WTO NEWS: SPEECHES DG PASCAL LAMY
Washington, United States, 17 February 2006
“The Doha Development Agenda: Sweet Dreams or Slip Slidin’Away?”
International Institute of Economics
Ladies and gentlemen,
It is a pleasure to be back in the US to share with you some thoughts on the meanders of the Doha Development Agenda (DDA) negotiations. And what better place to do this than in the good hands of Fred Bergsten, who was recently ranked one of the ten people who can change your life. So, Fred, anything you can do to change my life by making sure these negotiations unfold in time would just be great!
In coming to Washington, I could not help but remember that the multilateral trading system, which has contributed so much to the tremendous expansion of the global economy since its inception in the late 1940s, has its roots here in this country.
It was here that the People of the United States gave the US Congress the authority to regulate commerce with foreign nations. And it is precisely an ambitious treaty to regulate multilateral trade what brings us today. It is interesting to note that this same authority is today determining the calendar of our negotiations which will need to conclude by the end of 2006 to allow the US Administration to act within the current US fast track authority.
America's trade policymakers believed then that a rules-based, non-discriminatory multilateral trading system was indispensable for sustainable growth and development, prosperity, peace and global security has stood the test of time. In the last two decades, the growth in world trade has consistently outpaced that of world production confirming the interdependence of countries and the growing importance of trade to countries, such as China, European countries, Japan and even the United States. Today the US accounts for around a quarter of world trade and is a world leader in trade in goods and services. It therefore has a lot at stake in a healthy multilateral trading system.
The multilateral trading system could not have achieved these impressive results without American leadership. The system is at its best when America engages and leads. I am encouraged by the commitment of the United States to continue its leadership role at this critical juncture.
Everywhere I go I know I have to make my case and explain to politicians why countries should invest political capital and resources in the multilateral trading system. The WTO has become a scapegoat for many; in industrial countries, it is blamed for the stagnation of wages and the loss of jobs to developing countries, while in developing countries, it is accused of promoting liberalization for the benefit of multinational companies. If either assertion were true, then the WTO would have very good friends in either the developed world or in the developing world. Yet it appears that is not the case. As we say in trade negotiations, whenever an agreement manages to draw criticism from all countries, it means that it is a good agreement. I am certain this applies to the WTO.
The US has a lot at stake at the WTO. We all do. Our organization provides a clear, transparent and predictable environment in which trade can flourish. It provides perhaps the most modern system for resolving international disputes. No longer does the law of the jungle prevail in international commercial disputes. For a country such as the US, with such a huge economic interdependence with the rest of the world, stability is crucial.
Now countries have a unique opportunity to adapt the rules that govern the multilateral trading system by adapting them to the realities of the 21 century. This is a crucial reason why we must bring the DDA to a successful conclusion.
But where are we today? Are we on the verge of a collapse of the multilateral trading system as many academics have written recently? are we witnessing the end of and era and taking a sharp bend into bilateralism? Are we moving closer to a “cheap round”? Or are we just witnessing the normal positioning that takes place prior to the last lap in the race?
Many of you are perplexed by these questions and we know they are the subject of many bets. If I had to, today I would go for a triple bet:
First, a “cheap round” is not an option. Even if we were just to keep what we have on the table today we would have gone beyond what was done in the Uruguay Round 10 years ago, well beyond, in fact. In agriculture alone the elimination of export subsidies and the reductions in domestic subsidies already on the table go much further than any previous round. The technology to cut tariffs on industrial or agricultural products would yield results higher than in previous rounds and the commitments on trade facilitation have the potential to boost trade more than any previous administrative commitments. And these are just a few examples of what is on the table already. And I am not saying that we should settle for this. We should aim higher and maintain the ambition that took us where we are today.
Second, even if the round would not yield everything we want, the WTO is much more than the Round; it comprises a vast body of laws and regulations which we will have to continue to apply. And it has a dispute settlement which will continue to ensure that the rules of the game are respected. True, the judiciary part of the WTO is gaining weight over the legislative, and for many of us this is problematic. But it is up to the legislator, that is, all WTO members to address this potential problem by updating the WTO rules book. Furthermore, the WTO will continue to act as custodian of the multilateral trade laws.
Third, there is plenty of bilateral activity around the world but frankly, you are well placed to know that very few of the so-called free trade agreements are really about freeing trade or creating new trading opportunities. And I still have to see a bilateral agreement that disciplines agricultural or fishery subsidies. Nor is business very encouraged by the proliferation of spaghetti bowls of rules of origin, certificates or standards.
So, is it “Sweet Dreams” or “Slip Slidin’Away? The only way we can be
sure it is the former is if we collectively “Walk the Line”.
Since the beginning of the year Geneva is again working full speed ahead. Building on the modest success in Hong Kong, members are discussing with each other again and for the first time they are testing numbers, comparing notes, exploring hypothesis and drafting language. In sum, working to narrow the gaps that still exist in many of the areas and in particular on agriculture and industrial products.
And let me also tell you the widest shared secret in Geneva: all key players know they will have to move. The EU knows it will have to move on agriculture market access, the US knows it will have to move on agriculture domestic support and emerging countries like Brazil, India or South Africa know they will have to move on industrial tariffs and services. And the good thing is that all of them have said they will move “in concert”. All this makes me believe we could soon start to see the shape of a final deal.
Let me start with agriculture. Although it accounts for less than
10 per cent of world trade, it holds the key to unblocking and
revitalizing the negotiations and ensuring substantive progress across
the board. Why? Surely because 70% of the world poor live in rural areas and that negotiators when launching these talks agreed to
frontload development. Not easy, of course, not the least because at the
WTO one could say that there are two schools of thought on how the
agriculture sector should be treated. Some countries believe that the
agricultural sector is no different from other sectors of world trade
and should be subjected to disciplines applied in these sectors,
including the prohibition of subsidies to farmers. Others believe that
agriculture is a distinct sector which governments should be able to
support for a variety of reasons, including preserving family farming or
the environment. The EU and the US find themselves in the second
category. But even in this second group, civil society and tax payers
are questioning policies that may preserve agriculture protection at the
expense of other countries, in particular poor developing countries.
Also, public opinion seems to be in favour of support for the
preservation of rural life or the environment, or support for those
small farmers with less comparative advantages, rather than lavish
government spending that benefits a handful of large farmers or farming
companies. In short, what the public points out to — perhaps without
knowing — is a good, non-trade distorting farm policy.
This issue is at the heart of the discussions that I hear taking place in this country around the new Farm Bill. I am certainly not in a position to provide any advice on how the US should shape the new Farm Bill. This should be discussed by the US for the US sake. But its is understandable that farmers in the US are demanding stability, security, predictability for their activities and for the government subsidies they receive, which has been subject to a number of WTO disputes lately, including the one on cotton which still has to be fully implemented. It is therefore clear that a new Farm Bill that is WTO water tight and passes the test of WTO consistency will bring the necessary stability for American farmers and ranchers. A stable Farm Bill which is WTO consistent is surely in the interest of the United States. And given the experience and shrewdness of US negotiators, I would fully expect them to try to trade this against concessions in this or other areas in the WTO.
One example is domestic subsidies, where the US has already secured in the negotiation that the reduction in trade distorting subsidies will be bigger for the EU than for the US, thus providing for a more level playing field between the two. Agreement was also reached on phasing out all forms of export subsidies by 2013, with a substantial part of such reduction to be made by 2010. On market access, all members reaffirmed the objective of achieving substantial cuts in tariffs with specific protection for fragile developing countries.
We can now build on the elements to achieve an ambitious result in agriculture, but the road ahead is still full of potholes. There are still divergences in Members' positions on three key issues. In the area of market access, the US, G-20 and the Cairns Group would like to see substantial results. They regard the EU's offer to reduce tariffs by between 35 and 60 per cent as inadequate. They want developed countries to be able to designate only a limited per cent of their tariff lines as sensitive products, as opposed to the 8 per cent suggested by the EU. It is clear that the EU and the G-10 are on the frontline on this issue and that they will have to move. In the area of domestic subsidies, while welcoming the proposal tabled by the US in October 2005, many Members have noted that its content on the blue box and de minimis support are timid and need to be improved. These members are concerned about the possibility that the US may be able to continue using trade distorting subsidies, such as counter cyclical payments which have already been declared inconsistent with WTO rules in the cotton case, by simply shifting them to a different “box”. It is also clear therefore that if the negotiations are to progress, the US will have to move on domestic support, including on cotton, where a number of African countries have taken the lead. On export competition — now that export subsidies are on their way out, the focus is on disciplines on food aid, where the US has reservations against the EU's proposal that they should be in grant form only, on state trading enterprises and on export credits.
With a sense of determination and purpose, it should be possible to resolve these differences and pave the way for the conclusion of the DDA negotiations by the end of this year. Needless to say, a substantial result in agriculture would benefit not only the US and the EU, but many countries, particularly developing countries which can, in turn, use their increased export earnings to import goods and services needed in their development process from the US and other developed countries.
Another key area in these talks is slashing tariffs on industrial
products (NAMA in our jargon), around 90% of world merchandise trade.
For the first time we have agreed to reduce industrial tariffs according
to a formula applying greater cuts to higher tariffs, which all
specialists will tell you is a much more powerful technology to reduce
tariffs than averages or request and offer, which were used in previous
rounds. We have also agreed that there would be parallelism between the
level of ambition in the agriculture and NAMA negotiations.
Being the world number two exporter, the US has very high ambition in the NAMA negotiations, including substantially improved market access in large emerging developing countries. It wants increased market access for products in which US exporters have interest, particularly in the twenty-three leading markets identified by the National Association of Manufacturers.
The US stands to gain from an ambitious result in the NAMA negotiations. While the markets in developed countries have matured to some extent, those in developing countries, such as China, India and Brazil are expanding at a very fast pace. Take US exports to China which have grown tremendously since 2000, increasing by 28% in 2003 and 22% in 2004. Given the relatively high level of tariffs of developing countries, a substantial reduction of their tariffs should enable American companies to increase their exports to these countries.
We now need to agree on numbers for cuts and for the limited exceptions that developing country would be able to make. Discussions among members to test numbers and run simulations are necessary to find a common landing strip.
As the largest exporter of services in the world, the US stands to reap
enormous benefits if WTO Members offer substantial access to their
markets. In Hong Kong we opened the way for plurilateral negotiations
among Members in a bid to improve the quality of offers and ensure new
market access opportunities for foreign service providers. We also
reaffirmed the right of governments to monitor and regulate foreign
service providers in order to ensure that they operate in accordance
with the policy objectives of a country.
A number of developing countries have conditioned access to their markets on the degree of market opening for their agriculture products and also the improvement by developed countries of their offers under mode 4 — the temporary movement of professionals to deliver services abroad. I stress temporary because this issue is often, and mistakenly, mixed with immigration, including in this country.
I am sure that the US would continue to exercise leadership in the services negotiations and get countries to make significant offers. It need not be stressed that commitments under the GATS could help countries to attract foreign direct investment into certain critical sectors of their economies, including the telecommunications, financial services and tourism sectors.
With respect to the negotiations on rules, to which I know the US attaches great importance, a detailed work programme has already been established. The US is keen on promoting greater transparency and due process in antidumping investigations. I also know the US is against tightening too much the rules in the anti-dumping agreement, believing that changes should not unduly restrict the right of countries to respond to unfair trading practices. While there are deep political sensitivities surrounding this issue, I believe that in the medium to long term, it would be in the interest of all countries to accept disciplines which ensure that anti-dumping duties are not abused or unduly imposed. Increasingly, many countries are making use of trade remedy instruments and it is important for the US to ensure that its market access is not negated through abuse of such instruments. A fact often overlooked is that the US has become one of the main targets of antidumping duties in markets where it exports. Since the entry into force of the WTO, there have been more than 150 antidumping investigations against US products, and more than 80 definitive measures adopted against US exports. It is clear that the US also has an offensive interest in this area. The US has also been a leading and effective advocate of the tighter disciplines on fisheries subsidies. It is important that this key environmental objective of the round advances over the coming weeks.
Finally let's not forget that the Doha Round is a Development Round. I've said that repeatedly, but I've also stressed that the largest gains to developing countries will accrue from the market access negotiations in agriculture, industrial products and services. At Hong Kong, the US and other developed countries agreed to grant duty-free, quota-free access to LDC products falling under 97 per cent of their tariff lines. It is important that we now work on defining the specific products. To further demonstrate their commitment to the development dimension, Members also pledged to ensure a solid Aid for Trade package that would assist developing countries to build supply-side capacity enabling them to better benefit from the multilateral trading system.
It is clear from the above that there is a lot to be done if Members are
to conclude the Round by the end of this year. The workload is
formidable but doable, provided all members are ready to apply the
necessary political energy. The challenge is both technical and
political. It is about leadership, about compromises and countries
recognizing their common interest in success and the collective costs of
failure. As in other Rounds, US leadership is indispensable.
At the end of the day all countries stand to gain from a strengthened multilateral trading system — both developed and developing countries since trade is not a zero-sum game. The responsibility to make this Round a success is a shared responsibility.
It may sound that a lot is requested from the US in this Round. But the US stands to gain a lot from it too. The US is the world's richest economy and the principal architect of the multilateral trading system. It can not abandon its own creation. Power brings along responsibilities, but also huge benefits for the US economy. Developing countries are growing rapidly and their integration into the world economy would create new market opportunities for American companies and create high-paying jobs in the US which ensure its continued prosperity. The WTO needs US' leadership and active participation in order to strengthen the multilateral trading system for the benefit of all countries.
This is why, following the conversations I have had in the last two days, most of which in the Hill, I am confident that your representatives and negotiators are ready to stay the course.