15 april 1998
"The future of the world trading system"
Address to the Institute for International Economics Conference, in Washington D.C.
There is another important point to be made about the subject of this conference. Just two decades ago the challenge facing the trade community was to bring subsidies, antidumping, or technical standards fully into the rules of the system. Now the trading system is being called on from one side or another to take account of environmental policy, financial instability, labour standards, ethical issues, development policy, competition law, culture, technology, investment, marginalization, security, health - an ever-lengthening list of issues which can be associated in one way or another with trade. This is a reflection of the system's success in lowering barriers - trade barriers first and foremost but not only trade barriers. As we all know, trade's importance goes far beyond trade; as the European experience has already shown, it can also be the cement of peace. So, on this fiftieth anniversary we are celebrating the past achievements and the future promise of a system which is as indispensable to global stability and security as it is to global prosperity.
This underlines how interdependent our present world has become, and how important the trading system is to managing globalization. As trade, investment, and technology weave our economies closer together, the trading system has become a growing focal point for public expectations and concerns. Do differing labour standards confer an unfair trade advantage? Are environmental regulations a national or a global concern? Should governments be able to regulate content on the Internet? These new issues are a long way from "traditional" trade concerns such as tariffs. But all underline how economic integration can turn what were once domestic issues into global concerns. And all represent legitimate and important policy goals that the international trading system is being asked in one way or another to address.
What I want to try to do here is to introduce a few elements of clarity to this emerging debate. The first point is that in the interdependent world in which we live, the need to address policies, issues and objectives that are in different ways related to trade is certainly not something the multilateral trading system can turn away from. As Charlene Barshefsky recently pointed out "both trade and the environment are critical. No one is being asked to choose one over the other and no one should". None of us can ignore the reality of these global concerns - whether they be environmental, development, social or ethical issues. To describe the WTO - as sometimes happens at present - as an institution which is only focused on free trade and is insensitive to broader human concerns and values is a false representation.
Right from the beginning the mission of the trading system to improve human welfare has been clear. The preamble to the GATT, negotiated in 1947, emphasizes that trade liberalization should be conducted with a view to "raising standards of living, ensuring full employment and a large and steadily growing volume of real income". For over fifty years the system has fulfilled that mission in a way which has made an immeasurable contribution to creating a more prosperous and stable world.
The multilateral system has contributed to an extraordinary period of growth in world trade and output - growth which in turn generates the economic resources that allow more ambitious and costly environmental and social policies to be put in place. World trade flows have increased fourteen fold since 1950 - exceeding US$ 6 trillion for the first time in 1995. In the same period, world GDP increased by 1.9 per cent per year at constant prices and taking account of overall population growth - an extremely high figure by historical standards.
More and more countries - especially in the developing world - are being drawn into this system as its relevance and influence expands. While early GATT rounds in the 1950s typically involved some 20 to 30 countries, the Uruguay Round had 123 participants. And today the WTO has 132 members - eighty per cent of which are developing or transition economies. Developing countries as a whole now account for a quarter of world trade today, compared to less than a fifth a decade and a half ago; and for the manufactured sector, its share has doubled from 10 to 20 per cent. Over the same period of time, 10 developing countries with a combined population of 1.5 billion people have doubled their income per head.
Then there is the political value of the trading system - placing international economic relations on a firm foundation of the rule of law rather than the rule of power. Open trade on the basis of universally accepted rules helps to build shared international interests and provides a powerful motive for maintaining global stability and cooperative relations. And cooperative relations in turn provide the best possible foundation on which to build mutual respect.
Already there is an ambitious list of negotiating commitments on the WTO's future agenda - including, beside services, negotiations in agriculture and aspects of intellectual property. Decisions must also soon be taken about investment and competition policy. And new issues like electronic commerce are already demanding a response from the WTO system. As Lou Gerstner, head of IBM, has suggested, technology is pushing international cooperation to a new level - what he describes as "global public policy". At the next Ministerial Conference, in Geneva in mid-May, we have to agree on the mandate for the preparation of these and perhaps other negotiations.
All of this in turn reinforces the WTO 's institutional role as a forum for ongoing negotiations and a binding mechanism for settling disputes. Some 106 cases have been brought to the WTO in the first three years of its existence, compared to approximately 300 cases throughout the life of the GATT - and many more of these cases are being brought by developing countries, underlining their growing faith in the system.
Unfortunately the public relations aspects of the dispute settlement mechanism are far less satisfactory than the system itself. Preliminary results of sensitive disputes - usually based on partial or incomplete knowledge - have found their way into the public domain via the press or the Internet. And on these partial and incomplete presentations, political judgements are sometimes expressed. Yet the WTO is prevented - by the rules to which member governments have agreed - from providing the full details of cases until the process is completed. By which time opinions and political positions have been formed and it is often too late to correct mistaken impressions. This poses a major political challenge for the dispute settlement process - a challenge which members will have to address as soon as possible if they want to preserve the legitimacy of the system in the public's mind.
By arguing that trade has an important role to play in creating an economic environment more favourable to sustainable development or social justice, I am not arguing that the link is somehow automatic or inevitable. A free global market, for example, can do little to ensure that air, water or energy resources are accurately priced for sustainable development as long as no mechanisms exists to internalize environmental costs. In the same way, trade liberalization is a hugely powerful engine for economic growth, but it can do little by itself to guarantee that wealth will be equitably distributed. The essential point is that environmental and social policies are needed to redistribute the benefits that trade brings and to target particular public goals. And in our increasingly integrated world, many of these policy solutions will have to be as global in scope as the global economy they must now address.
Firstly, it would be difficult not to recognize that much more progress is needed in the WTO Committee on Trade and the Environment. Its work must be revitalized if the trade and environmental agendas are to advance in a mutually supportive way - and if we are to move beyond identifying problems, to identifying solutions. In all this work it will of course be essential to take full account of the views of all WTO Members, including developing countries. One clear priority is the need for a better framework to define the relationship between Multilateral Environment Agreements and the WTO in cases where there is room for contradictions and inconsistencies between the two systems of law - which will in turn require greater technical coordination between trade and environmental policy-makers, both at the national and the international level. Other areas where we need to clarify the relationship between both policy objectives - trade liberalization and environmental protection - include, among others, eco-labelling, Production and Process Methods, and the so-called precautionary principle.
Second, we must continue to make progress on the issue of labour standards. Already we have made a crucial step forward with the clear and strong consensus which emerged from the WTO's Ministerial Conference in Singapore - a consensus first, that members were committed to the observance of core labour standards; second, that the ILO was the relevant body to address these issues; third, that standards are best promoted by growth and development, fostered by trade liberalization; and fourth, that labour standards should in no way be used for protectionist purposes or to put into question the comparative advantage of countries. The fact that the ILO is now making important strides in these areas demonstrates, not only that consensus on the most difficult issues is possible, but that consensus is absolutely critical to real and lasting progress.
The third step was the WTO initiative last year to provide assistance, in collaboration with UNCTAD, UNDP, the World Bank and others, to address the needs of least-developed countries. One objective is to give least-developed countries better access for their exports in advanced markets - and here I have strongly advocated that we provide bound duty free access. Another objective is to integrate the new technologies more effectively, so that least developed countries are aware of the opportunities in the global trading system, and better equipped to seize them. And the third objective is to better integrate a wide range of policies - linking technical assistance with capacity building to design a mutually reinforcing strategy for development.
I give these examples to emphasize three points: First, that multilateral approaches in the environmental, labour and development fields are working - though no doubt much more progress is needed. Second, that WTO Members have a direct interest in real, substantive and durable progress in these areas - not least because without such progress it is the momentum of the world trading system itself which could suffer. And third, that progress in these and other policy areas will be greatest where they advance in accordance with their own logic and needs and the forums best adapted to them. The WTO cannot provide a shortcut to consensus in these other policies. On the contrary, if governments cannot reach a consensus in the appropriate forums, it is even more difficult to see how they could reach consensus in an organization whose focus is trade and whose objective is trade liberalization.
Let me say a word about an area where we also need to clarify the relationship between different systems and to emphasize their common ground - and that is the relationship between regional arrangements and multilateralism. No doubt regional arrangements can be helpful to the integration process - providing an impetus to greater liberalization - especially for the developing countries. But in a world where the reality of global integration is calling for global solutions across a whole range of policies and issues, regionalism cannot provide an alternative to the multilateral system.
The difference between multilateralism and regionalism comes down to one basic question: whether or not the agreement is discriminatory. It is true that the multilateral system has always accepted some qualifications to MFN treatment in the case of regional arrangements as long as they meet the test of Article XXIV of the GATT and article V of the GATS. But with the growing scope and ambition of regional arrangements today it is increasingly clear that conformity with the legal requirements of the multilateral system cannot be the only consideration. There are other issues at stake which are of as great or even greater importance. One is the adverse impact of a complex web of differing regional and multilateral rules - especially the potential for competing dispute settlement procedures - on our ever-more integrated world trading system. An even greater concern arises when regional areas cover too many countries and too great a share of world trade - to the point where preferential deals become the rule rather than the exception in international trade relations. It is the answers we find to these questions - as well as the more legalistic issues - which will have a powerful impact on the future direction of the trading system.
I do not claim that the multilateral trading system that we have built in the last 50 years is a perfect one. But it is a system which is treats all countries equally, regardless of size, wealth or power. It is a system which operates by consensus, with all decisions approved by each government and ratified by each national parliament. And, more fundamentally, it is a system which is rule-based, not power-based, as a shared responsibility of all its members. It would be difficult to find a more transparent and democratic system in the international community - a reality which explains the lengthening list of developing and transition economies lining up to join. And yet we do not offer grants or loans, but just a framework to negotiate the lowering of trade barriers inside binding rules with the appropriate flexibilities for developing countries.
The reality of globalization is the reality of interdependence, an interdependence that, as I said at the outset, extends far beyond trade or strictly economic criteria. The human dimension of globalization is ever-more important. In every country and every region, the same questions, concerns and anxieties are being expressed: People want the fruits of economic growth and integration, but at the same time they fear the effects of globalization on the environment, wages levels, or cultural identities. They want a strong and enforceable system of rules - but only for others. They claim that their policies and practices are best, and want them adopted by others - but rarely do they accept the same proposition in reverse. And they recognize the benefits of greater cooperation and coordination at the international level, but they instinctively resist interference in domestic affairs or laws or policies. This reflects the fact that politics are mainly national, while technology, economics - and people's hopes and fears - are increasingly global in scope. This is why we need an international architecture which can take account in a balanced way of the policies and objectives which must come together in cooperation.
By definition, the global challenges we all face call for shared and cooperative solutions. They demand consensus. And this means using multilateral negotiations to construct multilateral agreements - which will require determination, skill, and patience. Next month we have an opportunity to celebrate a unique - and uniquely valuable - exercise in global economic cooperation: the fiftieth anniversary of the multilateral trading system. But we also have a window of new opportunity to be as creative in developing the architecture of an increasingly borderless, global economy as our forefathers were a half a century ago in developing the postwar international system. What is needed is a kind of breadth of vision that can match this emerging global age. Now, as then, America will be looked upon to help provide that vision and the leadership to make it a reality.