Geneva, 5 May
The WTO: challenges ahead
Conference on the role of the WTO in global governance
I want to congratulate the United Nations University and individual contributors to the book, The Role of the World Trade Organization in Global Governance. It is an excellent volume and an important contribution to current debates on the WTO. I welcome this opportunity to explore with you some of the themes in the book. In particular, I have been asked to speak today on the topic ‘The WTO: challenges towards the Doha Ministerial’.
Let me start with a quote from the book, by an old friend, Martin Wolf: ‘The multilateral trading system at the beginning of the twenty-first century is the most remarkable achievement in institutionalized global economic cooperation that there has ever been.’ I agree. And figures support this. As Gary Sampson points out elsewhere in the book, the current trade rules permit world trade in goods and services to be successfully conducted at the rate of close to US$1 billion per hour every hour of every day.
This sort of success is bound to attract attention. But there are other reasons as well for the heightened interest in the WTO. Current trade rules affect the lives of every one on this planet. As well, we have a binding dispute settlement mechanism that is truly unique among the international institutions. Our membership has increased dramatically and the composition has changed so that among our 140 members, four out of five are from the developing world. Developing countries are far more visible in the WTO and are pursuing their legitimate interests actively. I think it is also worth noting that the first five years of existence of the WTO has coincided with a growing anxiety among many parts of the world population about the effects of globalization.
The WTO is a young organization. We are a major player among the international institutions but we are still defining our role. It is in this context that I welcome your book. It helps us to reflect on the objectives of the trading system and how these objectives can best be met. It identifies many of the issues currently facing the WTO both in terms of institutional matters (transparency, effective participation of all members, relations with civil society, etc), and issues of substance (trade and labour, trade and environment, etc). I welcome the book and the discussion it encourages. Let me now turn to the current WTO work programme and the road to Doha.
It is no secret that this is a crucial year for the multilateral trading system. In November, Qatar will host the next WTO Ministerial Conference. Our aim is to launch a new round. It is a big challenge but prospects are encouraging. I believe that with focus and flexibility we can succeed.
The Arguments for Launching a Round
The economic argument for a new WTO round is compelling. Cutting by a third barriers to trade in agriculture, manufacturing and services would boost the world economy by $613 billion, according to one study from Michigan University. That is equivalent to adding an economy the size of Canada to the world economy. Doing away with all trade barriers would boost the world economy by nearly $1.9 trillion: the equivalent of adding two more Chinas to the world economy. All countries would gain from further multilateral liberalization.
Of course, these are only estimates. Reasonable people can quibble about the exact size of the gains from a new round. But the basic message from study after study is clear: a new round brings huge benefits to all parts of the globe.
The development argument for a round is equally compelling. 1.2 billion people are living on less than $1 a day. Another 1.6 billion are living on less than $2 a day. It is a tragedy that while our planet is blessed with sufficient resources to feed its 6 billion people, many are going hungry and many are living in the misery that poverty breeds. The first responsibility lies with governments in these poor countries. Development requires peace. It requires good governance and sound economic policies. It requires adequate investment in education and health care. It requires protection of human rights and gender equality. But poverty in all its forms is also the greatest challenge to the international community and we will be judged by our response to our most vulnerable members.
Poor countries need to grow their way out of poverty. Trade is the key engine for growth but currently developing country products face many obstacles in entering rich country markets. For example, the 49 least developed countries, representing 10.5 per cent of the world population, have less than 1 per cent of world exports. Open markets can play an important role in lifting billions of people out of abject poverty. And the most effective way to achieve these openings is by launching a new round.
There is another argument, an historical one that I have already touched on. Liberalization works. The multilateral trading system works. The last 50 years has seen unparalleled prosperity and growth and more has been done to address poverty in these last 50 years than in the previous 500. Since 1960, child death rates have halved in developing countries; malnutrition rates have declined by a third; access to safe water has improved dramatically; and the proportion of school children who do not go to school has dropped from around a half to a quarter. Let me add, experience shows, and studies confirm, that those countries that are more open to trade, like South Korea and Japan, grow faster than those that aren't. The multilateral system has proved its worth repeatedly.
Setting the Agenda for a New Round
The building blocks of a new round are almost in place. Negotiations in Geneva on liberalizing trade in agriculture and services are entering their second year. Progress so far has been good. But we urgently need to broaden the negotiating agenda beyond agriculture and services.
Why? We need a wider agenda because it creates political trade-offs. Take agriculture. The European Union and Japan have stated that they are willing to negotiate meaningfully on reducing agricultural protection. Yet agricultural liberalization is extremely sensitive politically. There is a much greater chance of reducing agricultural support in Europe and Japan if other countries are willing to make concessions in areas where Europe and Japan have demands.
A similar logic applies to implementation-related issues. Some developing countries have concerns about the burden of implementing their Uruguay-Round commitments and its perceived inequities. Modest progress has been made in addressing some of these concerns. But there is now a growing recognition that further efforts relating to past agreements require new negotiations. Instead of being a stumbling block, implementation could thus become yet another building block of a new round.
Another potential building block is manufacturing, which has been at the heart of every previous round. There are still many damaging trade barriers in manufacturing. Most of their burden falls on developing countries. In one World Bank study, it estimated that barriers to manufacturing exports account for around 70% of the total export barriers faced by developing countries and that 75% of the gains from further manufacturing liberalization would go to developing countries. Clearly, then, manufacturing has to be at the heart of a new round if it is truly to benefit developing countries.
Setting the agenda for a new round is not just about including issues. It is also about excluding some. From what I have seen, WTO members will never agree to use trade sanctions to enforce labour standards. It is a line in the sand that developing countries will not cross. They fear that such provisions could be abused for protectionist purposes. They also believe such matters are more appropriately considered in other international fora.
The environment issue is different. Our work at the WTO dovetails with environmental aspirations in potentially important ways. It is already part of our process now. In areas like agriculture and fisheries, some existing subsidies can compromise environmental quality. We should work together to address these issues. More importantly, poverty is no friend of the environment. The virtuous circle of open trade and growth contributes to poverty reduction, and the WTO has a positive role to play here too. But potential conflicts also exist, most notably when it comes to environmental quality issues that spill across national frontiers. Here we need greater cooperation among governments. The WTO cannot solve these problems alone. Punitive sanctions in the absence of international agreements are hardly the answer. It should not be impossible for governments to square their commitments at the WTO with those in MEAs.
Leaders have called for greater coherence in global governance. We should follow their instruction and advice. The social dimensions of globalization and the anxieties about the wider implications of the age of globalization are real and feed into reactionary forces that could damage the opportunities the poorer of our members have to grow and export. Most international agencies are addressing these concerns one way or another. These concerns will not go away and if the global economy stalls, they will get stronger.
Instead of approaching these concerns in an ad hoc, individual way, I believe the international agencies could share ideas and research, the better to inform their membership. This can be done without affecting or infecting the core mandates of the agencies. Information strengthens us. Believe it or not, solid practical work was done pre-Seattle and at Seattle on the social issues. I am encouraging delegations to look again at the papers prepared at that time.
Between now and July, we at the WTO shall make every effort to hammer out an agenda for a new round so Ministers can put the final touches to it in Qatar in November. We need always to keep in mind that this is about launching a round – not concluding a round. The agenda has to be broad enough to have something in it for everyone, but must exclude issues that are inappropriate or where compromise is impossible. It has to be detailed enough to be meaningful, but not so detailed that it becomes a pre-negotiation.
July ‘Reality Check’
By July, we need to have a reality check, we need to have identified and boiled down our differences to a few issues that we can put to Capitals and Ministers, so these issues can be resolved at the highest level. Some doubt the wisdom of my comments about a July reality check. This is a 'real' time when we can report to Capitals and our owners on the scope and depth of an agenda for the Ministerial Conference in Doha. Remember that Doha is a part of our process of accountability. We report to Ministers and they decide our direction for the next two years, and beyond. I believe it is right and appropriate that Trade Ministers should assemble in this manner - to hold us accountable but also to discuss their core responsibility which is trade. I hope that one day such meetings are uncontroversial. After all, health, labour and environment Ministers meet frequently.
However, let me repeat and make clear my ambition for July. July will not be the time at which we will decide to launch a round. I have seen this comment printed somewhere. Only Ministers can decide to do this. But in July we will report clearly and objectively what is possible to include in a trade negotiation, beyond our current mandated agenda of agriculture and services, which many Members believe is too limited.
Many want to add other issues such as implementation, environment, etc. We will report to colleagues in Geneva and Capitals on what looks achievable and where we can find common ground if we get the necessary political leadership. July is not too soon for such a reality check. The issues have been discussed for years. Following July, and then the summer break when Capitals will have had the time to consider and digest our reality check, there are just six Saturdays before we all catch our planes to Doha.
I can report on one consensus that Ministers have already reached. They want a manageable agenda for Doha. If we have the same differences in July as we had in Seattle, then it is most likely we will have the same result as Seattle. We are in the hands of our owners, the Members.
Time is short. July is approaching fast. I have already outlined the arguments for a round and sketched in broad terms some of the elements that might be included in the negotiations. Most trade hands will agree that it is realistic. The missing ingredient is the political will from Members to compromise. Finding it will be difficult and will require courage and commitment. But once it is found, progress can be swift.
There are many positive signs. The new US administration has made a new trade round a priority. The European Union is showing signs of flexibility. The transatlantic relationship, which is key, also seems to be improving.
Developing countries too are being more realistic. Many of them have abandoned their previous opposition to a new round. They increasingly recognise that dwelling on the perceived injustices of the past does nothing to prevent even greater injustices in future. They increasingly say that the greatest threat to their economies is not globalization, but marginalization. Let me add that any new round can only start and conclude if it addresses the real concerns and ambitions of developing countries.
All of this is good. But all WTO members still need to find the courage to go the final mile. It is all too easy to pay lip-service to the need for a new round without showing the necessary flexibility. It is all too easy to lose sight of the overwhelming national good in the defence of narrow, special interests. And it is all too easy to allow the WTO to cop the blame for national failings and to fail to explain, and explain again, the case for trade liberalization to voters.
Risks of Not Launching
There are risks in not launching. The world economy is looking vulnerable. The US economy, its motor for the past decade, is stuttering. A recession in America could export trouble to the rest of the world. An upsurge in protectionism could make things much worse. For example, if companies squeezed by falling profits convince governments that they need protection from foreign competition, the virtuous circle of trade liberalization and economic growth could all too easily become a vicious spiral of protectionism and stagnation.
Failure to launch a new round this year could also jeopardise the multilateral trading system itself. A global rules-based system based on non-discrimination could give way to a patchwork of discriminatory regional deals and even potentially hostile blocs, combined with aggressive unilateralism by the big guys. Everyone would lose from this. But the biggest losers would be the poor and the weak.
It need not come to that. The precariousness of the world economy provides an opportunity as well as a threat. The prospect of stagnant, or even shrinking, domestic markets increases the lure of new, foreign ones. This can help muster an export lobby powerful enough to overcome the entrenched interests opposing freer trade.
A growing risk of protectionism makes the need for an insurance policy that protects against it all the more pressing. For instance, car manufacturers that start to fret that their supplies of cheap foreign steel will be cut off may start to lobby vigorously for open markets.
A shared sense of vulnerability need not lead to beggar-thy-neighbour policies: it can also encourage greater co-operation among governments. That, after all, was the rationale for setting up the multilateral trading system after the protectionist nightmare of the 1930s. Anxious politicians could come to see fresh moves towards trade liberalisation as a way to tide the economy through hard times.
My concluding comments are simple and often repeated. Don't take the benefits of the WTO for granted. Don't assume that the world trading system will look after itself. Don't fight yesterday's battles and neglect tomorrow's opportunities. The world needs a new WTO round. Let's launch it in Qatar this year. Thank you.