WTO NEWS: SPEECHES — DG ROBERTO AZEVÊDO

Speech by Director-General Roberto Azevêdo


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Roberto Azevêdo’s speeches

  

Ladies and gentlemen,

Good afternoon. I’m pleased to be here, and I want to thank the organisers — the Financial Times and Misys — for arranging this event.

It’s always a pleasure to be here in London.

Britain has shaped global trade in a way that few other nations can claim.

Not just because John Maynard Keynes and his colleagues at the Bretton Woods Conference recognised the need to create an institution to govern global trade — which was then to be known as the International Trade Organization.

Nor just because the preparatory committee charged with creating this body held its first meeting here in London — in Church House — in 1946.

Nor even because the UK was a founding member of the body that emerged from that process, the General Agreement on Tariffs and Trade, which was the precursor of the World Trade Organization.

Before all of this something arguably more significant in the history of trade happened here in the UK. 199 years ago, David Ricardo developed his theory of comparative advantage.

His insight seemed to provide the classic pro-trade argument. And while it has often been challenged, it has shaped our perception of trade ever since.

I wonder what Ricardo would make of the situation today?

This is a fraught time for global trade.  In many countries, trade is under siege, raising the spectre of protectionism.

Alongside the anti-trade rhetoric, there is the notion that we have reached “peak trade” or that globalisation has ground to a halt.

In the current economic climate, I think we should be seeking to use trade as a tool to drive growth, development and job creation, and this means addressing a couple of misconceptions.

First, globalisation has not stopped.

A defining feature of the globalisation phenomenon is the spread of production chains across borders. The parts for a Boeing 787 Dreamliner come from more than 40 suppliers based in over 130 sites around the world. Even seemingly simple products are made in complex global networks.

Some argue that these production chains are now contracting, indicating a less globalised world economy. If so, you would expect to see trade in components declining as a share of global trade — but the data suggest that this is not happening. The scale of trade growth is lower overall, but the pattern of trade is unchanged.

The second misconception is the expectation that trade growth will return to the pre-2008 levels — a period when globalisation had gone into overdrive. This is highly unlikely.

Trade growth has been hit hard by low global demand as developed countries come only very slowly out of recession, and as emerging economies mature.

The volume of global trade grew 2.8% in 2015 and, unless GDP growth forecasts change, we expect it will remain at the same level in 2016.

That would make 2016 the fifth year in a row with global trade growth below 3%. This compares with the average since 1990 of 5 per cent.

So what should we expect from trade growth in the medium term?

Before the financial crisis, trade was growing twice as fast as GDP.

Today it is growing at the same rate as GDP, just as it did in the late 1970s and early ’80s.

In future, we expect this ratio to improve to a midpoint between today’s doldrums and the rapid expansion of the pre-crisis years. This would bring it into line with the post-war average.

So, as much as the "new normal" is not "normal", actually the "old normal" was not "normal" either.

And there are a number of things that we can do to get trade moving again.

One obvious factor is for governments to act on trade restrictive measures. The WTO has monitored the use of these measures since the crisis.

At the end of last year, only 25% of measures recorded since October 2008 had been eliminated. Therefore three quarters are still in place. Our next report is due in the coming days. I don’t expect to see a significant shift in this trend.

The best safeguard we have against protectionism is a strong multilateral trading system. So we must continue strengthening the system. And we must keep delivering new trade agreements.

Actually, while trade seems to be under siege in many places, the WTO’s members have quietly delivered a run of trade liberalising deals over the last two and a half years.

  • For example, the Trade Facilitation Agreement. This was the first multilateral trade agreement since 1995. It could reduce average trade costs by over 14% globally — which would be a bigger impact than if we could eliminate every single tariff around the world.
  • WTO members have also agreed to abolish export subsidies in agriculture. This is the biggest reform in global agriculture trade for 20 years.
  • And, a group of members have struck a deal to eliminate tariffs on a range of new generation information technology products, worth around 1.3 trillion dollars each year. That’s bigger than global automotive trade. And it was the WTO’s first tariff-cutting deal in 19 years.
  • In addition, talks are progressing on an Environmental Goods Agreement. And we hope to see further progress this year.

But of course more can be done to strengthen the trading system. For example…

  • High tariffs continue to inhibit trade, especially for the poorest. Some of the highest rates are found in sectors of particular interest to developing and least-developed countries.
  • Non-tariff measures and the lack of policy coordination are big hurdles. Take trade costs. In 2010 in developing countries trade costs were equivalent of a 219% import tariff. This is an area where we can make a big difference — as cutting trade costs by just 1% supports a 3-4% increase in trade growth.
  • Restrictions in services also hinder potential for trade and investment growth. Services now account for 40% of world cross-border trade in value added terms, and FDI stocks account for above 60% of services trade.
  • Also, regional trade agreements are increasing in number. This is very positive and can support work at the multilateral level. However, it can also create challenges, especially when regional initiatives explore rules in areas that are not currently covered by the WTO. We need to ensure coherence between these initiatives so that businesses do not face a costly patchwork of rules and regulations.
  • Finally, if trade is to continue supporting growth, we need to respond to the anti-trade rhetoric that is becoming commonplace.

We have to acknowledge that, in many constituencies, trade is not perceived so positively.

First, we must rectify the perception that imports make jobs disappear. Actually, the vast majority of jobs are lost because of new technologies and increased productivity.

Second, we must recognize that while the benefits of trade are spread across the economy, the effects of increased competition can hit specific communities hard. We need to put more focus on how governments can mitigate those impacts.

Third, trade is sometimes seen as only favouring the big companies. This is obviously not true — however, it is true that trading internationally is much more costly and difficult for small enterprises. We need to respond to that, particularly as SMEs are huge job creators — around 90% of the workforce in many countries.

All these points indicate that we need to promote a well-informed debate, not one based on rhetoric and unsubstantiated assertion.

It seems to me that fairness or unfairness in trade has become very easy to discern — it sounds like an irregular verb:

  • I trade fairly.
  • You trade unfairly.
  • He is a protectionist.

If we allow this uncritical approach to prosper, trade will indeed become the culprit of all economic afflictions.

So let’s also remember the other side of the trade debate.

In recent years, trade has helped to lift hundreds of millions of people out of poverty — in a way which you just don’t see in closed economies.  

It’s no surprise then that a 2014 study by the Pew Research Center found that the biggest supporters of trade are in developing countries. And the continent with the most positive view of trade is Africa.

But still, sentiment in developed countries is not negative. A 2015 study by the same group found that most Americans view free trade agreements as being good for the US, even though concerns persist.

And of course in the UK trade is on the agenda like never before.

I have received many, many questions on the issue of the hour — the UK’s membership of the EU. So I think it would be remiss if I didn’t share some brief comments with you.

This is, of course, a sovereign decision for the British people. But it’s important that in making this decision they have the facts.

Trade issues have been a major feature of the debate so far and it seems that there is still a great deal of confusion about the implications of a British exit from the EU.

I would like simply to clarify some of the facts and practical implications as they relate to trade and the WTO.

The UK currently has preferential trade relationships with the EU, and with the 58 countries with which the EU currently has free trade agreements. In the event of a British exit, all of these relationships would need to be re-established to maintain the same preferential access the UK currently enjoys via the EU.

This would probably entail negotiations.

In the meantime, while trade would continue, it could be on worse terms. Most likely, it would cost more for the UK to trade with the same markets — therefore damaging the competitiveness of UK companies. Here we’re talking about preferences on 60% of the country’s goods trade (that divides as around 47% with the EU itself, and around 13% with the EU’s preferential trade partners). 

The implication is that UK exporters would risk having to pay up to 5.6 billion pounds each year in duty on their exports. 

And there could be an impact on services trade as well.

In addition, the UK would also need to re-establish its terms of trade within the WTO. The UK, as an individual country, would of course remain a WTO member, but it would not have defined terms in the WTO for its trade in goods and services. It only has these commitments as an EU member. Key aspects of the EU’s terms of trade could not simply be cut and pasted for the UK. Therefore important elements would need to be negotiated.

There is no precedent for this — even the process for conducting these negotiations is unclear at this stage.

I can say that negotiations merely to adjust members’ existing terms have often taken several years to complete — in certain cases up to 10 years, or more. However, as far as the UK’s case is concerned, it is impossible to tell how long it may take.

Upon leaving the EU, rights that the EU secured for its members would arguably no longer automatically apply to the UK. This includes the right to restrict certain aspects of the free movement of people and to protect public utilities from competition. The UK might need to negotiate with other WTO members to maintain these rights.

No WTO member can unilaterally decide what its rights and obligations are.

I don’t have a crystal ball to assess the outcome of these various different negotiations — and nor does anybody else. The only certainty is uncertainty. However, I have spent my life as a trade negotiator and now as WTO Director-General it is my job to broker trade deals between nations, so I can try to offer some insight.

To begin with, I would say that trade negotiations are highly complex. Conducting multiple negotiations simultaneously would bring a further level of complexity.

In addition, you need willing partners. Other countries already have their negotiating priorities and may not be ready to shift resources to a new negotiation overnight. Of course, speaking of resources, all of this presumes that your own resources and negotiating infrastructure are already in place and fully operational.

Moreover, if you need to complete a deal quickly when the other side can wait, you are negotiating from a very weak position.

So, on this basis, it could take quite some time before the UK got back to a similar position that it has today in terms of its trading relationships with other countries.

Time will tell where all of this leads.

But, looking again at the global picture, it is clear that we need to get trade moving again — for small and large businesses alike — in developed and developing countries alike.

That’s what we’re trying to do at the WTO.

After the successes of the past couple of years, WTO members are looking at how they can keep on delivering results.

And this debate is more dynamic than it has been for a long time. We’re seeing renewed interest from the private sector, for example.

Last week I welcomed business leaders from around the world to the WTO to hear their ideas of what issues we should be tackling next.

I think everyone agrees that we need to make progress on the Doha issues, but we don’t have an answer on how this can be achieved.

It will require fresh thinking, and a step-change in members’ political commitment.

But while we can’t find a breakthrough on those issues, some are keen to discuss a range of other issues.

Areas frequently mentioned are: fisheries subsidies, competition policy, SMEs, investment facilitation, e-commerce, private standards, non-tariff barriers and many more.

So this is actually an exciting time in the trade debate. There is a sense that a lot can be achieved, for the benefit of all. 

The path to greater inclusion will be through more trade, not less.

It will be through engaging more with our partners around the world, not less.

And while there are reasons to be concerned about protectionist trends and anti-trade sentiment, I think we also have reasons to be optimistic.

Actually countries are still delivering important trade agreements — and at the WTO we are seeing more engagement than ever.

With continued political will and engagement we can keep strengthening the global trading system for the benefit of all.

Thank you.

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