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9 December 1998
Annual Overview Report

Director-General's Talking Points - General Council - Wednesday, 9 December 1998

This past year – the 50th anniversary year of the multilateral trading system - has been a difficult one. It was a year dominated by the financial crisis – a crisis whose damaging and destabilizing effects are still with us today.

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The crisis has significantly affected world output. The IMF's World Economic Outlook forecasts a fall in world growth from 4.1% in 1997 to 2% in 1998. Growth in the newly industrialized Asian economies is expected to be negative, -2.9% in 1998; while GDP growth in the developing world is expected to fall sharply from 5.8% in 1997 to 2.3% in 1998. Latin American countries are expected to grow at only 2 and 2.5% , while those in Africa will grow at around 3.5%. Countries in transition, including Russia, will experience a decline of –0.2 per cent; although those in central and eastern Europe are expected to grow by some 3.4%.

The social costs of the crisis are also significant. For example, according to the World Bank, unemployment in the crisis-hit countries has risen sharply to about 13 million people in Indonesia, 3.5 million in Thailand, and 1.6 million in Korea, for a total of 18 million compared with 5.3 million in 1996. Real wages are also falling sharply, down some 40 to 60 per cent in Indonesia and about 10 per cent in Thailand. Poverty is also on the rise with, for example, about 17 million more people expected to fall below the poverty line in Indonesia.

The decline in global output will also result in a decline in global trade in volumes from 10% in 1997 to 4% in 1998. Trade values are forecast to stagnate and perhaps to decline somewhat because of the fall in the dollar prices of traded industrial goods and commodities. As global economic activity weakens and regional cycles diverge, trade and current account imbalances will increase. For example, the US current account deficit is forecast to double from 1997 to 1999 – from US$ 155 billion to US$290 billion – while Japan's surplus will increase by 50% - up to US$ 135 billion. Europe's Euro area surplus is expected to remain high, around US$ 110 billion and perhaps more if EU growth slows. Developing countries' overall deficit in 1999 is expected to be about 60 billion, but those in Asia are likely to show a surplus of about 40 billion. Economies in transition are likely to show a slightly improved current account position, from a deficit of about 30 billion in 1998 to a deficit of 25 billion in 1999.

But this year was also important because, despite the uncertainty in the world economy, we were able to reaffirm the strength and momentum of the multilateral trading system – by sticking firmly to our Uruguay Round commitments, by moving forward to liberalize trade in areas like telecommunications and financial services, and by holding a very successful 2nd Ministerial Conference and 50th anniversary celebration – events which confirmed, at the highest level, the WTO's role as a cornerstone of the new global economy. This is particularly important for countries hit by the crisis and for all developing countries.

In a certain sense, the developments in the financial crisis have formed the backdrop to all of our activities and deliberations over the past twelve months. This is because the crisis, although financial in its origins, has inevitably had – and will continue to have – repercussions for world trade. It is also because we have all recognized that our system must be an essential part of any lasting solution to the crisis – that only by keeping markets open and the international trade system functioning smoothly can we hope to contain the crisis, and return the world economy to the path of growth.

Let me outline what I see as the year's defining points and their implications for our future work:

First, the Ministerial Conference. This was our second Ministerial Conference since the WTO's creation in 1995, and a second great success for the system. In the face of mounting uncertainty and instability in world markets, we were able to reach a balanced and ambitious action programme - a programme to guide us into the next Ministerial Conference in November, and towards the negotiating rendez-vous that is scheduled for the end of 1999.

Second, implementation – which was one of the most important issues to emerge from the Ministerial Conference. What is at stake in the implementation process is not just the credibility of our Uruguay Round commitments. What is at stake is our success in continuing the integration of developing, least-developed and transition economies into the global trading system. This is the real meaning of the implementation debate and the real test of our system in the time ahead.

My strong recommendation to all Members is to give full attention to this aspect of our activity, and to give a high priority to taking into account the real needs of their partners. Implementation is a real and complex issue: it cannot be used to stop the process of further liberalization; but it equally cannot be considered a minor problem in our institution whose Members are predominantly developing, least-developed, or transition economies.

Third, the work programme. Already the built-in agenda embodies a very ambitious programme of work in addition to implementation - including further negotiations in agriculture, services and aspects of intellectual property; and the preparation of decisions in areas like investment and competition policy. In addition, we must build on the very significant efforts we have made over the past year to improve the participation of the Least-Developed Countries in the system.

Fourth, electronic commerce. I want to highlight this aspect of our future work – especially the speed with which we moved from a decision at the Ministerial Conference to a substantive work programme – for one important reason. In this area – as in telecommunications, information technologies and financial services – we are seeing the rise of a new consensus, among developing and developed economies alike, about the importance of widening the circle of access to new technologies, and about building the global infrastructure for the 21st century economy. This consensus can provide a powerful new dynamic in our next phase of multilateral negotiations and it must be encouraged.

Fifth, the 50th anniversary celebration. This was the first time that world leaders from some of the most important trading powers have come together in support of the multilateral trading system. The political importance of this event is difficult to exaggerate. Though their priorities and perspective may have differed, all governments agreed on the importance of a rules-based trading system in coping with the challenges of the 21th century. All agreed on the central role of this system in the global architecture. And all agreed that the WTO's new role in the global economy gives its work a political as well as an economic dimension.

This event has raised the political profile of our institution, together with the WTO Secretariat's participation at high-level meetings such as the Summit of the Americas, the Summit of Mercosur, and the ministerial meetings of the G15 and the G8.

Sixth, the crisis. When the General Council met in July Members expressed a strong and unanimous agreement that we must keep our markets open if we were to avoid a further deterioration of the global economic situation. So far we have lived up to those commitments. Not only have there been no major trade policy reversals - including those countries most affected by the crisis – but in fact there has been a general drive towards greater regional and multilateral liberalization.

  • The conclusion of the Financial Services Agreement at the height of the financial turmoil – and with the significant involvement of the crisis-hit countries - was the strongest sign yet of the value that Government's place on the pursuit of open trade within in a rules-based system.
  • In 1998, a large number of countries have continued to move in the direction of unilateral trade liberalization. This includes in particular the implementation of substantial trade liberalization programmes in Asia. Countries such as Indonesia and the Philippines are implementing medium-term tariff reduction programmes that go well beyond their WTO commitments. Korea has made significant moves in financial services liberalization.
  • In the course of 1998, several other countries have carried our unilateral MFN tariff cuts, including Bolivia, Canada, Chile, Egypt, Mexico, and Turkey. I will come back to this important issue in my intervention on relations with the IMF and World Bank.
  • And there are indications that ASEAN's leaders will call for increased liberalization of trade and services – and faster implementation of a regional tariff agreement – at their Summit in Hanoi next week.

I also want to address concerns about the possible misuse of anti-dumping in this time of crisis. During the period covered by the report, the overall number of anti-dumping actions has not increased as compared to the 1992-1997 average - and in fact the current levels are still well below historic peaks. Nonetheless, there has been some increase in the use of anti-dumping compared with the two most recent preceding years – 1995 and 1996 – in particular by certain major trading powers and on certain products, such as textiles and steel. Let me urge all countries to continue showing restraint and responsibility in their use of contingency protection – especially over the next critical months.

Seventh, the dispute settlement system. This year has again confirmed the central role that dispute settlement has come to play in the world trading system. We can be proud that this is a system where all countries – the large and the small – now have equal access to the rule of law in their trade relations; an achievement underlined by the number of developing countries who now use the system and succeed under its procedures. But we also have to realize that, in such a new system, we are engaged in an exercise of learning. We all have an interest, not only in living by the rules of the system, but in helping the system to work – and in facilitating access to it, in particular for developing countries.

Last but not least, the new issues. The past year has also been characterized by growing pressure on the WTO from other policy areas, and the growing relevance of issues like trade and development, trade and the environment, or trade and finance. The higher political profile of our Organization – and its growing impact on people's lives – means that we must work harder to reaching out and explaining our work to a broader and more informed public.

  • To this end, we have launched an informal dialogue with non-governmental organizations over the past years within the guidelines set down by Members.
  • I have personally held a series of meetings with a wide range of NGO's, and invited them to suggest ways of improving our dialogue.
  • I also announced a package of measures in July, including regular NGO briefings and the establishment of an NGO forum in the WTO's highly successful Website - all aimed at making our organization more accessible and more open to the wider public.
  • These initiatives will be intensified next year with the holding of two high-level gatherings to discuss Trade and the Environment and Trade and Development. These will be two major events in the life of our organization.

As we near the end of this 50th anniversary year of the multilateral trading system, we find ourselves opening a new chapter of our history and confronting a new set of challenges. Yet as we move forward we do so secure in the knowledge that the basic principles of this system, non-discrimination, consensus, the rule of law, are more relevant than ever to the central challenge of our time - managing an ever-more interdependent global economy

Let me make a few points by way of conclusion:

Firstly, before leaving office on 30 April 1999, I will present you with my final reflections on the tremendous experience of the past few years in this great and unique system for the peaceful evolution of international society. Let me say now, however, that we should all be proud of what has been achieved in 1998 and in the years since the creation of the WTO. But it would be wrong to undervalue the fragility of the construction. There is a constant danger that events might undermine our ability to make progress in building a rule-based world trading system, capable of taking into account in a balanced way the interests of all our Members - advanced, developing, least-developed and transition economies alike.

My second point is that it is clear that our efforts to complete the multilateral trading system cannot be viewed in isolation from so many other policy issues which belong to the agenda of globalization. More and more, trade and finance, trade and development, trade and environment, trade and social issues, trade and health issues - just to mention some of the main points - will seem to our public opinion to be facets of a single issue. That issue is: how improved governance in this ever more interdependent world can encompass the peaceful and balanced development of all countries and all peoples.

Lastly, this is why I believe we need to think deeply together about how to improve global institutions so that governance of the world economy can better respond to so many hopes and concerns of the world community.

I would like to underline today, as I have in many of my speeches, the need to enlarge the group of nations that should share this responsibility, and to extend into a truly global vision the issues I mentioned earlier which seem sure to be ever more linked together.