons, such as the internet. This has allowed firms in a number of developing countries to provide specialized inputs at various stages in the production process, including by participating in services offshoring.

However, the decision where to offshore not only depends on traditional factors, such as skills or wages. New sources of comparative advantage, such as the institutional framework and the quality of infrastructure, also play a role. Unfortunately, this has limited the involvement of low-income countries in international supply chains, despite their advantage in terms of labour. More needs to be done here. I hardly need to add that the Aid for Trade initiative and other similar efforts can make a vital contribution here.

Third, trade may make some worse off, even if it is beneficial overall, or may not benefit everyone alike. In recent times, it has become more difficult to identify those who lose. The story is not necessarily only about low-skilled workers and import-competing sectors. A more nuanced analysis is required. For example, medium-skilled workers carrying out routine tasks that are easily standardized and digitalized may be particularly susceptible to offshoring — and this independently of the industry they are working in. At the same time, research shows that some firms have successfully dealt with foreign competition in all sectors. For laid-off workers this implies that there may be opportunities to re-train and find a job within the same sector.

Policies to help displaced workers should be in place. Often, these are part of social protection systems, since it is difficult to distinguish among various reasons for structural change, such as trade and technological developments. A number of countries have been quite successful with general policies to protect workers, rather than specific jobs. Trade-specific adjustment programmes may make sense if such assistance can help sell nationally beneficial trade opening policies or if general systems are lacking, as they notably and understandably are in lower-income countries.

The poor are particularly vulnerable, since they may be unable to bridge even short spells of unemployment. While trade has helped to reduce poverty worldwide, some poor households have been negatively affected. The relationship is complex, since trade affects growth, employment, revenue, consumer prices and government spending. Recent household studies are a big step forward in helping us understand the interplay of these factors and their overall effect on incomes.

What some of these studies have also shown is that poor agricultural producers in remote rural areas were unable to seize new market opportunities due to high transport and other trade costs. For sure, improvements in physical infrastructure and institutional reform fall within the realm of responsibility of national governments. But this also brings me back to the question of what can be done at the multilateral level to exploit the full potential of international trade.

Much of what is immediately obvious in the WTO context concerns the Doha Round. While better access and better rules help in many different ways, and the Doha agenda goes well beyond the effort to reduce trade costs, I confine myself here to brief remarks concerning the latter. The current negotiations in agriculture, NAMA and services offer the possibility of coordinated trade opening, where governments gain from both their own reductions in trade costs and those of others. The negotiations on trade facilitation address a wide set of trade costs, such as customs formalities, that can represent formidable hurdles to trade, especially for time-sensitive products. Finally, anything that can be done to bolster supply capacity and trade-related infrastructure — a key focus of Aid for Trade — whether within the framework of the WTO, or beyond, is crucial in any effort to spread more widely the benefits of globalization and trade.

Bearing in mind the lessons and insights of this Report — which bolsters much that many of us have been inclined to believe — and with dark clouds gathering on the economic horizon, I would like to end my remarks by appealing to all interested parties in the Doha Round to join in giving that vital push to propel the negotiations to a successful outcome.

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