WTO NEWS: SPEECHES — DG ROBERTO AZEVÊDO


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Roberto Azevêdo’s speeches

  

Ladies and gentlemen, good afternoon.

I am delighted to join you today. It is an honour to add my name to the impressive list of speakers who have addressed the National Press Club over the years.

The list includes monarchs, presidents and prime ministers, but also campaigners, thinkers and radicals.

The argument I am going to make today has been made by many presidents and prime ministers over the years. But in the current climate it is beginning to seem radical.

I am here to make the case for trade.

And in doing so, I must say that I feel much better today than I did just a year ago. Back then it felt like a lonely position to take!

But now I think the catchy and often ill-informed anti-trade arguments we are hearing have encouraged others to speak up.

But let me say one more thing upfront: I also believe that trade is imperfect.

Despite the obvious overall gains, it can have negative effects in some parts of the economy. And those effects can have a big impact on some people’s lives.

My argument today is that we must correct those shortcomings. We must work harder to spread the benefits of trade further and wider. And we must help those who have lost out or have become marginalized.

But we would be betraying those very same people, and many, many more, if we turned against trade and allowed the negative arguments to go unanswered.

And America will be vital here.

It was American leadership that opened the global economy to trade after the Second World War — as a means of building a more peaceful and prosperous world.

And it is American leadership that can move us forward now.

The US is, in large part, the author of the global trading system that we have today. And I believe that this should be a source of pride — because it has had a very positive impact globally.

So let’s look at the case for trade.

 

Most economists accept that trade has proved to be one of the most powerful pro-growth, anti-poverty tools in history. In recent decades it has helped to lift one billion people out of poverty in developing countries.

This is a historic achievement. 

And trade has improved people’s lives and livelihoods in developed countries as well.

Besides, the World Bank found that income grew more than three times faster for developing countries that lowered trade barriers than for those that did not.

Here in the US, estimates show that the gains from globalization have raised real household incomes by up to $10,000 annually. 

Trade means more choice for consumers. It means lower prices. It means the dollar in your pocket goes further. Companies that trade are more competitive. Export-related jobs pay more — between 13 and 18% more here in the US.

But, at the same time, talking about the benefits of trade is of little comfort to someone who has lost their job here in the US.

So it is important to acknowledge that trade can cause dislocation and can create uncertainties in some sectors and communities.

In addition, there is a perception that trade only serves big companies — and that smaller companies, and those who can’t compete, are simply left behind.

While I would dispute much of this, it is certainly the case that the benefits of trade don’t reach as many people as they could, or should. The overall benefits of trade mean little to someone who lives in a poor country and lacks the means to export.

So perhaps, with today’s disappointing global economic performance, we should not be surprised with the rise in anti-trade sentiment in many countries. Here in the US there has been a particularly strong reaction to initiatives like the TPP and TTIP or to issues like the current overcapacity in the steel sector.

I think that we have to act to respond to people’s concerns, and to the very real problems that they represent. But we should not do so by attacking trade - or any other mythical scapegoat.

This requires a much clearer view of the challenges before us.

The charge often levelled against trade is that it sends jobs overseas, particularly in manufacturing.

As I have said, trade can cause this kind of displacement, and we need to respond to it. But the effect should not be overstated.

Actually trade is a relatively minor cause of job losses.

The evidence shows that well over 80% of job losses in advanced economies are not due to trade, but to increased productivity through technology and innovation.

Output in the US manufacturing sector continues to rise to record levels. But technological advances have meant that fewer workers are needed to produce more goods. And where jobs are created, today’s vacancies require a much more advanced set of labour skills.

The reality is that jobs are at risk today due to technological advances that were thought nearly impossible just a few years ago. 

Take trucking as an example. There are currently over 3.5 million truck drivers in the United States, and many more jobs supporting those drivers — providing coffee, food, motel rooms and so on.

Self-driving technology is set to transform that picture dramatically. Companies are already looking to develop self-driving trucks. When that technology comes on-stream in a few years’ time, how are we going to adapt?

You could ask the same question about many other lines of work.

Studies suggest that almost 50% of existing jobs in the US are at high risk of automation.

And this is not just a rich-country problem.

An ILO study on Cambodia, Indonesia, Vietnam, Philippines and Thailand found that 56% of jobs are at high risk of automation. And that’s just on average. In some sectors over 80% of jobs are at risk.

In Japan, there are 315 robots per 10,000 workers. In China that number is only 36 — but it is rising fast.

In the US, the number is 164, which is still relatively low. But it is set to go up!

This is the real economic revolution that is happening today.

Many will find it unsettling. And that is completely understandable.

But, like trade, technological progress is indispensable for sustained growth and development. The answer is not to reject these forces. Quite the opposite: we must embrace them and learn to adapt.

The wrong diagnosis leads to the wrong medicine. And, in this case, all too often the suggested prescription is protectionism. And this medicine will not help — instead it will hurt the patient.

Protectionism would do nothing to address the real challenges we face — and it would cause many more problems besides.

Preventing imports would not prevent innovation. And, even if it did, the net effect would be to slow economic growth even more. Jobs would be lost throughout the economy, not created.

In other regions, economies that embrace innovation will prosper and dominate the production of high-end goods and services.

So let me outline just a few reasons why the protectionist approach is so flawed.

First, protectionism hits the poorest the hardest. Poorer consumers buy more imported goods. And they are more sensitive to changes in prices.

A joint study by UCLA and Columbia found that people with high incomes could lose up to 28% of their purchasing power if borders were closed to trade. But the poorest consumers, they could lose up to 63% of their spending power. 

A whole range of consumer goods are vulnerable to this effect. For example, if your smartphone was made solely in the US, the price would rise — the only question is by how much. Estimates range from 10% to 100%. So competing smartphones produced in other countries would dominate globally.

Second, protectionism is an ineffective and very expensive way of protecting jobs.

In the latter part of the 20th century, the EU protected various industries — including steel, agriculture and textiles. The French economist Patrick Messerlin analyzed this approach. He found that the average cost per job saved was several hundred thousand euros, or about 10 times the corresponding wage in each of those industries. 

It was a similar story when the US applied tariffs on Chinese truck tyres in 2009. Around 1,200 jobs were saved, but this came at a cost of $1.1 billion in higher prices for consumers. That works out as a cost of about $900,000 per job. The Petersen Institute estimates that these higher prices also resulted in around 2,500 job losses in the tyre retail sector due to slumping sales.

Protectionism is a very blunt tool. If country A puts tariffs on goods from country B, the jobs don’t simply re-appear in country A. More likely, they would move to country C or D.

Third, protectionist solutions do not reflect the nature of the modern economy and the international nature of production.

Most goods aren’t made in one country. Most exports have components which have been imported. So by restricting imports, you can restrict your own ability to export.

Finally, of course, protectionism is a two-way street. It leads to retaliation and the domino-effect.

I understand that President Franklin Delano Roosevelt was a good friend of the National Press Club. When he picked up his membership here in 1933 shortly after his inauguration, retaliatory trade restrictions had just wiped out two thirds of world trade in the space of four years.

For these reasons — and more — protectionism is the wrong medicine.

It wouldn’t address the ailment that we’re trying to cure.

And, in the current economic context it would be particularly damaging.

We are seeing a dramatic slowdown in trade growth. Last week the WTO announced revised trade forecasts for the year. We now expect trade growth in 2016 to be just 1.7%.

This would be the lowest rate of expansion since the financial crisis.

And it would mean that for the first time in 15 years, trade growth would be lower than GDP growth

There is a range of factors behind this poor performance

Sluggish economic growth is the primary cause.

Weak investment activity may also be an issue.

Protectionism is actually a relatively minor factor behind the weak trade expansion figures. But it unquestionably poses big downside risks.

So I think there are essentially three challenges before us.

  • First, we need to ensure that the benefits of trade reach further and wider. In other words, we need a more inclusive trading system.
  • Second, we need to break out of the pattern of low trade growth.
  • Third, we need to respond to the economic transformation created by technological innovation.

We need policies which are designed to respond to these challenges. And I think there are two levels on which we can respond.

First is at the level of domestic policy. Second is through systemic reform.

Let me say a word about each, starting with domestic policies.

While trade has fuelled growth and development around the world, it is the task of domestic policy to ensure that countries are ready to compete and disseminate the benefits in an equitable way.

I think governments around the world are now recalibrating their approach. There is a common realisation that more can be done — and that "business as usual" is not going to suffice in the years ahead.

It is clear that there is no single recipe for all countries — so we can forget any idea of a one-size-fits-all approach.

Whatever the chosen recipe, we must understand that action is needed across government — not just in trade ministries.

Given that unemployment is not strictly or mainly a trade issue, trade measures will not address this disorder.

More active and cross-cutting labour market policies will be essential, touching on aspects of finance policy, education and skills, and improved adjustment support to the unemployed.

We should learn from where things have been done well. Countries such as Singapore, Denmark and South Korea have adopted adjustment programmes with great success.

The OECD average for spending on active labour market policies is 0.6% of GDP.

Some countries allocate much less than this; and some considerably more.

Denmark spends 1.5% of its GDP on labour market policies known as "flexicurity".  This combines greater labour market flexibility with enhanced unemployment insurance. It guarantees 90% of the previous wage if an employee is laid-off.

The regeneration of Pittsburgh is another good example of an active response to the challenges we’re discussing today.

The city appeared to be in serious decline in the mid-1980s, with a sharp drop in steelmaking jobs. But it has recovered to become a centre of innovation.

City and state officials, the private sector and local universities worked together and succeeded in helping to diversify the city’s economy. They put a focus on high-growth sectors like robotics, medical technology, defense and innovations like self-driving cars.

The result has been a renaissance for the city, and the creation of hundreds of thousands of jobs. 

So I think that a more active and creative approach at the domestic level can deliver a great deal. This will require political leadership and commitment.

And this must be joined by leadership and commitment at the global level as well.

So let me now turn to the global, systemic response that I think we should be working to develop.

Over seven decades, the world has built up a record of momentum towards open trade, with the US as a leading advocate. But now that momentum has slowed, and it is affecting economic growth.

We need to put renewed vigour into that effort if we are to respond to the challenges that I have outlined today.

We have to act to kick-start trade growth, and ensure that the system is open and truly available to all.

Technology has already disrupted how we trade. E-commerce was worth around 22 trillion dollars last year. The internet has the potential to bring millions of new entrants into the market.

Many entrepreneurs in the developing world have succeeded in selling their goods and services in foreign markets. But still, today, less than 50% of the world is online.

How do we respond to that connectivity challenge?

How do we help SMEs to leverage technology so that this marketplace doesn’t just become the preserve of the big players?

How can the trading system adjust to the shift from a world of few, large, known exporters to a world in which exporters are many, small and unknown? How can we ensure that this transition works for consumers?

Furthermore, how do we ensure that trade can continue to promote growth and lift people out of poverty?

Initiatives to increase trading capacity in developing and least developed countries will remain vital.

And we must continue delivering new trade reforms through the WTO, which help everyone to compete and benefit.

The WTO has been through a period where delivering such reforms would have seemed impossible. For years, no agreements were struck. It seemed like all the action on trade was happening elsewhere.

But at the end of 2013, we started to change all that. Since then, the WTO has delivered a number of very significant deals, including — but not limited to:

  • The Trade Facilitation Agreement to cut trade costs and red tape, which could boost global exports by up to 1 trillion dollars per annum.
  • The Information Technology Agreement, which eliminates tariffs on a range of new-generation IT products — trade in which is worth around 1.3 trillion dollars each year.
  • And a deal to abolish export subsidies in agriculture.

 

These are the biggest reforms in the global trading system for 20 years — the biggest since the WTO was created. All this has been delivered since 2013.

And we’ve seen a huge boost in engagement in our work as a result — including from the private sector.

There is a clear sense that the WTO can do more — and a desire among members to keep delivering.

As well as discussing longstanding issues of agriculture, services and market access for industrial goods, members are looking at a number of other issues.

And so the discussion at the WTO is connecting with the challenges that I have put on the table here today — specifically:

  • how to open goods and services trade to new players in developing and developed countries,
  • how to ensure support for SMEs, and
  • how to harness the power of e-commerce to support inclusiveness.

We are still at the early stages of these discussions, but engagement is high and so is ambition. And whatever we do next, it will be just a first step.

And there are other encouraging signs. A number of members are working to conclude the Environmental Goods Agreement by the end of the year, with the US playing a key role. This is a great initiative which highlights what trade can do for sustainability and the environment.  

In addition, many countries, including the US, are also interested in moving work forward in the WTO on an agreement to limit harmful subsidies that lead to overfishing.

It is worth noting that the recent run of WTO deals reflect a variety of different types of agreement — from multilateral to plurilateral, or the Trade Facilitation Agreement which allows a great deal of flexibility, and provides implementation support where it is needed.

This kind of pragmatism will help us to keep delivering negotiated results that continue to foster development, inclusiveness and growth.

So there is a lot to do.

We need to be clear-eyed about the challenges in the economy and in the trading system if we are to design an appropriate response.

But I think we have the tools to act.

And I think we have one critical challenge. We have to work harder to make the credible, well-informed, and balanced argument for trade.

My concern is not that anti-trade arguments are being made in public discourse. My concern is the echo that they attract from the people. That echo is loud. It is heartfelt. And it has to be heard.

There is a responsibility on leaders, policymakers, academics, the media, and international organizations to reflect on that, and to respond.

We have to work harder to ensure that the benefits of trade are more widely shared. We have to work harder to explain why it matters — and to do so in clearer terms, recognizing both benefits and challenges.

We are going to be doing this more and more over the coming months. The WTO is joining forces with the IMF, the World Bank, UNCTAD, the OECD and others to produce new research to help make the case.

To paraphrase Winston Churchill’s comment on democracy: "open and rules-based global trade may be the worst form of economic relations, except all those other forms that have been tried from time to time."

Trade may not be perfect, but it is essential. It is up to all of us to make it work better.

And, in this effort, American leadership will be more important than ever.

Thank you.

Webcasting of DG Azevêdo's speech and Q & A session at the National Press Club

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