20 September 2002
The General Assembly of the Swiss Bankers Association
“From Doha to Cancun and beyond”
I should like to start by thanking you for inviting me to your General Assembly. It is indeed a pleasure for me to speak to you, especially as a former banker, I have a close interest in the financial world. Today, however, I will speak not about finance but trade.
The WTO is now about far more than import export regulation and other trade rules governing merchandise trade. It has become broader and more far-reaching. Expansion of trade rules in the WTO into new areas has made the multilateral trading system directly relevant to almost all aspects of economic policy-making. The Services Agreement, for instance, relates to a wide range of policies, including investment, movement of persons as well as covering the whole range of services sectors; from telecommunications to financial services to transportation, distribution, energy and professional services. This gives the WTO a strategic position both in terms of the international economic and the domestic policy agenda of each country.
I know that I do not need to tell a room of bankers about the importance of open markets or the need for rules to allow markets to function predictably and efficiently. I will therefore focus my remarks instead on our most urgent priority - bringing the current Round of trade negotiations, the Doha Development Agenda, to a timely and successful conclusion.
Let me start by explaining how this goal will be supported by the “four pillars” that I intend to strengthen during my tenure as Director-General of the World Trade Organization.
My first pillar is the legal framework which binds the multilateral trading system together. The WTO is the only international organization dealing with multilateral rules of trade between countries. These rules ensure that trade flows as smoothly, predictably and freely as possible. I intend to ensure that the Secretariat continues to be as helpful as possible to WTO Members to use this legal framework to their best mutual advantage.
My second pillar is to assist developing and least developed countries through technical assistance and capacity building to be better equipped to participate in the multilateral trading system. The WTO has taken on an unprecedented level of commitment in providing technical assistance and capacity building to developing countries. It is one of my priorities to ensure that our technical assistance and capacity building activities are effective, well targeted and coordinated with other agencies to get the best results.
As for my third pillar, I will seek to promote greater coherence in international economic policy-making. The reality of globalization is an increasingly interdependent world. The WTO cannot possibly achieve its goals working alone. The WTO, in keeping with its mandate, has to work closely along with other international agencies.
Lastly but most importantly, I intend to strengthen the WTO as an institution, so as to be able to serve its membership even better. My approach as Director-General will be equitable, balanced and inclusive. And I will support and encourage the work of Members in every way and at every level I can.
As you may know, at the Fourth Ministerial Conference in Doha last November, WTO Members launched a comprehensive round of trade negotiations - the Doha Development Agenda. The deadline for completing these negotiations is 1 January 2005. This time next year, Trade Ministers will meet for their Fifth Ministerial Conference in Cancun, Mexico to take stock of progress and take key decisions about the final phase of negotiations.
It is not a great deal of time. Doha was a beginning. Our challenge is to ensure that this beginning fulfils its promise. And it is a very bountiful promise indeed. The World Bank's Global Economic Prospects 2002, for instance, estimates that abolishing all trade barriers could boost global income over a ten year period by US$2.8 trillion.
The agenda for the Doha negotiations is extensive. It covers Agriculture, Services, Market Access for Non-Agricultural Products, Trade-Related Aspects of Intellectual Property Rights, WTO Rules, Regional Trade Agreements, Dispute Settlement, and Trade and Environment.
The negotiating agenda also covers a range of “new issues” which were among the most heavily negotiated subjects at Doha; these include multilateral rules for Investment, Competition Policy, Transparency in Government Procurement and Trade Facilitation. In each of these areas, Members are undertaking a preliminary period of clarification. We must ensure that all countries have an informed basis at the Fifth Ministerial Conference in Cancún next year for taking decisions by explicit consensus on modalities for future negotiations.
Other important elements of the work programme launched at Doha include for example: Small Economies; Trade, Debt and Finance; Trade and Transfer of Technology; Least-developed Countries; and Special and Differential Treatment. We are also addressing a range of implementation issues that are close to the hearts of developing countries.
So far, WTO Members have been making steady progress. The setting-up phase of the negotiations is over. The negotiating structure is in place and work programmes have been established for the various negotiating groups. Work on substance has started in all areas, although the pace differs. The Geneva process, which is at the core of the Round, is moving into a higher gear. The procedural phase of our work is now over, and Members will urgently be getting down to real business in the autumn.
I do not have the time to speak comprehensively about all the negotiating areas but let me touch on one sector which has direct relevance to you — the financial services sector, which is covered by the General Agreement on Trade in Services (GATS). The WTO’s General Agreement on Trade Services was considered to be one of the main achievements of the Uruguay Round. It is the first multilateral agreement providing legally binding rules on liberalisation of international trade in services. And it reflects the hugely important role of services in domestic economies. In Switzerland, for example, services account for around 72% of GDP.
The financial services sector, in particular, has always been perceived as a special sector in terms of its economic importance and political sensitivity. This sector accounts for more than five percent of GNP in most developed countries and in many developing countries. In Switzerland, it accounts for around 14%. Being the backbone of all other economic activity, the magnitude of benefits arising from financial services liberalization can be very significant.
However, it would be wrong to infer that these gains can be realized simply by opening up markets to foreign competition. Further liberalization — if it is to bring gains for all — must be pursued within a sound regulatory environment for the operation of financial institutions. Successful financial reform often requires careful sequencing of policies, and the appropriate sequence between the different areas addressed by reform processes — domestic reform, trade liberalization, and capital account liberalization — depends largely on the particular circumstances of each country.
There is no such thing as a “one-size-fits-all” model for financial reform. However, the experience has shown that trade liberalization and domestic reform in the area of financial services can and should be mutually reinforcing. Adequate prudential regulation and supervision, enhanced transparency and corporate governance, strengthened competition policy, proper legal and accounting systems are all preconditions to benefiting from liberalization.
Today, 113 WTO Members, including China, have binding commitments in the financial services sector - more than in any other services sector except tourism. That number of commitments speaks for itself and testifies to the importance that countries attach to the financial sector. I should highlight that many of these commitments were taken in December 1997, in the midst of a major financial crisis in South-East Asia. By taking the step towards liberalization, in such difficult times, governments reaffirmed that greater openness of their financial sectors within a rules-based system offered the only viable and endurable path towards financial stability.
Further liberalization of financial services is expected from the current Services negotiations, which commenced in January 2000. So far, the negotiations have been making satisfactory progress. Both developed and developing countries have submitted negotiating proposals on financial services trade. These proposals raise general policy issues on the classification of financial services, the most prevalent market access barriers in the sector, and issues relating to prudential regulation.
It would be certainly difficult to predict with any degree of accuracy what the outcome of the negotiations will be. Nevertheless, tremendous interest has been revealed in achieving higher levels of liberalization in all financial services — banking, insurance and securities — without jeopardizing the stability and integrity of financial systems.
Not all types of policy interventions affecting the financial sector are being negotiated in the WTO. The primary objective of the General Agreement on Trade in Services (GATS) is trade liberalization, i.e., the removal of barriers affecting both domestic and foreign suppliers' ability to establish a commercial presence or to provide services on a cross-border basis. In terms of the financial sector, GATS does not curtail the ability of governments to introduce prudential regulations, both to protect financial services consumers or to ensure the integrity and stability of the financial system. More importantly, macroeconomic policy management in general, and monetary and exchange rate policies in particular, fall completely outside the GATS realm.
Currently, the negotiations on Services have progressed to an important stage with the submission of bilateral market access requests. Initial offers are required by Members by the end of March 2003. From June this year Members have started to exchange requests, and in March 2003, the submission of offers will signal the start of a more intensive phase of negotiations.
An encouraging start has been made but important challenges lie ahead in the negotiations on financial services. On the one hand, there is a need to keep improving access to foreign financial institutions through rights of establishment and operation. On the other hand, it is becoming increasingly crucial to ensure that the GATS is responsive to the major technological changes witnessed in the last decade with the advent of Internet and e-finance in particular.
Trade liberalisation of financial services is and must be part of the wider discussion about the promotion of international financial stability. Ensuring the strength and stability of the financial sector is seen, and rightly so, as a crucial pre-requisite for the achievement of growth and development. Many countries, particularly developing countries, need to ensure that the necessary institutions, regulatory structures and legal frameworks are in place to accompany further steps for liberalization.
Through cooperation with the efforts of various international fora, the WTO system can contribute to international financial stability by securing liberalization on a non-discriminatory basis; and by ensuring that markets remain open and that the momentum for reform is not lost. I have long been associated with finance and trade. Both activities are mutually supportive. The dynamism and innovation of the financial sector has helped fuel growth in world trade and this has in turn opened new avenues for finance. Your support for the Round is important and I know that I can count on it, as much as you can count on my total input and my total dedication.