Minister Yoon,
Ladies and Gentlemen,
It's good to be back here in Seoul. Good to be back with you at a time
when we all need to think hard about how to cope with the crisis,
starting with remembering the lessons of the past.
External trade has contributed to Korea's economic success
Only 50 years ago Korea was among the world's poorest countries, with a
GDP per capita less than that of Senegal and Bolivia. Lacking vast
quantities of useful arable land and an abundance of natural resources,
the South Korean government embarked on a programme of trade-driven
growth as a means of development and poverty alleviation. The results
have been little short of amazing. Over the last 50 years, South Korea
has risen from an impoverished and struggling nation to become the
world's largest builder of ships, the fifth largest producer of
automobiles and the sixth largest producer of steel.
In all but four of the last 20 years, South Korea's exports have
increased by 10 per cent or more. Today South Korea is the 11th largest
exporter in the world and the 13th largest importer. Korea's
international success has not been limited to trade in goods. The
services sector, which employs 63 per cent of the workforce, has posted
notable export success as well. Needless to say, trade has been a
profoundly important contributor to South Korea's economic expansion.
The indispensable role of the multilateral trading system
Korea's economic boom has its roots in a highly educated, productive and
innovative workforce and proper government policies. But the country's
international commercial success has also been underpinned by a global
trading system which has gradually opened markets inside a system of
internationally agreed rules. These rules have provided South Korean
exporters and importers with a transparent and predictable framework
within which to trade.
Even in difficult times, the global trading system overseen by the World
Trade Organization provided Korea with an insurance policy that foreign
markets would remain open to its exports.
In 1998, the Asian financial crisis shook South Korea and much of the
rest of the Pacific Rim. GDP contracted by nearly 7 per cent. But that
same year exports grew by 15 per cent and by nearly 20 per cent in 1999
and again in 2000. The result was that South Korea pulled itself out of
the recession and was posting good growth of 10 per cent only one year
after its deepest recession in memory.
The world economy in difficulty
Today we are experiencing the worst economic recession since World War
II. No country is immune from this crisis. Trade is shrinking; growth is
declining and unemployment is on the rise.
In this region, Korea's economy is estimated to contract by 2 per cent,
with 200,000 jobs being lost. Japan 's economy has witnessed a 3 per
cent fall of GDP in the last three months of 2008, a decline equivalent
to an annualised fall of 13 per cent, the deepest drop since 1974. A
Chinese government report has shown that about 20 million migrant
workers have lost their jobs since last September. I was in Cambodia at
the end of November last year and learnt that 60 per cent of textiles
and clothing companies, employing 300,000 in that country, do not have
orders beyond this month as a result of shrinking demand in the US
market. Many countries around the world are all experiencing similar
difficulties.
The future is not clear and it is still early to judge whether we are at
the bottom of this recession, or this is just a beginning. But one thing
is clear: the depth and scope of the crisis will be a function of the
capacity of individual countries to come to global joint action and to
re-inject confidence in our economic and social systems.
Rebuild confidence and fight against protectionism
Confidence is key in time of crisis. But where will the confidence come
from?
It should come from the belief that the financial system has been
cleaned up and is back to work. This requires focusing on cleaning
banks’ balance sheets. This is a matter of urgency even if resisted by
banks' shareholders. Until and unless this happens, there is no turning
point in sight.
It should come from the belief that a serious attempt is being made at
filling the hole of international regulations of finance in order to
avoid future accidents of this type.
It should come from the belief that individual stimulus packages are
closely knitted together into a global joint effort.
It should come from the belief that the weakest and the poorest in our
countries and continents are taken care of in policy responses.
It should come from the belief that leaders of major economies can work
together in full coordination and trust to agree on common solutions.
The confidence should finally come from the belief that the world trade
environment is not deteriorating, that isolationist pressures are
contained.
Global leaders have the collective responsibility to provide confidence
to the people, not only their own people, but the people of the world.
It is encouraging that world leaders have seen the potential risks
ahead. The G20 Leaders Summit in Washington last November underscored
the critical importance of rejecting protectionism and not turning
inward in times of financial uncertainty. Leaders of economies
representing 90 per centt of the world's GDP – including President Lee -
agreed to refrain from raising new barriers to investment or trade, or
from imposing new export restrictions over the next 12 months. They also
called for a rapid conclusion of the WTO Doha Round.
The same calls were echoed by seven major industrial economies during
their meeting in Rome two weeks ago.
The next G20 Summit in London will be a test of the capacity of major
economies to work together, hand in hand, in searching for solutions to
pull the world economy out of a deeper recession. It will be a test of
political will: of their ability to transform political will into
action. It will also be a test of whether current global mechanisms are
capable of dealing with global challenges.
Policy responses against protectionism
Korea knows how important keeping trade open is to growth and economic
development. Seoul is therefore a good place to discuss what the
international community can do when faced with isolationist tendencies.
The first response is to complete the WTO Doha Round negotiations as
quickly as possible. The Doha Round is the best insurance policy against
protectionist moves. Tariffs applied on trade today could double if they
were raised to existing bound ceilings. With what is currently on the
table in the Doha Round, tariff ceilings in the WTO would be halved. The
same is true for rich country agriculture subsidies whose ceilings would
be reduced between 70 per cent – 80 per cent with the current deal on
the table. The Doha Round negotiation is a long and difficult journey.
We are not there yet, but we are not far from the final destination. The
last mile is understandably a difficult one, but it deserves our utmost
efforts.
Secondly, governments should resist the temptation to raise trade
barriers, which today appear with many “faces”. Sometimes it means
raising tariffs, applying non-tariff barriers, abusing trade remedies
such as anti-dumping, doling out subsidy packages or imposing “buy
local” conditions. Rejecting these moves is not a question of ideology.
Rejecting isolationist pressures is today a matter of self-interest.
Does anyone believe that they can protect themselves without the others
doing the same? Beggar-thy-neighbour policies bear the risk of prompting
retaliation by other countries and driving down the overall level of
trade - thus destroying output and jobs around the world.
I would like to quote Confucius who reminded his students 2,500 years
ago: “己所不欲,勿施于人ji suo bu yu, wu shu yu ren”. The Ethic of
Reciprocity: Treat others as you would like to be treated.
The WTO, with its trade policy reviews, can play a useful role in
helping WTO members resist isolationist pressures through peer-review.
This is why we have set up a specific monitoring mechanism to track,
review and discuss trade policy developments during the crisis.
Thirdly, we must ensure the availability and affordability of import and
export finance. Trade has decreased as a result of a drop in demand, but
it is also the result of lack of trade finance. At a meeting with
providers of trade finance hosted by the WTO last November, the
shortfall in credit for trade was estimated at US$ 25 billion. The
response initially focused on providing guarantees for trade credit.
Thus, the World Bank’s IFC announced a tripling of the ceiling of its
trade finance guarantees. Regional Development Banks, including the
Asian Development Bank, also stepped in. However, three months later the
problem persists and a lack of liquidity remains.
The WTO is working with the World Bank and with the IMF to try and
create a liquidity pool to address this constraint. I hope that
countries that have the capacity to do so can contribute to this
initiative which should be set up without delay.
Finally, the international community should not forget their aid pledges
in favour of the poorest countries, especially now that the crisis is
also hitting them hard. Korea has been a generous contributor to Aid for
Trade and I am confident it will continue to do so in the coming years.
Concluding remarks
The world is changing. We live in an era of new technology and
innovation, enjoying faster speed of communication and lower cost of
transportation. The methods of global production have also changed in
that most manufactures are no longer made solely in one country.
The world's geopolitics are also changing. The past 30 years have
witnessed the rise of Asia, both in economic and political terms.
We are also faced with more global issues: whether it is global warming,
energy shortages, world food supply, nuclear proliferation or even outer
space security. None of these can be solved by one country or a small
group of countries. We need collective efforts by all countries.
Today's economic crisis is another item in this long list. In facing
this challenge, trade can be part of the solution. But for this to
happen, we need joint actions in resisting isolationism. This is the
collective responsibility of all countries, big or small, strong or
weak. Maintaining an open, fair and transparent global trading
environment is vital for the economic recovery. Completing the Doha
Round negotiations is a low-hanging fruit within our reach. It is the
easiest available stimulus for developing countries who cannot afford
expensive bail-outs. It can be done, it should be done and I am
confident it will be done.
As one of the world's leading traders and the host of the G20 Summit
next year, Korea can play an important role in the process and I know by
experience that I can count on your support.
I thank you for your attention.
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