WTO NEWS: SPEECHES — DG ROBERTO AZEVÊDO


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Roberto Azevêdo’s speeches

  

Secretary-General Gurría,
Ambassador Ulrik Vestergaard Knudsen,
Excellencies,
Ladies and gentlemen,

These are proving to be testing times for the global economy.

The outlook for trade growth has weakened significantly. In September the WTO downgraded its forecasts for trade growth in 2016 from 2.8 per cent to 1.7 per cent. If realized, this would mark the slowest pace of trade growth since the financial crisis. This is of course largely due to the lacklustre performance of the global economy - and not the other way around.

At the same time, foreign direct investment flows have not returned to pre-crisis levels.

Both trade and investment are important ingredients for global economic integration, growth and prosperity, so this should be of particular concern. And of course the two are very closely linked.

For example, services trade now accounts for almost two thirds of global inward FDI stock. And FDI is fundamental because:

  • First, it is the main vehicle for the supply of services in foreign markets; and
  • Second, it is critical in enabling global supply chains to function properly.

More open trade policies can boost FDI and strengthen a positive relationship between the two.

Of course, recent political developments will also have an effect on the trading landscape — from the Brexit referendum in the UK to elections in many major economies. It’s too early to say what all of this will mean, but of course, we will be watching the developments very closely.

In addition, all of this is taking place amid a rise in anti-globalisation discourse in many countries and communities. And trade is often singled out as a major cause of instability in labour markets. I would firmly dispute this point, and I'll come back to it in a moment. However, my biggest concern is not that such arguments are being made. My concern is the echo that they attract from the people. It is real and heartfelt.

Trade is essential for economic growth and development around the world.

However, a proper argument for trade must recognize that it is not a panacea or silver bullet. Trade will not fix widespread shortcomings in terms of economic, social and educational policies that lead to low productivity and asymmetries in wealth distribution. Such quandaries would require a much more encompassing set of policies.

A proper case for trade would also need to recognize that it is not perfect and that, despite the overall gains it brings to the economy, it can have negative effects in some parts of society. Those effects can have a big impact on some people's lives. And for these people, the net overall benefits for the economy are no consolation. So there is a responsibility on leaders to reflect, and to respond.

We all know how fundamental trade is for economic growth and job creation. But it is also vital that it is perceived as such. So, effective communication is key.

I think there are a number of steps that we need to take.

First, we have to work harder to make the case for trade. And we must do so in a credible, well-informed, and balanced way.

For example, a charge often leveled against trade is that it sends jobs overseas, particularly in manufacturing. Trade can cause this kind of displacement, but the effect should not be overstated.

Technology and innovation are having a much bigger impact on the structure of labour. Studies suggest that around 80 per cent of job losses in advanced economies are due to technology and innovation. Almost 50 per cent of existing jobs in some developed countries are at high risk of automation today. And the number is higher in many developing countries.

Like trade, technological progress is indispensable for sustained growth and development. The answer is not to reject these forces. We must embrace them and learn to adapt.

At present anti-globalisation sentiment is being manifested mostly in developed economies. In developing economies — and particularly in Africa — globalisation and trade are seen as a way for improving lives and livelihoods. But we shouldn't be complacent about this.

I'm sure everyone is familiar with Branko Milanovic's famous 'elephant curve' graph, and the more in-depth analysis by the Resolution Foundation, showing that incomes have stagnated for the middle classes in advanced economies in recent years. This stagnation has fueled feelings of being left behind by globalization.

However, if you look at income gains in developing countries alone, you see a similar pattern emerging. The biggest gains are going to the richest segments of society. If this doesn’t change over the coming years, we could see that feeling of being left behind spreading to communities around the world.

And this brings me to my second point, which is that we have to act domestically.

If we are going to create a better, more inclusive model of globalisation, then we must ensure that the gains of trade are better shared across society. Domestic policy will be the key factor here.

As I've said, unemployment and other dislocations are not strictly or mainly a trade issue, so trade measures alone will not address this disorder. We need a more far-reaching response which also deals with the wider changes in the economy that are being driven by technology and innovation.

This will require action in a number of areas, for example, to ensure that people can have the right skills to participate and to have access to the jobs being created in today's markets. More active and cross-cutting labour market policies will be essential, also touching on aspects of education and skills, help for smaller companies, and improved adjustment support to the unemployed.

The OECD average for spending on active labour market policies is 0.6 per cent of GDP. Some countries allocate much less than this; and some considerably more. Of course there is no single recipe for success here, but it is important to look at where things have been done well. Countries such as Singapore, Denmark and South Korea have adopted adjustment programmes with great success.

Given we are hosted this evening by Denmark, I would like to say a few words about the Danish model.

Denmark spends 1.5% of its GDP on labour market policies known as "flexicurity" — so that's significantly above the OECD average. 

The approach combines greater labour market flexibility - not less! - with improved training support and enhanced unemployment insurance. It guarantees 90% of the previous wage if an employee is laid-off.

From the evidence I've seen, I must say that it seems, overall, to be a fairly successful model — with job creation remaining relatively high. Despite the flexibility in the labour market, there is a sense of security. And, interestingly, most people in the country perceive globalisation as an opportunity, rather than as a threat.

Of course, this is not just about governments — there is also a role here for business. I think that initiatives like the OECD Guidelines for Multinational Enterprises are very important, for example by informing businesses about their impact in their communities, helping to encourage positive practices.

Now, let me turn to the third step that I think we need to take. And that is to act globally. 

Trade is sometimes perceived as an activity that benefits just a few, or only the big players. While I would have strong reservations concerning such an assertion, I think it is clear that smaller players face greater challenges and higher costs than the large corporations. So we should seek to address this. I think we can do more to ensure that the benefits of trade reach further and wider through new trade reforms.

Clearly we are in a period of change. Some countries are looking afresh at their trade policies. But even if policies and approaches change, I don’t see anyone turning against trade per se - not yet anyway.

As the only organization dealing with trade rules on a global level, I have no doubt that the WTO will continue to play an important role.

Indeed, over the past few years, the WTO has shown that it can deliver.  Since 2013, the WTO has done so in 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, which delivered on a key target of "Zero Hunger" - one of the UN’s Sustainable Development Goals.

These are the biggest reforms in the global trading system for 20 years, all delivered since 2013. And, as we speak, a group of members is making progress in a deal to eliminate tariffs in environmental goods like wind turbines and solar panels. Ministers will be meeting at the WTO this weekend to try to finalize this agreement. I will be doing all I can to support a successful outcome.

As a result of the progress made in recent years, members now want to deliver more.

Members are discussing how to deal with longstanding issues, such as agriculture (including domestic support), services, and market access for industrial goods.

In agriculture, discussion is intense but gaps remain difficult to bridge. In services there is ongoing work on domestic regulation and services trade facilitation, among other areas. In rules I would underline the debate on fisheries subsidies, which has attracted a lot of attention.

Active discussions are also happening in areas like:

  • How to help smaller companies to trade, and
  • How to harness the power of e-commerce to support inclusiveness.

Work on these issues can be very important in helping more people to join trade flows. Among OECD countries, SMEs account for more than 60 per cent of employment.

The internet itself has the potential to bring many new entrants into the market, and cut trade costs related to physical distance.

However, in OECD countries, around 20 per cent of the population still doesn't have access to the internet. In Africa, only one in four people use the internet — and, in LDCs, only one in seven people.

So there is huge unexplored potential here.

These conversations at the WTO are at an early stage. So we'll see where members want to take them in the New Year — particularly as we look ahead to our next Ministerial Conference, which is being held in Buenos Aires in December 2017.

I'll conclude now as I began: these are testing times for the global economy.

I think we all have a responsibility to respond.

That's what we'll be trying to do at the WTO. And I look forward to working with the OECD, and all of you, to achieve it.

Thank you.

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