exhilarating to be in this city. Berlin is undergoing a process of historical
transformation which is propelling it towards the political and cultural centre of Germany
- a united Germany within a united Europe. The skyline is dominated by scaffolding
and cranes, physical manifestations of the birth of a new capital and a new century. So
this is an exciting place and an exciting time, and I am very grateful for the invitation
to join you here.
This transformation of Germany
is of course occurring against the backdrop of a much wider transformation in the world
economy. Today I want to talk about how this economic transformation is being driven by
the increasingly borderless flow of services - and the knowledge, information and
ideas embodied in these services. How technology is making this borderless economy
possible - even inevitable. And how new international economic institutions,
rule-based like the WTO, are becoming central to managing a world where economic systems,
cultures and peoples have never been more interconnected and interdependent.
What we are
witnessing today is the realization of Marshall McLuhan's prediction in the 1960s that
"electronic interdependence would create the world in the image of a global
village". Thousands of miles of fibre optic cables now join oceans and continents
together, as do the millions of sound waves and electromagnetic signals that crisscross
the atmosphere above our planet. Twenty-four hours-a-day this global network carries the
world's business contracts, currency transactions, medical information, and educational
resources, instantaneously across time zones, borders and cultures.
interconnected economy is influencing more than productivity growth. It is making
knowledge a more important production factor than labour, raw materials, or capital. It is
shaping a new and more equitable relationship between the developed and the developing
world. And perhaps most dramatically, it is creating the closest thing yet to a single,
borderless global economy - an economy which will have profound implications for the
way national systems operate in the future.
see the trend towards freer global trade in traditional goods sectors - with almost
sixty per cent of world trade scheduled to be tariff free early in the next century. But
is in the services sector where the potential for global free trade is by far the
greatest. Rapid advances in digital and communications technologies are creating the
possibility of borderless electronic trade in key services sectors - erasing many of
the limitations of time and space. Just down the road - within a few years - we
can see the prospect of telecommunications, even across the Atlantic, becoming almost a
free commodity. The cost of computing power has fallen dramatically since 1960, bringing
it within the reach of millions of ordinary people. 50 million personal computers were
sold in 1995, as compared with 35 million cars. The Internet is the most powerful symbol
of these developments: it has been steadily doubling in size every year since it was
invented a quarter of a century ago and will clearly become a global market in its own
Just as the
globalization of trade and investment has changed the way goods and raw materials are
produced throughout the world, the advent of a borderless, electronic economy promises to
transform the services sector - a sector which now accounts for more than 70 per cent
of GDP in many OECD countries and 50 per cent in some developing countries. It was once
thought that most services were difficult - or even impossible - to trade
because "exporting" required a presence in foreign markets. Now, thanks to the
micro-chip and fibre optics, any service which can be digitized and transmitted
electronically can be produced and delivered almost anywhere in the world in a matter of
Let me take a
moment to underline four broad characteristics of this emerging borderless services
- the first
is its increasing indifference to geography, distance and time. Transaction costs for
consumers and businesses will fall rapidly as many steps that intervene between buyer and
seller - distribution, sales, retailing - are compressed. Perhaps the most
significant result of the development of electronic commerce will be the falling barriers
and costs to market entry. Starting a new business will be much easier - allowing a
far greater number of suppliers to enter a market. Small and medium-sized enterprises
- as well as large multinational corporations - will now be full participants in
the global marketplace. Businesses in developing countries can now overcome many of the
obstacles of infrastructure, capital, and transportation which limited their economic
potential in the past. And in the end, consumers all over the world will benefit from this
growing global competition.
services industries - especially financial services, telecommunications and
transport - are creating the reality of a global infrastructure for the world
economy; an infrastructure which is greatly facilitating the adjustment of old industries
and the development of new ones. A good example is the emergence of a truly global
financial system - the result of technological advances and market
liberalization - which will allow many developing countries to continue their growth
trajectory, and to further narrow the gap with the developed world.
- third, and
perhaps most important, the global services economy will be a knowledge-based economy
-and its most precious resource will be information and ideas. Unlike the classical
factors of production - land, labour and capital - information and knowledge are
not bound to any region or country but are almost infinitely mobile and infinitely capable
of expansion. This knowledge-driven economy is not replacing other economic activities
- factories and farming are not going to disappear, software is not going to
substitute for the food we eat or the cars we drive. But technology is changing the way we
produce things - sometimes in quite dramatic ways. Take the example of the German
automobile industry which has almost completely reinvented itself over the last several
years by introducing advanced information technologies, robotics or computer-aided design
into the production process - to the point where automobile production often seems
closer to a services or "ideas-based" industry than traditional manufacturing.
changes lead to a fourth characteristic: the borderless technology's potential to equalize
relations between countries and regions, because of its capacity to open the way to free
and equal access to information and knowledge for every country, every region in the
world. The gap between the richest and the poorest countries is still unacceptably wide,
but the economic and technological means to close the gap are already in place - and
I believe that many developing countries will be able to leap-frog phases of industrial
development which in the North have taken decades to accomplish.
market of information and knowledge will have social and political ramifications that go
far beyond economics. Doctors are utilizing tele-medicine to administer off-site diagnoses
to patients in need. Students across the world are discovering vast stores of information
via the World Wide Web.
In the WTO we
are also building electronic bridges to a wider world - using the Internet and our
new Information Technologies For Development Project to deliver, with the collaboration of
the World Bank, technical assistance, trade data, training, and interactive policy support
to the least-developed countries which most need to be integrated into the global economy.
These are not
predictions for some far-off future - such changes are already underway now, today.
Already we are witnessing a significant shift in economic power towards the South - a
shift that will have as dramatic an impact on world politics as the collapse of the Berlin
Wall. And this shift will be beneficial to developed and developing countries alike. The
World Bank projects that developing countries will grow by 5 to 6 per cent a year between
now and 2020. This means that the developing countries will almost double their share of
world output, from around 16 per cent in 1992, to 30 per cent in 2020. What these numbers
demonstrate, among other things, is the accelerating pace of development. The first
industrialized country, the U.K., took 58 years to double its per capita living standards;
the U.S. took 47 years; Germany, 43 years; and Japan 34 years. But from 1966, Korea took
just 11 years; Chile 10 years; and China 9. And these distances continue to shrink. Ten
developing countries, accounting for almost a third of the world's population - or
over 1.5 billion people - more than doubled their average per capita income levels
between 1980 and 1995.
The rôle of
the WTO is essential to the increasingly borderless, interconnected world. What the WTO
- like the GATT before it - provides is a force for increased liberalization
within a framework of international law, based on consensus, with an enforcement capacity,
so that these economic and technological changes can unfold in a balanced, equitable and
constructive way. From this perspective, one of most important contributions of the
Uruguay Round to the current economic order - and one of the most significant changes
to world trade rules since the inception of GATT in 1948 - was to bring services
trade liberalization within the multilateral system.
been three major negotiations since the end of the Uruguay Round in what we call the
infrastructural services - financial services, telecommunications and transport. Let
me take a moment to outline the state of play in financial services - the key
priority for the WTO in the coming weeks.
of the financial services negotiations is to achieve real improvements in access to
markets. Essentially, this means the right for foreign investors to operate on equal
competitive terms with national companies in national markets. It also means the removal
of unnecessary restrictions on the cross-border supply of financial services
- restrictions which will, in any event, become increasingly anomalous in a world of
borderless, electronic commerce. And it means protecting equity rights already achieved in
on this subject under the General Agreement on Trade and Services (GATS) have a chequered
history. Both in 1993, and at the end of resumed negotiations in the Summer of 1995, the
level of commitments negotiated was thought by the United States insufficient to
justify opening their own huge market to all WTO Members on an most-favoured-nation basis.
I believe that an agreement is now at hand. Ninety-five countries have already made
provisional market access commitments on financial services in the two previous
negotiations, and in the negotiations which are due to end on 12 December we shall
see improvements or new commitments made by something like 40 countries. The number and
the quality of the commitments negotiated are essential for a positive outcome. But it is
equally essential that we firmly anchor the financial services sector in general in the
multilateral system of rules and procedures. We cannot afford continuing doubt about the
commitment of the major powers to multilateralism in this fundamental services sectors.
about the possible effects of the recent turbulence in financial markets in Asia on the
WTO negotiations to liberalize financial services. Partly these reports spring from
confusion about the distinction between liberalization of market access - which is
our aim - and deregulation - which is not. They are quite different, and the
GATS explicitly recognizes not only the right of all governments to regulate financial
markets but their absolute freedom to take whatever prudential measures that are necessary
to safeguard the integrity of those markets. Macro economic policy and monetary controls
are not being negotiated under the umbrella of the WTO. I am greatly encouraged by the
insistence of all participants in the negotiations that recent events in the markets have
not shaken either their belief in liberalization or the commitment to this negotiation.
I am also
greatly encouraged because of the important successes which the WTO has already achieved
this year. We have demonstrated that we can negotiate and successfully conclude a
path-breaking agreement to free global telecommunications services - a subject which
had been thought politically unripe and technically too demanding to be negotiated
effectively in the Uruguay Round. On 15 February of this year 69 countries,
accounting for over 90 per cent of global telecommunications revenue, committing
themselves to competition in markets which had until recently been regarded as natural
monopolies - where it made no sense to envisage competition, let alone foreign
In this same
year we have also reached an agreement to eliminate tariffs on information technology
products. Together with basic telecommunications, this adds up to a volume of trade
equivalent to that in agriculture, cars and textiles combined. These agreements symbolize
the rapid advance of the information-based economy, which is blurring the distinction
between services and manufacturing sectors.
One last word
on a final element of the global infrastructure I referred to above - transport
services. I mention them as a reason for looking forward, not because these are triumphs
to report. Negotiations on maritime transport which ended in the Summer of 1995 were
unsuccessful; indeed neither the European Union nor the United States have accepted any
market access commitments in this sector. The air transport industry is also something of
an exception, because most aviation services were excluded from the coverage of the
agreement - which may help to account for the fact that it can cost more to fly from
Berlin to Geneva than from Berlin to New York.
No doubt we
are living through a deep and rapid transition towards a very different world. No doubt
there are serious short-term and structural problems affecting the current world economy:
such problems must be dealt with decisively and with a spirit of cooperation by national
governments and by international institutions. There are so many signs of uncertainty and
apprehension in both advanced and developing countries revolving around unemployment.
world in which we live is not static, but highly dynamic in the extent and pace of change.
We are all of us aboard a fast-moving train - yet there is a worrying tendency in
many countries to look back nostalgically on the old economy we are leaving behind, with
its many problems of adjustment and transition, while ignoring the new economic landscape
we are rapidly entering into.
This is a
mistake. It is a mistake to ignore that fact that world trade - such a powerful
engine of economic growth - is on track to doubling within one decade. That world
output and resources are projected to double within twenty years. And that the rate of
growth of developing countries will likely be double of that of developed countries well
into the next century. Moreover, as these developing countries rise economically, their
demand for advanced country products is also rising - a demand which will become more
and more a stimulus to growth and job creation in the industrialized world as well.
As a matter
of fact, the employment situation is not the same in every advanced country. In the United
States, for instance, the advent of new technologies is creating more jobs - and more
highly paid jobs - than it is destroying; in other words, behind the downsizing there
is an even more powerful process of upsizing taking place.
It is also
fascinating to see that the political faultline that ran through two centuries of world
politics is suddenly disappearing. Today, the real debate is not between Right and Left
politics, but right and wrong policies - a point eloquently made by British Prime
Minister Tony Blair when he observed that ours is "a generation that claims
education, skills and technology as the instruments of economic prosperity and personal
fulfilment, not old battles between state and market".
underestimate the reality of our interdependence and the inevitability of globalization.
Trade will continue to grow as a share of national GDP as our economies become
increasingly intertwined - from an average of 7 per cent in 1950, to 22 per cent
today, to an estimated 50 per cent by 2020.
There is an
artificial, even surreal, quality to the current debate over globalization - a
yearning for a past which cannot be recreated and a stubborn refusal to embrace a future
which offers so many people so much hope for a better life. The truth is that today
- because of the enormous advances of new technologies and trade
liberalization - we have the chance of offering to every nation, including
least-developed countries, the possibility of equal access to education and information,
thus creating the conditions for a society based on equality of opportunity. Never before
have we had such opportunities, in a context where the market, in all its different forms,
dominates the evolution of the global economy. Never before has a generation had so many
economic and technological opportunities to create a better world. If we live up to this
challenge we will enjoy a full share of these unprecedented opportunities.
This is why
we need to develop a new message of confidence for our publics: a message about the
extraordinary opportunities - and not just the risks - which our present age of
global transformation offers. Is these any rational alternative to this ongoing process of
global change? Should we stop technological progress - somehow halt the development
of faster airplanes and computers, or arrest the worldwide spread of televisions, faxes,
and cellular telephones? Should we consider closing our borders to exports from developing
countries while keeping their borders open for our exports? Should we seek to slow down or
even stop the industrialization of billions of people, and at the same time maintain our
own growth and security unaltered? Even if we stop their products, can we also stop their
migration towards our countries?
rational answer is no.
We do not
want to conjure up a divided world, which would not be characterized by rules-based
international cooperation, but by power-based anarchy. Protectionism would be the result,
and we know that protectionism - even if it were possible in our ever-more
interconnected world - leads to economic and political nationalism. Instead of
inventing the future, where liberalization of services and their progress will have a
crucial rôle, we would risk a return to the past, with its conflicts and its tragedies.
What we need is just wisdom and courage.