Distinguished guests,
Ladies and gentlemen,

It gives me great pleasure to address you on this occasion and to celebrate with you a little more than a decade of Chinese Taipei’s membership of the WTO. Even if I could not be with you in person, modern technologies have made it “virtually” possible to have a dialogue with you.

The world economy has changed in this decade and so has Chinese Taipei. Today, I would like to share with you the key features of the last decade as well as the challenges ahead for Chinese Taipei and for the global trading system.

Between 2001 and 2011, Chinese Taipei’s GDP growth in real terms averaged a steady 4.4 per cent, and in 2011 you ranked 17th in world merchandise exports. That growth performance over the last decade exceeds the world average, which was below 4 per cent. 

Chinese Taipei’s output growth performance only tells a partial story; it also has enjoyed a consistently strong external investment record. Inward investment has grown steadily over the last 20 years. 

As is well known, of course, Chinese Taipei has done particularly well in information technology products, being ranked 5th in the world and accounting for over 7 per cent of global exports and doing even better in niches such as semi-conductors where it ranks 3rd world exporter.

These have been good years and Chinese Taipei has much to be proud of in terms of its economic achievements.

Let me now share with you my observations regarding the changing patterns of world trade in the past few decades and their implications for multilateral trade policy-making.

 

The changing shape of trade

Growing global interdependency

On a global scale, international trade has been growing much faster than output for a long time now, fostering a steady increase in inter-dependence among nations.

In just the last ten years, the world trade/GDP ratio — an indicator of changing dependency on trade — rose from 24 per cent to 30 per cent. This trend, of course, has far-reaching implications for international co-operation which is being tested in trade as it is in climate change or in the macro-economic area.

The rise of developing and emerging economies

Against a background of growing economic inter-dependency globally, the global trading system has seen two major changes in recent years.

The first relates to the geographical distribution of trade, which is of course linked to changing patterns of economic activity more broadly.

The share of advanced economies in world GDP fell from around 80 per cent to 65 per cent in the first decade of the 21st century. If we were to use purchasing power parity estimates — a more accurate reflection of relative economic size — developing and emerging economies now account for around half of world income. The share of developed economies in world merchandise exports fell from 70 per cent to 53 per cent, once again reflecting strong growth in the share of developing and emerging economies.

The world is becoming more multi-polar and an increasing number of countries have a larger say in global affairs. With an increasing voice comes increasing responsibility. And for those that are learning to share their influence more with other emerging powers comes the need to listen and to negotiate.  These challenges call for leadership, statesmanship and vision. 

The changing structure of trade: production sharing along value chains

The second point I referred to a moment ago is that trade composition has changed to include a much larger share of intermediate goods in total trade. In the case of Chinese Taipei, the share of intermediary goods in its exports and imports is around 70 per cent. This, of course, is merely a statistical reflection of how a large part of global production is organized internationally. 

In contrast to the older generation of production arrangements, where products were frequently made in single locations from a combination of imported and local inputs, production today spreads across multiple jurisdictions. Each country on the supply chain adds some value as inputs cross successive frontiers until the point of final assembly. It is because of this that in the last ten years the import content of exports has moved from 20 per cent to around 40 per cent.

The fact that imports are more frequently embedded in exports changes the nature of inter-dependency in a fundamental way. The “them and us” of trade relations in the past has been replaced by the “we” of today. 

Moreover, if we measure trade in gross rather than net terms, as is the tradition, we obtain a distorted picture of bilateral trade relationships. What looks like an export of a single country is really the sum of value-added contributions from a range of sources. We need to measure trade in value-added terms, as we do with national income.

 

The policy ramifications

Looking at trade this way has significant implications for how we think about and make trade policy. Reliance on international production chains forges a close relationship between trade policy and investment policy — these are increasingly different sides of the same coin.  

The content and the relative importance of trade policy instruments have changed considerably in recent years. The traditional instrument of trade policy — the tariff — has diminished in its relative significance. While tariffs still remain relatively high in sectors such as agriculture and labour-intensive manufactures, average duty rates have fallen sharply. This has given more importance to non-tariff measures in terms of their effects on trade. The business community and traders worry more than before about the possible trade-restricting effects of regulations and standards and of the way they are administered. 

On the one hand, WTO members have legitimate reasons to achieve various public policy imperatives through the application of standards and domestic regulations. But on the other hand, we should ensure that these measures do not become unnecessary obstacles to trade, and that there is coherence and compatibility when it comes to differing standards and regulatory approaches of different free trade agreements. 

In fact, cost-augmenting barriers to trade are more disruptive along supply chains because they are carried from jurisdiction to jurisdiction as intermediate goods and services cross frontiers, with a multiplicative effect on production costs. The same argument applies to administrative procedures associated with doing business, which is why so many governments have seen advantages in reaching a deal on trade facilitation in the Doha Development Round. This is also a reason why the Aid for Trade initiative is so important for poorer countries in Africa and parts of Asia and Latin America that want to engage more in trade and find a place in supply chains. And here I would like to thank Chinese Taipei for its support to the Aid for Trade initiative.

These, then, are some of the new realities of international trade. We need to ask ourselves whether the current structure of trade rules is adequate for the task of managing international trade relations in a harmonious and mutually advantageous manner. 

We know, for example, that services constitute a large part of the value embedded in supply chains, usually well over half of the total. 

I have already mentioned that the supply chain structure creates a symbiotic relationship between trade and investment — trade and investment can no longer be thought of merely as alternative means of accessing a market. 

Today, we have widely differing and somewhat unconnected policy structures at the international level for dealing with merchandise trade, services trade and investment policy. Does this make sense? Should we not seek to construct greater coherence among policy regimes that are so intertwined in terms of their impact on economic outcomes? These are questions upon which more reflection is needed.

Linked to this question of policy coherence is the rise of preferential trade agreements (PTAs). PTAs have bloomed in recent years. Many may have been established for reasons that go beyond what we deal with in the WTO. Few of them, it seems to me, have been established with the intent to shut others out. A motivation has often been to move further and faster than has been possible in the WTO. 

Nevertheless, it would be hard to argue that the proliferation of PTAs reflects the most efficient framework within which to do business and garner the full benefits of specialization through trade. Present and potential future regulatory divergence among PTAs, complex rules of origin and other administrative burdens associated with navigating multiple agreements surely add to the costs and degree of uncertainty involved in doing business across frontiers. These effects are likely to be accentuated in a world of supply chain production, and they will doubtless take a heavier toll on smaller enterprises — the SMEs — than on larger ones. It seems to me that this is something we could address through an exercise of multilateralizing regionalism and that the WTO could contribute here.

 

The state of the world economy and the challenges this brings

We are living in difficult economic times. Low or negative growth will probably dominate the scene in the industrial economies for a while to come.  Emerging and developing economies face their own challenges and will also have to contend with dampened demand in their major markets. Protectionism is on the rise. Trade-restrictive measures today affect 3 per cent of international trade, according to our latest monitoring report. This is equivalent to the trade volume of the whole African continent or the sum of Indian and Brazilian trade in 2011.

The WTO is currently forecasting a global export growth rate of 3.7 per cent for 2011, well below the average trend of the last decade.  

In this volatile environment, it is vital that governments resist the short-term temptation and political pressure to take measures that can only harm national and global economic prospects in the time ahead.  

 

Where is the WTO in all this?

For the last decade, governments have tried but not succeeded to complete the Doha Round. Discussions are continuing in Geneva on how to build up momentum for progress, especially in some areas that might offer greater promise for progress. The economic implications of success here are important, not least because of the confidence-building signal that would be given. I believe our recent success in expanding the Government Procurement Agreement is an illustration of this. I urge governments to persevere in their efforts to generate fresh results. 

At the same time, it is very important to bear in mind that the WTO is not just the Doha Round. However important the Doha Round is — and it is — it is the WTO that is much more important still. The WTO is an institution, not just a negotiation, and as such it carries an enormous responsibility for ensuring the orderly conduct of trade relations among its membership. It is for the membership to ensure that they nurture the WTO, defend it, use it for constructive purposes of cooperation and ensure that it remains a vibrant institution capable of continuing to serve the world economy as successfully as it has in the past.

I should like to end by commending Chinese Taipei for its unfailing support of the WTO and to wish you well in these challenging times.

Thank you very much.