sector is the main driving force behind today's globalizing world, and few organizations
have been more active in this regard than the Coalition of Services Industries. Since your
establishment in 1982, you have played a major r˘le in promoting the development of
services industries around the world, and in informing public opinion of the growing
importance of services in the economy. You helped to harness the energy of the services
sector during the Uruguay Round negotiations, and you have been equally active in
developing joint positions and initiatives in support of the subsequent services
negotiations. From a WTO perspective, you represent one of our main constituencies, and
for this reason alone I welcome this opportunity to discuss our common agenda for the
this meeting is important for another reason. The 'globalization' of services is poised to
transform the world economy as dramatically as the growth of the services sector has
transformed our domestic economies in recent decades. All over the world, governments are
moving to open up and deregulate many of their key service sectors. At the same time,
technology is radically changing the way in which many services are delivered across
borders, breaking down national barriers and creating the reality of a global playing
field. And, perhaps most important, the global spread of services - especially in the
telecommunications and financial sectors - is transforming the growth and modernization
equation in much of the developing world. For all of these reasons, the future success of
the world trading system will depend very much on our ability to manage and build upon
the potential impact of services trade, it is worth recalling that services are already by
far the largest component of GDP in most countries -and this includes countries in the
developing world. In many OECD countries today, services account for more than 70 per cent
of GDP; and in many developing countries, this share has increased to around 50 per cent.
What's more many of the most dynamic industries of tomorrow - like computer services,
financial services, and telecommunications - are in the services sector, as are most of
the high-paying jobs. When we talk about the 'new economy' of the 21st century we are
largely talking about a services-based economy.
So far this
revolution has occurred largely within national borders. Although world trade in
commercial services is estimated to have grown by 5 per cent in 1996 - reaching $US 1.2
trillion - the fact remains that services are still traded much less than goods. In fact,
if you take only the cross-border trade in services, it is less than a quarter of
merchandise trade in terms of value.
course, cross border flows are only one part of the story. There are many services in
which the physical presence of the consumer is essential - tourism being the obvious
example - and there are others that require the physical presence of the supplier, such as
That is why
the GATS is such a revolutionary instrument because it provides commitments and
disciplines across all modes for supplying services and thus reaches into areas of policy
and regulation which the GATT never touched. Moreover, it provides a flexible framework,
with its various scheduling possibilities, to accommodate the changes in the global
economic landscape brought about through technological advances and new ways of delivering
of the service economy - from banking, to accountancy, to computer programming - can now
be carried out anywhere in the world and delivered to consumers in a matter of seconds.
The fast-changing telecommunications industry is an obvious example, but it's not alone.
The financial sector is already feeling the effects of the Internet and electronic
banking. IBM now recruits programmers from as far afield as India or China via electronic
networks, while many other firms are subcontracting services like design, data processing
and marketing around the world. And technology now allows all of us to watch movies, plan
vacations or purchase other 'electronic' services without ever passing the border.
technology is creating a borderless economy in services, even more than in manufacturing.
But changes in public policy are playing an equally important role. Highly regulated or
sheltered service sectors are being transformed by the wave of liberalization,
privatization, and deregulation that is sweeping much of the world. Liberalization
generates efficiencies and promotes product diversification and innovation. And for many
countries, especially in the developing world, open trade in services is an increasingly
important way of transferring technologies, expertise, and investments across borders. For
all of these reasons, regulators in many countries are adopting more market-oriented
regulations and supervisory techniques as they seek to reap the benefits of competition.
Agreement on Trade in Services was negotiated precisely on the assumption that these
benefits from liberalization could best be realized within a framework of multilateral
rules and disciplines. Hence, the GATS covers all services. As I noted, it covers all
modes of supply - cross-border, consumption abroad, commercial presence, and the movement
of natural persons. And it incorporates strong principles of non-discrimination -
most-favoured nation and national treatment - as well as provisions for transparency and
disciplines on domestic regulation.
But GATS also
implicity recognizes that the liberalization of services trade cannot be achieved
overnight. When we began to develop GATS, the policy challenges were new, many services
sectors were highly regulated, and national systems differed dramatically. Perhaps most
important, technological advances were transforming many of these industries from one day
to the next, making it that much more difficult to arrive at clear definitions of products
and coverage. Negotiations during the Uruguay Round were long and difficult. And in the
end, you will recall, negotiations in a few sectors, including financial services were not
completed in time for the final agreement - leaving some to wonder whether this
"unfinished business" would ever be brought to a close.
challenges involved in opening up global services trade makes the progress we have made
over the past year all the more remarkable. In February, we secured a landmark agreement
in basic telecommunications after only two years of negotiations. Sixty-nine countries -
accounting for more than 90 percent of telecoms revenue worldwide - made multilateral
commitments in a market that is worth well over half a trillion dollars per year. Moreover
the value of this initiative cannot be measured in trade figures alone. In a global
economy driven by information and ideas, telecommunications is an essential building block
for economic growth. Liberalization in this sector will change the nature of economic
activity throughout the developing and developed world, dramatically reducing costs for
business and consumers, and at the same time stimulating technological change.
achievement this year was the adoption on 29 May by the Council for Trade in Services of
guidelines for recognition of qualifications in the accountancy sector. These guidelines,
while non-binding, will facilitate the conclusion of agreements between countries on the
mutual recognition of professional qualifications for accountants. These guidelines will
also serve as an effective means of facilitating the movement of accountants across
borders, and of avoiding the emergence of new disparities between recognition regimes
around the world.
over the coming months is undeniably the ongoing financial services negotiations. I say
this recognizing that there are other negotiating deadlines this year, such as in
accountancy, that we must meet. But the stakes in financial services are great. For it is
the global financial system which underpins the day-to-day transactions of our global
economy. Capital flows and trade flows are now two sides of the same coin - a
seamless web of global economic activity that will only intensify with the rapid
globalization of financial markets, the advent of 24-hour trading, and innovations in
A couple of
examples will illustrate the importance of financial services to our economies. Foreign
exchange transactions amount to US$1.5 trillion per day, without which no trade in
goods or services could take place and foreign investment flows to developing countries
now amount to more than $250 billion a year, contributing to the growth of some of the
fastest developing areas of the world today.
telecommunications, financial services cannot be viewed through the outdated paradigm of
importers or exporters, north and south. The financial sector is part of the basic
infrastructure of advanced economies and the essential means by which global trade is
carried on. Developing countries need a competitive financial infrastructure both to
encourage much needed investment and to compete in the globalized financial markets of the
future. At the same time, developed economies have a clear interest in an agreement which
will open the fastest growing markets of the world to one of their fastest growing
industries. And all sides in this negotiation have an interest in building a strong global
financial system to support a strong global economy. It is this convergence of economic
interests which makes this negotiation so critical and its success so clearly within our
realities lie behind the signs of renewed momentum we have seen since the resumption of
negotiations in April. Some ninety-six WTO Members have already made commitments in the
area of financial services, more than in any other sector except tourism. And over fifteen
developing countries - with little or no previous commitments in this sector - have now
shown an interest in submitting offers. Recent autonomous liberalization in many
countries, both developed and developing, suggest that even translating the progress
already achieved into offers would result in a substantial improvement of the existing
package of liberalization commitments.
This is a
rare opportunity for countries to liberalize financial services on a multilateral basis
and over a short span of time. It would be a major setback if this "window of
opportunity" were lost, and not just because we risk jeopardizing the important
commitments we already have on the table. We have made a collective undertaking to return
to services negotiations in the year 2000. And we have to begin preparing for this next
round as soon as possible. A set back in financial services this year would not only cast
a dark cloud over these preparations, but could well mean that we would not see
substantive progress in financial services for another decade.
have expressed concerns about the negative effects of liberalization on financial markets.
It has been argued that liberalization has all too often moved forward without putting
into place an adequate regulatory framework and without establishing a stable
macroeconomic environment. Some have questioned why a country should continue liberalizing
when there have been so many serious financial disruptions around the world.
are understandable and worthy of attention; but they are not arguments for trying to turn
back globalization or for slowing down the pace of liberalization. On the contrary, it
could be argued that liberalization within a comprehensive framework of multilateral rules
is a prerequisite to stability, predictability and coherence in an increasingly globalized
No amount of
regulation can substitute for a lack of competition. Competition promotes transparency, it
fosters a culture of accountability, and it rewards economic resilience. Without
competition, firms easily accumulate inefficiencies and shift the costs onto consumers.
There are a number of recent cases where liberalization in developing countries - and the
participation of foreign banks - helped accelerate the required restructuring of financial
institutions. There are also cases where allowing domestic banks to diversify abroad would
improve their competitiveness at home. Through liberalization and competition, financial
institutions almost invariably become more resilient and more efficient. And even those
countries experiencing financial problems, will need to look abroad for the capital and
expertise necessary to revitalize their financial systems.
is consumers - firms as well as individuals - who gain the most from the efficient supply
of reasonably priced financial services. I was very heartened by a recent remark by Mr.
Gabriel Singson, Governor of the Central Bank of the Philippines, reported in the
Financial Times, that "contrary to the fears raised by some protectionist and
inward-looking sectors of our society, the foreign banks have in fact brought in foreign
capital that went to finance the expansion of key local industries that in turn helped
sustain the record of Philippine growth."
To be sure,
in order to avoid destabilizing the financial system, liberalization needs to be
accompanied by sound macroeconomic policies, improved financial market supervision and
structural reforms for necessary adjustment. The GATS permits this by allowing measures
taken for prudential reasons, such as measures to protect investors and to maintain the
integrity and stability of the financial system. Measures to protect public morals or to
maintain public order as well as to achieve other legitimate public policy objectives are
exempted from the liberalization principles of the GATS. There is nothing in the GATS that
would put the financial stability of a country at risk.
A healthy and
competitive financial system is the foundation of a healthy and competitive economy. A
financial services agreement will not only accelerate liberalization in a key economic
sector - bringing the benefits that I have mentioned. It also will reconfirm the GATS as
global regulatory framework for the financial services industry, and maintain the
increasingly effective WTO dispute settlement system in this highly integrated and
competitive global industry. By succeeding in these negotiations, the multilateral system
will further reinforce its relevance to the economy of the 21st century.
These are not
the only challenges that lie ahead. I have concentrated my comments on services, but
services, as crucial as they are, form only part of the WTO Work Agenda. There is a broad
work programme flowing from the various Uruguay Round Agreements and the Singapore
meeting, including new work on investment and competition policy. There is the critical
issue of bringing the 30 accession candidates including economic and political giants like
China and Russia into the global trading order. There is also the pressing question of how
to combat marginalization in the global economy - a question to which we will be
looking for concrete answers at the high-level conference on the least-developed countries
in October. This last issue underscores a broader challenge. How to achieve real global
coherence in policy-making to manage the economic, social and political realities of
But if there
is a single theme running through all of these challenges it is that the multilateral
trading system is rapidly becoming a central pillar of the new global economic order; a
key link between North and South - developed and developing - an indispensable foundation
for our ever more interdependent world. Let me conclude by expressing my belief that our
success in the pivotal services negotiations this year will mark another important
milestone in this evolution. But to reach this goal we will need your full support - now
more than ever before.