SPEECHES — DG ROBERTO AZEVÊDO

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Lawyers Institute of São Paulo (IASP) event

[Translation of the speech originally delivered in Portuguese]

Remarks by DG Azevêdo: "Brazil's role in the future of international trade"

Ladies and Gentlemen,
Good afternoon.

Thank you very much for your invitation. It is a pleasure to be here today at this traditional lunch organized by the Lawyers Institute of São Paulo.

Our discussion of Brazil's role in the future of international trade is both timely and relevant.

Indeed, I am very happy to see international trade shaping discussions in Brazil. I welcome the fact that there is a debate on this subject in the country. I see the public and private sectors speaking the same language, with a view to achieving a greater degree of openness and competitiveness. This is vital for ensuring that the country carries more weight in world trade and in the global economy.

In general terms, there is still room for greater Brazilian influence on the international economic agenda. Brazil is one of the top ten economies globally and has the fifth largest population in the world. That in itself gives the country major importance.

But there is certainly potential for it to become more integrated, especially in international trade.

Brazil's share of world trade is small, especially if compared with the country's potential.

Traditionally, the Brazilian economy has been less integrated in the international economy than it could have been. As it opens up more and becomes more integrated globally, the strength and influence of Brazil will tend to increase, including as a focus for global investment.

But for this opening up to be sustainable, it is essential that the structural changes taking place in modern economies are taken into account.

Automation, digitization and new business models are revolutionizing the global economy. These new technologies are completely transforming the way in which goods, services and information are produced and exchanged.

Obviously, this process of technological change is nothing new.

The first machines were the driving force behind the Industrial Revolution in the 19th century. Electricity, the assembly line and mass production led to major improvements in living standards in the 20th century. And we gradually adapted to the changes taking place, especially in the labour market.

Now, however, in the 21st century, what is unprecedented is the rhythm and speed of new technological developments. Innovations are spreading faster than ever before.

For example, according to some studies, after the invention of the spinning mule in 1779, it took more than 100 years for this technology to reach the least developed countries.

In the case of the mobile phone, it took 13 years. For the Internet, it was only six.

Society used to have decades to adjust to the changes imposed by new technologies. Nowadays we only have a few years.

This unprecedented pace of progress is also causing great structural changes in our labour markets.

Productivity gains resulting from new technologies are reducing the demand for labour in more traditional sectors, such as agriculture or manufacturing.

In Brazil in 1991, agriculture represented 28% of jobs. In 2016, it accounted for 10%.

Studies show that in some economies, eight out of every ten job losses in industry are due to greater productivity, not to cheaper imports - which are generally held responsible for causing unemployment in the importing country.

Of course this 'Fourth Industrial Revolution' will not result in the disappearance of all jobs. In fact, more jobs will be created than lost. But it is causing major structural changes.

One outcome is the increased significance of the services sector.

On average, trade in services has grown by 5.4% per year since 2005, faster than trade in goods, where average annual growth stands at 4.8%.

The share of developing countries in global trade in services has also seen a big increase: more than ten percentage points since 2005. In 2017, developing countries accounted for 25% of global services exports and 34.4% of world services imports.

In China, services represent almost 50% of GDP. In India, services now account for 55% of GDP.

In Brazil, services constitute an even greater share of GDP, namely 68%, and they account for 69% of jobs.

In other words, trade in services is changing rapidly. And the WTO is paying attention to these changes.

This year, our annual report on trade will discuss the role of trade in services. It will be launched at the WTO Public Forum within two weeks.

We are also working on improving our data. For example, the WTO recently launched an indicator that measures the global growth rate of trade in services.

In general terms, we all need to respond and adjust to these changes.

This is a challenge that governments and societies are facing everywhere - in both developed and developing economies.

And how can Brazil adapt to this new reality and be a competitive player?

Certainly, domestic policies are essential.

This includes, for example, "active" policies for relocating unemployed people in the job market and enhancing workers' skills.

Workers who lose their jobs to technology are not always able to access the most dynamic sectors of the economy, where new opportunities are arising.

In this respect, the debate in Brazil on social security is in tune with discussions on how to deal with this new reality in the labour market.

The response also includes reforms relating to labour and taxation. In this context of technological changes, investments in education and technology are also vital.

Nor can we forget the role of the opening up of trade in this equation.

The external market has to stop being seen as something circumstantial, like a plan B. In the world of today, the strategy of developing products that are only competitive in the domestic market is obsolete.

Standards are globalized. Consumer expectations are globalized. Competition is global.

The goal of the productive sector in Brazil must be to ensure competitiveness at the international level. This is an agenda now espoused by both the private sector and the Government.

It is worth remembering that there are sectors in Brazil that are already well integrated into the international market. These include agriculture, agribusiness, mining, paper and cellulose, and commodities and foodstuffs in general.

Other sectors are less competitive, especially in the industrial sphere. Hence the biggest challenge for industrial production in Brazil is to become successfully integrated in the global market and achieve international competitiveness.

Clearly, the opening up of trade and the other reforms are parallel, complementary paths. They are also advances that need to happen simultaneously. The temptation to adopt a sequential approach must be avoided.

All these actions can help Brazil become more competitive and adapt to the 'Fourth Industrial Revolution'.

We cannot underestimate the complexity of these reforms. But they are necessary and efforts must be ongoing. Each country must seek the formula that represents the best solution to the challenges it faces. But one thing is certain: taking no action is not an option.

And how can the World Trade Organization help with these efforts?

The WTO represents a rules-based trading system, which plays a key role in maintaining stability and predictability in world trade and the global economy.

It is essential for safeguarding the business and investment environment – all over the world as well as in Brazil. It fosters economic growth and the creation of jobs directly or indirectly related to foreign trade.

To strengthen this essential system, we must enable it to evolve - and to respond to the challenges of the modern economy.

Obviously, the WTO rules already establish essential parameters for world trade. They give Members full latitude to seek policies to promote growth.

But we have to do more to improve the system. Global trade rules need to be updated.

In this context, world leaders, including Brazil, are talking about WTO reform - and that is precisely the direction in which we are heading.

One of the matters under discussion is how we can make quicker progress in our negotiations. Also, how to include issues of the new economy in the agenda of the Organization. For example, electronic commerce (e-commerce).

E-commerce is transforming the global economy.

Trade in services, data and information is increasing on digital platforms. And we know that traditional trade in goods, agricultural products and natural resources is made increasingly possible and leveraged by digital technologies.

According to the most recent data from 2017, e-commerce sales achieved annual growth of 13%, reaching a value of around USD 29 trillion.

It is interesting to note that business-to-consumer (B2C) transactions amounted to only 13% of total sales. And only 11% of such transactions were of a cross-border nature.

In other words, there is enormous potential to be explored. These new instruments are the source of many opportunities for leveraging trade.

However, without an appropriate structure to regulate all this, there is a risk that the major actors will benefit at the expense of the minor ones. The lack of harmonized rules makes transactions more expensive and unfeasible for smaller players.

The lack of joint agreements and regulatory structures opens the door for inconsistent standards and conflicting government policies.

A fragmented digital economy signifies higher costs and uncertainty for consumers and enterprises.

This is why the talks about e-commerce within the WTO are so important.

The WTO negotiations can help to place e-commerce on a solid footing.

They can help to cut costs and increase opportunities, especially for smaller enterprises. Consumers will enjoy a major benefit in terms of the availability of more diverse and less expensive goods - the equivalent of a wage increase in real terms.

There is great interest in these talks. In June, at the G-20 Summit in Osaka, I had the pleasure of participating in an event with 24 world leaders - including the Brazilian President - who were strongly supportive of these discussions.

There are other topics of great current relevance. Members are discussing:

  • how to help small enterprises participate in international trade;
  • how to facilitate investment;
  • how to establish regulatory disciplines for trade in services;
  • and how to ensure that trade contributes to the economic empowerment of women.

Brazil is part of all these talks - and that makes sense. These are very important subjects for the economy of the country.

There are also discussions on other vitally important areas, such as agriculture and disciplines on subsidies that can cause overfishing and the disappearance of food stocks from our oceans.

Apart from our negotiating arm, discussions on reform also address other matters that are vital to the functioning of the WTO.

These include efforts to make improvements with regard to transparency, Members' notifications and the work of our regular bodies. Here it is worth mentioning the involvement of Brazil, which is leading discussions on how to improve our work in the area of sanitary and phytosanitary measures.

Members are also discussing the crisis in the WTO dispute settlement system - including the impasse regarding appointments to the Appellate Body.

We are continuing to work hard to find a solution to this problem as a matter of urgency. But so far I see no light at the end of the tunnel. We can speak more about this later if you wish.

In general terms, the reform debate has created a window of opportunity for our Members to address different issues of interest to them in an innovative way.

Our Twelfth Ministerial Conference in Kazakhstan in June 2020 is an obvious framework for all these talks. We need to continue working hard on all fronts if we wish to see progress.

There is no doubt that we are now facing a whole range of extremely complex challenges in the international trading system.

However, this is also a unique opportunity to strengthen and modernize the trading system. Hence we must address these major systemic issues while at the same time seeking to make progress in our negotiations.

All of this is vital for demonstrating the importance, relevance and credibility of the WTO.

Brazil is an important voice in the Organization and must continue to play a key role in this debate.

Brazil must ensure that these global discussions can complement national efforts to increase the competitiveness of Brazilian goods, and ensure that the country plays an active part in the modern global economy.

Gatherings such as this are important for discussions of all these issues in the country. The involvement of the most diverse stakeholders is essential and the legal community must assume a key role in these discussions.

So I would like to thank you, once again, not only for the invitation but also for the interest shown by you all in discussing this subject.

Thank you very much.

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