5 July 2001
the multilateral trading system: challenges for the WTO
2001 Interlaken — Switzerland
Ladies and gentlemen,
Someone once said that change is threatening to the fearful because it means that things may get worse, but to the confident it is inspiring because the challenge exists to make things better. Woodrow Wilson also made the point that “if you want to make enemies try to change something”. I have been trying to change things all my life and I am still trying. I confidently expect to have a lot of enemies by the time this year is out.
On a more serious note this is a critical time for the multilateral trading system. The next WTO Ministerial Conference will be held in Qatar this November. It is a key opportunity to build on the huge achievements of the multilateral trading system over the past fifty years. It is an opportunity to make the WTO stronger and more open, vibrant, ready to play a fuller role in international trade relations, to keep pace with the realities of a fast changing global market-place.
It is no secret that our aim is to come away from Doha with a mandate to start broad trade negotiations. The economic argument is strong. Already 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. If we cut by a third remaining barriers to trade in agriculture, manufacturing and services, this 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. If we do away with all trade barriers, this would boost the world economy by nearly $1.9 trillion, or the equivalent of two Chinas. 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: more liberalization will bring huge benefits to all parts of the globe.
The development argument is equally compelling. Notwithstanding the advances in living standards over the last 50 years, 1.2 billion people are still 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.
Poor countries need to grow their way out of poverty. Trade is a key engine for growth but currently products of developing countries face many obstacles in entering the markets of rich countries including high tariffs, mainly in agriculture, textiles, clothing and leather. Most rich countries have higher tariffs on processed goods than on raw materials which makes it harder for developing countries to industrialize. As a study from the Tinbergen Institute points out, the potential benefits of a new round to the developing world are three times what is received each year in overseas aid. Thirty years ago, Ghana had the same living standards as South Korea. Now South Korea is in the OECD. Where policies of autarky and import substitution have singularly failed and been abandoned, countries with open markets have prospered. That is why over the past 15 years, developing country after developing country has unilaterally made liberalization the keystone of their economic policies.
Key decisions will be taken in the weeks and months ahead and the preparatory process has been underway for some time. Recently, senior officials from capitals came to Geneva and through this initiative the process has been further energized. We will have a “reality check” at the end of July when we will report clearly and objectively what is possible to include in a trade negotiation, beyond those on agriculture and services which are already underway. The agenda has to be broad enough to have something in it for everyone. It has to be detailed enough to be meaningful, but not so detailed that it becomes a pre-negotiation. I can report on one consensus that Ministers have already reached. They want a balanced agenda for Doha. If we have the same differences in July as we had in Seattle, we will have the same result as Seattle. We are in the hands of our owners, the Members. More leadership, more flexibility and generosity must be shown soon, so that all are accommodated.
Brokering agreement between 142 member governments from all sizes and stages of development is not easy, particularly as all decisions in the WTO are made by consensus. Putting to one side the evidence that greater openness domestically promotes economic growth in itself, negotiations by their very nature involve dealmaking, concessions and dividends. For Switzerland to get better market access for its exports of high-tech manufactures and financial services, for example, it may have to lower tariffs in other, more sensitive, areas.
Every country has its unique interests, priorities and concerns. Developing countries want to see perceived imbalances in previous agreements addressed. Agricultural exporting countries and many developing countries want subsidies to be reduced. For others, food safety is a top public concern.
In the context of a slowdown in the world economy, however, all countries have a common interest in creating the conditions for economic growth. According to the just released WTO Annual Report 2001, the world economy is retreating from the high growth path seen last year, dimming the prospects for world trade in 2001. The volume of merchandise trade is expected to grow by 7%, a marked reduction from the estimated 12% in 2000. The US economy, motor for the world economy is stuttering. A recession in America could export trouble to the rest of the world. An upsurge in protectionism could make things much worse. The virtuous cycle of trade liberalization and economic growth could all too easily become a vicious spiral of protectionism and stagnation.
Countries want market access, they want to do deals. But if this proves impossible at a global level, then they will look at other options. I am not suggesting for a minute that failure to engage in negotiations this year will render the WTO irrelevant. But there is a risk that the focus of attention in capitals could shift to regional deals. These can be building blocks for a more open world economy, but by their very nature they are discriminatory. Big countries have a distinct advantage because everyone wants to knock on their door leaving the poor and weak with little negotiating leverage. Even outward looking regional arrangements are a second-best option to a global rules-based system based on non-discrimination. They cannot be a substitute for multilateralism, but they can help build towards our work in Geneva. It need not come to this. The fragility of the world economy provides an opportunity as well as a threat. That is why Doha is so important.
If asked for my personal view about prospects for launching a broader set of negotiations, I would say that I am cautiously optimistic. Certainly we are in better shape now than we were this time two years ago. The atmosphere in the house has improved enormously. On substance delegations are working hard and in a positive spirit to bridge the differences that made progress in Seattle so difficult. I am seeing encouraging signs of flexibility but not enough yet.
We are working hard in other areas. We have changed our working methods so all our members have a better opportunity to participate. We have taken concrete steps to reach out more to those countries who cannot afford to have a presence in Geneva - including bringing them to Geneva for a week a year to participate in workshops and meetings and to touch base with the other delegations. We have revamped our programme of technical assistance and capacity building to least developed countries in cooperation with a number of other agencies. A number of countries have made improvements to market access for LDC products.
Many countries are also signalling their commitment to wider negotiations. The US and EC want to engage and made a strong statement of support at Göteborg last month. The OECD recently called for negotiations, as did APEC.
A major new challenge that we face, and I know that this is one familiar to business, is to put a human face on what we do, to explain ourselves better and become more open and accountable. Whereas the GATT was virtually invisible, the WTO, like big business, has become heavily identified with the demon “globalization”. We are seen as the spectre of world government, forcing change, putting profit above other considerations, undermining traditional ways of life. People feel vulnerable, threatened. Ministers often find the toughest negotiations are not with each other, but at home, with their parliaments, cabinets and party factions.
Globalization is not new, and the WTO is certainly not responsible for it. It is not a policy, it is a process that has been going on since the beginning of time. Some historians claim trade is now at about the same level it was at the turn of the last century. Closer integration between nations can bring huge opportunities in terms of access to goods and services that can't be made at home. Everyone is in favour of globalization when it allows them to get medicine for their sick children. The WTO exists to support the benefits of a more integrated world economy, to resist the possibility of hostile trading blocs. Having a framework of transparent and legally binding rules promotes stable and predictable trade flows, it gives business the legal certainty of access to foreign markets. It prevents escalating trade tensions and random government interference.
Of course, more trade means more opportunities for disputes between countries to arise and to spill over into broader political tension. But that is why our Members built a strong dispute settlement mechanism – one where panel findings cannot be vetoed by the losing party. This allows disputes to be isolated from each other and evaluated on the basis of the legally binding commitments that countries have taken. The grim alternative is dispute resolution through economic or political might.
I vividly recall at Davos earlier this year, Mr. James Schiro, CEO of PricewaterhouseCoopers USA commenting that for business in today's world transparency is not an option – it will take place because the network economy means that everyone can talk about your performance. If you don't manage it yourselves, others will manage it for you. This is as true for the WTO as it is for the business community, and we have learnt a very hard lesson in recent years. I am staggered by the amount of misinformation about this institution – we are charged with forcing privatization of public services and the deregulation of services in general – this is false. We stand accused of undermining national sovereignty – how can this be true when all decisions made in the WTO are made by our member governments on the basis of consensus? We have no security council. Every country has a veto and they are not afraid to use it. Our agreements are ratified by national parliaments.
It saddens me only the bad news seems to make the headlines – that sound bites are more appealing than substance. Little credit is given to the important role that the multilateral trading system played during the Asian financial crisis. The world economy could have been blown out of the water had countries like the United States not adhered to their multilateral commitments and withdrawn into protectionism as a consequence of a flood of cheaper imports. They kept their markets open, the American economy remained robust and the Asian economies quickly recovered.
I am glad that our stakeholders, the people, are taking a greater interest in the WTO. We should be held accountable by the taxpayer. We have a lot to be proud of. Within the constraints of our resources we are taking steps to outreach more to civil society. Tomorrow we will be having a two day symposium for non-governmental organizations to discuss in-depth the substantive concerns of civil society. Gone are the days when NGOs could only “infiltrate” WTO meetings disguised as journalists. At Seattle just under 700 NGOs took part in the event and were able to participate in the opening and closing plenary sessions. In conjunction with the IPU we held a meeting with parliamentarians from 75 countries last month. We are looking to develop stronger ties with Universities. We have substantial informal contact with business. But ninety percent of the responsibility lies with Member Governments to explain the benefits of trade liberalization – they own this institution, they make all the decisions. Frankly I believe that many are not doing enough.
Business too has not been forceful enough in pushing for a new round. That, in some ways, is understandable. A round can seem nebulous and distant, hard to measure and harder to achieve. Much like an effective domestic legal system, the WTO's impact on a business's bottom line may not be immediately obvious. All of this is true, but it does not alter the inescapable fact that world trade rules are the backbone of a globalizing economy. They benefit multinationals and the millions of people in rich and poor countries who work for them by enabling them to conduct business internationally. If the WTO is to remain relevant to the fast moving global market-place it requires changing the legally binding commitments of Members. The only way to do this is through negotiations.
You have a big stake in this game, as do your employees and your customers. It is tempting to take the system for granted. It is easy to assume it will look after itself. But that is to run a big risk. We need your critical support in capitals to give strength to progressive talks that can see beyond the next opinion poll.