The Future Path of the
Multilateral Trading System
the Korean Business Association. Seoul, Korea
Attached is the full text of the speech delivered by WTO Director-General, Renato Ruggiero, earlier today (17 April) in Seoul to the Korean Business Association.
It is no exaggeration to say that the system is at a turning point - a very positive one, built on the consecutive successes of the Singapore Ministerial Conference, the agreement on liberalizing basic telecommunications services and the recent agreement on Information Technology products. Never before has the multilateral trading system been seen to be more relevant and effective, and more essential to growth and stability worldwide.
The WTO's growing rôle in the global economy is reflected in the movement to widen its coverage as well as to deepen it. Today the WTO's membership stands at 130, eighty per cent of which are developing countries or economies in transition. And of the 28 countries currently negotiating accession - including China, Russia, Saudi Arabia, the Baltic states, and Vietnam - all are developing countries or economies in transition. This is a positive referendum on the value of the multilateral trading system. With these countries inside the system -- and I have every reason to think they will be -- the multilateral system will be truly universal for the first time in its fifty-year history.
Secondly, these achievements are only the beginning of the WTO's success story. They are backed up by a truly impressive agenda which is surging forward to extend liberalization and the rule of law into new sectors.
Thirdly, the value of this success story to Korea and to the world goes beyond the trading opportunities it opens up, valuable though they are. It confirms the fact, now more and more widely recognized, that the world has in the WTO a key to the globalized economy. Trade liberalization through the multilateral system has done much to foster global economic integration - the central economic fact of our time - and now the strengthened rules and disciplines of the WTO system provide governments and the private sector with a firm international framework within which to make the most of its opportunities and take up its responsibilities.
Let me deal with these points a little more fully, starting with the economic significance of the recent successes and future prospects.
I would like at the outset to stress the importance of the active and positive rôle I hope Korea will continue to play. This is important in all sectors but perhaps nowhere more than in services, which provide 65 per cent of Korea's GDP. Korea is indeed becoming an important participant in world services trade. In 1995, it ranked 10th in world imports and 14th in world exports of commercial services.
Your Government's continuing contribution to the liberalization of telecom services will benefit business and all other consumers. It is worth noting that, in general, firms spend more on telecommunications than on oil. The recent agreement on basic telecomms is a good illustration of where the multilateral system must travel in the future. Not only does the agreement accelerate liberalization in a key economic sector -- leading to faster price cuts, greater efficiency, and more innovation -- it also creates a global regulatory framework for the telecommunications industry broadening rule-making horizons into areas like competition policy, investment, and standards and regulations.
The boom in the telecommunications equipment market also underlines the importance of the other major liberalizing deal completed on 26 March - the agreement to phase out tariffs on information technology products. Free trade in IT products will benefit everyday life of consumers and companies.
Forty countries (Korea among them) have agreed to phase out all tariffs on computers, software, telecoms products and semiconductors. They account for 92.5% of world trade in IT products, but the benefits of this agreement extend well beyond the 40 and will indeed reach practically every country on earth.
The ITA agreement, together with the telecoms agreement, is of major importance for the whole telecommunications industry. World trade in IT products is valued at nearly US$600 billion, larger than trade in agriculture. But its importance cannot be measured in numbers alone. Both agreements hold the potential to unlock enormous gains in development and growth which would benefit all countries, developed and developing alike. For Korean industries, this means that by the year 2000 you will be in a position to export IT products free of any barriers to most major markets, and to some developing countries by the year 2005.
The opportunities for Korean companies are enormous, not only as services providers but as suppliers of equipment. For example, the World Bank has estimated that Asia will need to spend more than US$60 million in the next five years on telecommunications systems. And Korea is the fifth leading exporter of Information Technology products, with exports worth US$33 billion in 1995.
Then, looking to the agenda ahead of us, we face the challenge of reaching an agreement to liberalize financial services by the end of the year. Negotiations have resumed last week in Geneva, and I know how keenly aware you as businessmen are of their importance. If telecoms are the nervous system of global business, financial services are its arteries. I hope you will put all your weight behind a global deal which will help your company's competitiveness at home and abroad. We at the WTO are looking forward to the results of the Presidential Commission on Financial Reforms which is operating in Korea. It is to be hoped that the reforms will also be bound at the multilateral level.
These negotiations are not just economically important in themselves, they bring the trading system towards the agenda of the twenty-first Century. More and more, information will be the key raw material of the global economy, and access to it the key to development and growth. The WTO is now showing that it can help create open, predictable and non-discriminatory conditions of access for trade in these new services and technologies in the same way as the GATT did for trade in goods.
In an ever more interdependent world, it is no longer possible to overlook the impact on international trade of Investment and Competition polices. Trade and investment are increasingly inseparable as modes of delivering goods and services to foreign markets and as vehicles for the international integration of productive activities. At the same time, the benefits of international trade and investment flows will not be realizable in the absence of functioning competitive markets within countries.
The Singapore decision reflects a recognition of the need to take an integrated approach to trade and investment, as well as to associated competition policy issues, in a way that ensures the mutual compatibility and coherence of international rules governing them and takes into account in a balanced way the interests of all members of the international community.
Lastly, no review of the achievements of the WTO would be complete without mentioning the Dispute Settlement system, in many ways the central pillar of the multilateral trading system and the WTO's most individual contribution to the stability of the global economy. The new WTO system is at once stronger, more automatic and more credible than its GATT predecessor. This is reflected in the increased diversity of countries using it and in the tendency to resolve cases "out of court" before they get to the final decision - 19 out of 71 cases so far. The system is working as intended - as a means above all for conciliation and for encouraging resolution of disputes, rather than just for making judgements. By reducing the scope for unilateral actions, it is also an important guarantee of fair trade for middle-sized exporting nations such as Korea.
These successes also help provide the answers to a number of important questions about the evolution of the trading system.
(i) The relationship between regionalism and multilateralism: the primacy of the multilateral system is becoming apparent as an economic and political reality. With the success of the Ministerial Conference, the agreements on telecomms and the ITA, the agenda of the multilateral system - and its achievements - have now taken a clear lead over regional initiatives.
(ii) The question of whether the future lies with sectoral negotiations or with all-encompassing rounds has also been answered - it is clear that both are possible, and either may be appropriate depending on the circumstances. The success in telecoms has shown that sectoral negotiations are a real option, but it is also likely that the negotiating rendez-vous for subjects such as services and agriculture at the end of the decade will exert a gravitational pull on other sectors in the direction of wider negotiations.
(iii) Concern about a possible division between North and South, between developed and developing countries, has been greatly reduced, firstly by the active and crucial participation of many developing countries at the Singapore Ministerial, and secondly by their contribution to the negotiations on telecoms and the ITA. In these sectors, countries at all levels of development have been on the same side of the table.
These answers add up to a single conclusion which is of profound importance for the future of international economic relations; that in the WTO we have a new and highly effective instrument with which to handle the challenges of the global economy.
* Few people now deny that globalization is a growing reality; over the last fifty years (and especially over the last decade) the world economy has been integrating at breathtaking pace: for example, in the last four decades, world trade increased 15-fold while global production increased only six times. Globalization is being driven by revolutions in technology, economics and public policy. This process of technological revolution and global liberalization is leading to the emergence of a new kind of economy - the borderless economy - in which information is increasingly the critical resource and the basis for competition.
* Globalization represents a huge opportunity for countries at all levels of development. All the evidence shows that trade liberalization has been a powerful engine for economic growth; but it is also spreading the tools of economic, technological and social development more widely. A third of the world's leading exporters and importers are now developing countries; developing countries now account for around a quarter of world trade compared to less than 20 per cent a decade ago; and foreign investment in developing countries has tripled in the past five years. But globalization is also a major growth stimulus for developed economies. As developing countries export more, they import more.
* But it is our responsibility - governments, international organizations and the private sector alike - to deal with the reality of globalization in a co-operative and constructive way. We are confronted with the task of building a new global architecture. The challenge is not simply to design institutions to manage frictions, but to find ways to harness our collective powers to address broader global problems in a coherent and constructive way. High on any priority list must be the situation of the least-developed countries, where I hope Korea will be able to take an active and positive rôle.
* The success of the multilateral system and the increasing globalization of the world economy make all the more important the need for all countries to maintain trade openness and firmly resist any domestic pressures aimed at going back to old practices of protectionism. It has been shown on many occasions that trade restrictions are not the right answer to domestic problems such as trade deficits. We must all help the public in all countries understand that measures which may unduly restrict trade will also restrict their own prospects for employment and growth, and may also affect the multilateral trading system which has been fundamental in economic success.
Korea's economic success story means that all the world pays attention to what happens here; OECD countries because Korea is a new member of their grouping; developing countries because Korea sets an example of dynamism and growth.
This gives Korea added responsibilities in terms of keeping firmly to the principles of liberal and open trade within the multilateral system. Sometimes the legal facts alone do not adequately reflect the complexities of a trading situation.
We all understand that Korea has recently experienced slowing growth rates and a severe current account deficit. But if we look at the situation more broadly it is clear that the economic fundamentals remain strong. Savings rates are still high, and growth is still running at a rate that is the envy of all major trading partners. The current account deficit is less than 5 per cent of GDP.
Against this background it is worth underlining that consumer goods account for only some 11 per cent of Korea's imports, and that Korean exports in this sector are three times as large.
All these elements are important first of all to build a message of confidence in Korea's ability to come through the present difficulties and continue its exemplary economic progress.
Secondly, they serve to emphasize what you already know: that success increases responsibilities. As the seventh largest world trader (counting the EU as one), Korea is among the greatest beneficiaries of the opportunities the multilateral system provides. Your public opinion and those who influence it have every reason, therefore, to take a lead in upholding the values of this system.
Only the multilateral system provides an agreed framework of enforceable rules for the global economy:
* The WTO is rules-based. Almost uniquely in the history of international relations, the WTO is based on a set of rules - or contractual obligations - governing trade and economic policy. This greatly reduces the uncertainty surrounding transactions across national frontiers, which in turn promotes trade-related investment, job creation and economic growth. More importantly, the system helps ensure that the economic relations among nations are based on the rule of law, not the rule of power.
* The WTO is based on the principle of non-discrimination. By definition it is a system which is inclusive and open - a force for integration - rather than exclusive and preferential.
* These principles are as valid to electronic trade as they are to commodity trade. More than ever, the new global economy needs the multilateral system as an instrument for global economic rule-making as well as global liberalization. Where once trade policy was about regulating commercial relations among national economies, it is now about establishing the ground rules of a transnational economy in areas that were once exclusively domestic.
Next year the multilateral trading system will mark its fiftieth anniversary. I hope that, with the support of governments and the private sector as well, this will be an occasion not only for looking back with satisfaction on the achievements of the past but also for preparing the ground for the successes of tomorrow.
After the events of the past six months there can be no room for doubt that the system administered by the WTO is a key element of the global economy. The challenge we face in looking to the next fifty years is to ensure that it continues to evolve along with that economy, and that in doing so it helps us to reap the greatest possible dividend of prosperity and peace."