WTO NEWS: SPEECHES DG PASCAL LAMY
27 September 2006
Lamy calls for debate on ‘flexibility’ and what makes good ‘policy space’
The increase in South-South trade means developing countries’ policies are increasingly affecting each other, and therefore calls for flexibility to preserve “policy space” need to be thought through carefully, Director-General Pascal Lamy said on 27 September 2006. He was addressing the 53rd Session of the UNCTAD Trade and Development Board. This is what he said:
Opening Remarks by Mr. Pascal Lamy, WTO Director-General
53 rd session of the UNCTAD Trade and Development Board meeting
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Mr President
Secretary General Dr Supachai
Excellencies and gentlemen,
It is a pleasure to be back here at this session of the Trade and
Development Board. A lot has happened since I was here last year,
although not as much as I would have hoped, and I look forward to our
discussions this morning.
I propose to focus my intervention this morning primarily on the issues
relating to trade policy that are raised in this year's UNCTAD Trade and
Development Report that is before you, before moving on to the current
state of the WTO negotiations under the Doha Development Agenda.
Let me start by saying that I share the views expressed in the Report
about the contribution that trade can make to development and to poverty
alleviation. Trade is today a crucial ingredient in a policy mix which
must nevertheless contain many other ingredients to achieve successfully
this objective. This means, no blind adherence to free trade. But this
also means no blind adherence to governments doing pretty much anything
and certainly no blind adherence protectionism. If trade opening is not
sufficient, it remains a necessary ingredient. This is the core of what
I have called the “Geneva Consensus”.
Market access for developing countries is therefore an important
ingredient to this policy mix. Progress has been made over the years in
improving conditions of access in developed country markets but it is
clear that much remains to be done in the areas of agriculture and
labour-intensive manufactured products. This, of course, is an important
part of the Doha mandate, where a successful completion of the
negotiations will bring real progress in reducing tariffs, addressing
tariff peaks and tariff escalation, and making substantial inroads into
trade distorting subsidies in agriculture. It is gratifying, therefore,
to see Kofi Annan's appeal in the foreword to the Report for the
necessary determination and political courage to bring the Round to a
successful closure.
The Report rightly notes that we continue to face a challenge in
ensuring that non-tariff measures and barriers to trade do not simply
negate progress made on the tariff front. The Report singles out
anti-dumping actions affecting the exports of developing countries. But
I would point out that this is not just a North-South issue. Developing
countries have become the most frequent users of anti-dumping in recent
years, not only against developed countries but also — and primarily —
against other developing countries.
Indeed, while developed countries still provide the lion's share of
market opportunities for developing country exports, this situation is
changing. South-South trade has been more dynamic than North-South trade
for some years now, and its is therefore clear that the trade policies
of developing countries also affect one another's trade prospects and
opportunities.
An important part of this years' report is devoted to the issues of
policy autonomy or policy space. The basic argument which UNCTAD is
making is that international commitments in the finance or trade fields
are preventing developing countries from realizing their true
development potential, in that governments are prevented from
intervening in the economy in ways that are essential to progress.
When using this argument, I believe it is important to make the case not
just for policy space but for “good policy” space. We need to make a
convincing case as to why a particular policy is needed, basing
ourselves on the facts.
Take the example of the TRIMs Agreement. I believe it is more than
debatable that the domestic value-added content of exports would
increase if performance requirements were permitted. Are we sure that
developing countries that tried to impose performance requirements would
easily attract foreign investment, and if so, at what price in terms of
other FDI incentives? Another question is whether the objectives of
TRIMS could not be achieved more effectively, at least in efficiency
terms, through the tariff structure.
Another example is the Agreement on Subsidies and Countervailing
Measures, which is again accused of impinging on national rulemaking
authority. The alternative, it seems, would be to have no subsidy
disciplines, which raises an intriguing question. Do we want to argue
that the best contribution the WTO can make to development is to ensure
that developing countries have no obligations in this area? Or that
export subsidies should be allowed?
Obviously, the WTO legislators — its Members — while agreeing on
subdsidies rules, have also ensured the necessary flexibilities for
Least Developed Countries, and in the case of export subsidies also for
countries with a per capita GDP of less than $1000. Therefore, all LDCs
and a large number of developing countries are exempt from the
prohibition of export subsidies.
The argument of policy space is also often made regarding Industrial
Tariffs. The Report argues for “flexibility” in tariff commitments on
account of: i) revenue needs; ii) greater difficulty in developing
countries to raise revenue for subsidization: and iii) the desirability
of high variance in tariff levels in order to tailor protection levels
in the context of an industrial policy. Developing countries could thus
subscribe to a fairly low overall average tariff level, with plenty of
autonomy to raise and lower individual rates. These recommendations go
to the heart of the issue of what role governments can play in
industrial development and diversification. Again, honest people may
disagree, especially when it comes to the question of the degree of
protection to be granted and the ability of governments to manage such
policies effectively. This is fertile ground for debate, a debate which
I believe must be engaged, looking at the facts.
Looking at the facts means looking at the difference between bound rates
and applied rates. In the case of Egypt, average bound rates on
industrial goods stand at 30%, whereas the applied stand at 12%. In the
case of Thailand, bound rates stand at 22% whereas applied stand at 10%
. But there are other cases: China's bound and applied rates stand at
9%. If one takes into account that the tariff negotiations are based on
the bound rates, it is clear that calls for policy space would mean very
different things for different countries.
Looking at the facts is also needed regarding the relationship between
tariffs and fiscal revenue. It is mostly LDCs in Africa and Caribbean
countries where tariff revenues are a significant proportion of fiscal
revenues. But in the current negotiations, many of these countries are
exempted from any cuts on bound tariffs. For other developing countries,
such as China, Brazil, Argentina, Indonesia, South Africa, Republic of
Korea, Turkey, less than 5 per cent of tax revenues come from tariffs.
India is an exception with about 15 per cent of fiscal revenues being
generated by tariffs. But this has not prevented India from reducing
aggressively its tariffs, year after year.
We need hard analysis that holds up to critical examination. We need
specificity. I believe UNCTAD is well placed to contribute to such
efforts, and it would be a pity to miss such opportunities.
Finally, on the question of why countries — even small countries that
cannot influence their terms of trade — might find it in their interests
to engage in international commitments, I should like to make two
considerations. First, even smaller countries with little or no
influence on world markets can influence negotiated outcomes through
participation. The opt-out option simply creates space for others to do
as they wish, and offer only what suits them. There is then no dealing,
no bargain, only a “take-it-or-leave-it” outcome. This argument is
particularly important, I think, when we recognize, as the Report does,
that different developing countries face very different situations in
regard to their trading relations and trade opportunities. Second, as
countries become increasingly engaged in international trade,
international commitments help to articulate, solidify and render more
stable the process and outcome of trade policy formation.
The report has an interesting chapter on the functioning of domestic
markets. It is clear that the degree to which domestic markets are able
effectively to transmit price signals is a key determinant of how far an
economy can reap the benefits of opening to trade. If the domestic
markets are functioning poorly, either because of excessive
concentration, or because of government policies, then there may even be
scenarios where opening up to trade could harm the domestic economy!
While this is not an excuse to avoid competition and the benefits that
flow from it, it is certainly a warning that trade liberalization by
itself may well not be enough.
This leads me to the issue of infrastructure for trade. We know that a
lack of infrastructure, be it human capital, physical infrastructure, or
efficient services, will choke off trading opportunities and the growth
and development opportunities that accompany them. We also know that
governments, both national governments and the international community,
have a vital role to play in helping to foster this infrastructure. But
these efforts are pro-trade, not instead of trade. This is what is
needed to turn the opportunities offered by more open markets into
realities, by addressing capacity constraints in developing countries.
Trade infrastructure is part of the wider picture of aid for trade, a
topic which, in my view, might deserve more of UNCTAD's attention. As
you are aware, the task force on aid for trade that we agreed to
establish in Hong Kong has finalised its work and its recommendations
which will be consider at the upcoming WTO General Council meeting on 10
October. I am extremely grateful to the members of the Task Force under
the leadership of Swedish Ambassador Mia Horn for the recommendations
they have put forward on how Aid for Trade should be “operationalized”
and how it might contribute most effectively to the development
dimension of the DDA. This work has been on-going in parallel to the
efforts to revamp the Integrated Framework for LDCs, in a clear
recognition that Aid for Trade is a clear complement to the trade
opening agenda.
For my part, I have been actively consulting with various partners
including the World Bank, IMF, UNDP, bilateral donors and regional
development banks pursuant to the mandate given to me in Hong Kong, as
recently as during the recent meetings of the World Bank and the IMF in
Singapore. These consultations have made it clear that Aid for Trade is
a necessary complement to the Doha Round, but not a substitute. Opening
up trade multilaterally and strengthening the rules-based trading system
are seen by Members as being the most important contribution that the
WTO can make to accelerating economic growth, promoting development and
reducing poverty.
I am also aware that the current state of play in the DDA has led some
to ask whether the aid for trade initiative will be realised. My
position on this is that aid for trade is not part of the single
undertaking and therefore should continue on its track and this view is
reinforced by the political messages that I am sure you have also heard
from many members restating their commitment to a comprehensive aid for
trade package. Nevertheless, I also believe that its benefits will be
smaller without new trade opportunities that will flow from a successful
Round.
It is clear that both trade opening and Aid for Trade must fall on
fertile ground to flower and that effective institutions and governance
are essential to this end. The role of institutions and the quality of
government are clearly crucial ingredients in any analysis of what makes
the difference between success and failure in meeting the challenges of
development, as well as what role trade policy can play in that process.
The relationship between trade, poverty, inequality and income
distribution is a complex one and addressing them is crucial to a viable
development strategy, to public support for sound policies, and to
perceptions of the legitimacy of government, including in an
international context. I do not think these are contentious
observations, but a vast amount remains to be done to understand the
true nature of these challenges and how we should tackle them.
Let me conclude by sharing with you my assessment of the state of play
in the Doha negotiations. Last July, as you know, we decided to suspend
the Doha negotiations to allow a period of “time-out” for Ministers to
consider how they can each contribute to breaking down the remaining
obstacles, particularly in agriculture. I know that serious political
reflection has been taking place in capitals since then. I am convinced
that the result of this process will be an acknowledgement that there is
no acceptable alternative to the successful conclusion of the Round.
In the meantime, I believe it is important that we create a space for
quiet discussions, hard reflection and discreet bridge building so that
positions on agriculture market access and subsidies can be narrowed.
Resumption only makes sense if the position of the main players changes.
and this will not happen without heavy political lifting at home. While
this hopefully takes place, we should advance the Aid for Trade,
building on the progress and momentum that clearly exists. I will
continue to work closely with others to ensure that the initiative
continues to gather momentum as we deepen and widen our coherence
activities.
My number one objective remains concluding the negotiations. That is
what WTO members have been saying in the last weeks, and developing
countries have said it more loudly than others. But it is also clear to
me that we need to think more creatively about how trade, development
and growth can fit together into a coherent whole. Aid for Trade is a
key piece of that puzzle. It presents all of us with the major
opportunity — and challenge — of translating our promise of greater
global cooperation into concrete actions and meaningful results. Let's
seize it.
Thank you for your attention.