Opening statement at the Asian Development Bank's presentation
I am very happy to welcome the Asian Development Bank to the WTO for the Launch of the Asian Development Outlook 2010 in Geneva. A warm welcome to the ADB team, and to the other experts and participants of this event. This event is another example of the collaboration between our two institutions, which has increased significantly at all levels in recent times. We work towards similar objectives of sustainable development and increasing opportunities available to our Members.
The ADB team is presenting their annual flagship report in our House for the first time, and they bring good economic news with them. According to their report: “with global recovery now under way, the outlook for developing Asia looks brighter. GDP growth is forecasted to rebound to 7.5% in 2010, with every sub-region expected to perform better than last year.”
This is very important because today many count upon Asia to help the world economy recover from the recession. This interest in the Asian region is from both countries within and outside the region. The interest arise on account of the trade and investment links among countries, and the importance of international trade in the recovery period ahead. As the Outlook 2010 Report says that “the gradual recovery of international trade is as much a consequence as it is a driving force of the economic bounceback”.
A significant feature of this bounceback or recovery which has taken place after a historic decline in economic activity is the relatively short period within which the global economy achieved a turn-around in comparison to previous economic crises. A crucial ingredient for this exceptional positive development is the co-ordination and co-operation amongst nations to deal with the crisis. These efforts were facilitated immensely by the presence of co-operative multilateral institutions, including the WTO and the ADB. As WTO Director-General Pascal Lamy pointed out yesterday in his speech in Santiago, Chile, one main difference between the world economic crisis today and the one in the 1930s is that we now have the discipline of the trade rules within which WTO members operate. Thus, despite the crisis, trade routes have remained largely open for the past two years, contributing importantly to the recovery process.
The ADB Report being launched now is on “Macroeconomic Management Beyond the Crisis” (my emphasis). Almost by definition when we consider macroeconomic issues, we are looking at the broader or systemic level. Sometimes, lessons learnt in dealing with a systemic concern, for example macroeconomic management, has implications for other systemic issues, such as the system of trade rules and opportunities provided by the international trade regime. A number of statements in the Report struck me as being significant in this context, and I want to share some of them with you. “A long-standing tradition of fiscal and monetary prudence served the region well during the crisis. ... In fiscal policy, while it is of paramount importance to safeguard sustainability with strong medium-term fiscal policy frameworks, a wide range of measures can contribute to more balanced growth by removing structural impediments to domestic demand. ... Multilateral cooperation is equally important to avoid bilateral conflicts over exchange rate and trade issues.”
As with these points made in the Report, the WTO system also focuses on the emphasis on prudence or discipline, on removing impediments to demand, and on avoiding conflicts over trade issues. Further, it is multilateral cooperation based on mutual interests that has made the WTO rules being especially important during the past two years of economic crisis when there were strong domestic pressures for more trade restrictions. The major significance of these disciplines arises inter alia on account of the potentially large scale systemic effects of individual trade actions. In fact, while trade economics per se is not a macro-level subject, the international links between markets and possibility of retaliatory action quickly makes the effects much larger than any initial starting point. If we consider these interlinkages, we can see that like macroeconomic policies, the WTO regime of multilateral disciplines also provides the larger, macro framework to achieve wide ranging positive results covering multiple nations. In fact, the effects of trade policies and the disciplines encompassed in a multilateral trading system such as the WTO are mega-macro, as they go well beyond any single country.
Similary, the ADB Report has a number of other interesting information and insights. For example, it shows that the trade links for developing Asia have over time extended far beyond the main developed markets such as the US, European Union or Japan, as well as beyond Developing Asia itself. Consider for example the region other than US, EU, Japan and developing Asia. The Report shows that the share of exports from Developing Asia to this “other region” increased substantially over the period 2000 to 2008. This indicates the likely increase in the importance of several growing markets outside Asia, the US or EU, and again indicates the continued and even increased importance of the multilateral trading system.
There is a considerable variation in the growth rates for the 45 countries of Developing Asia covered by the Report. Countries which are today relatively better off have reached their present levels through concerted policy initiatives, relying on the opportunities provided by the international markets, and using capacity augmentation support. These countries reflect their own further potential as well as the possibilities open to the relatively less economically well-off nations. Especially for the latter group of countries, including the low income and small island members of the Asia-Pacific, there is a strong need to boost capacity to better achieve their economic potential. The Aid For Trade initiative at the WTO plays a crucial role for achieving such objectives. Together with a number of other agencies and donors, the ADB programmes also make an important contribution to Aid For Trade. Aid for Trade leads to increased trade capacity and economic growth, supports regional trade and transport corridors, and can be an effective vehicle for development and poverty reduction. The resulting capacity improvement facilitates more trade both within and outside the region. The Mekong Delta Sub-regional project is an example of how Aid For Trade can stimulate investment, leverage private capital flows, increase the flow of goods and services and enhance trade facilitation procedures.
Another point made in the Report is that partly due to lack of progress in the Doha Round, Free Trade Agreements are growing rapidly. The Report notes that while Free Trade Agreements can be building blocks for multilateral trade agreements, they can also be stumbling blocks for third countries. Over time, there will be a need to harmonise the various different conditions and rules of origin to improve operations. The need for such a process of harmonisation shows that facilitation of trade will require effectively multilateralising these agreements. In addition, an important point worth noting is that some of the major distortions and concerns affecting developing nations, such as agriculture subsidies by developed nations and growing use of contingent protection measures, cannot be adequately dealt with by Free Trade Agreements. For effectively addressing such concerns, we need a multilateral trade agreement such as that being negotiated under the Doha Round.
The Report also shows that services sector is very significant for enhancing growth and providing employment opportunities, and discusses the importance of removing policy barriers so as to develop services trade. The relevance of the services negotiations in the Doha Round is immediately obvious in this context.
Factors that we must be careful about in order to get sustained recovery are also discussed in the Report. An important aspect of this is that analysis and data have both shown us that employment generation takes more time than achieving economic growth. Thus even with economic recovery taking place in 2010, Governments will require a considerable time to deal with unemployment and other social concerns. They will therefore continue to be subject to domestic protectionist pressure and it is crucial that countries should not succumb to such pressures. They need to keep their strong focus on dealing with the factors which introduce a downside risk to sustained recovery and employment generation. Of major importance among these efforts is inter alia keeping markets open. The benefit and paramount importance of the WTO system is evident in such a situation.
The essence of the appropriate approach is to continue to adopt sound and responsible policies. Regarding macroeconomic policies, the Report states that: “As the global crisis recedes and normalcy returns, developing Asia should revert to the sound and responsible fiscal and monetary policies that fostered macroeconomic stability and sustained growth. ... The potentially more challenging postcrisis global environment strengthens the case for setting up strong and credible medium-term fiscal frameworks that can withstand even large negative shocks.”
Similarly, for the multilateral trading system too we need to set up improved and more equitable frameworks which can better withstand shocks to the system and provide a more level playing field. The Doha Development Agenda reflects these aspirations. It is multilateral cooperation through the successful completion of the Doha Round that would provide the strong foundation for continued growth and progress well into the future for both Asia and world as a whole. As the WTO Director General Pascal Lamy said yesterday in Santiago, “the trade rules have stood to the protectionist pressures but we now need to ensure that this culture of cooperation brings the Doha Round to its completion”.