WTO NEWS: SPEECHES DG SUPACHAI PANITCHPAKDI
London, 4 November 2003
“The multilateral trading system: challenges and opportunities”
Third City of London Biennial Meeting
Ladies and Gentlemen,
It is an honour to join you here today and a real pleasure to be participating for the second time at the City of London Biennial Meeting. The multilateral trading system is at a crucial juncture and under great strain. Contrary to what the media may like us to believe, the system is alive and well and certainly gaining in significance after the so-called setback at Cancún. Countries all over the world may be involved in some forms of bilateral or regional free-trade agreements, however, all these efforts are just a miniscule part of the total world trade volume while their successes depend totally on the success of the multilateral negotiations.
It is easy for us to take for granted the relative freedom and ease with which commercial transactions between countries can take place today:
6.3 trillion US dollars of merchandise and 1.6 trillion US dollars of commercial services were traded last year.
At their peak in the year 2000, total flows of foreign direct investment reached 1.2 trillion dollars.
Anthony Giddens, Director of the London School of Economics, published a series of lectures about Globalisation in 1999, in which he noted that more than a trillion dollars is turned over each day on global currency markets. This amount, he observed, if measured as a stack of hundred dollar notes would be over 120 miles high, some twenty times higher than Mount Everest.
Of course, there are many reasons for this level of international
economic activity — among these are developments in information
technology, communications and lower transportation costs. Often
forgotten, however is the decisive and fundamental impact of government
policy decisions. When we look back at the history of trade policy
decisions of many governments we can see an unhappy record of taking
decisions not on the basis of the overall economic welfare of their
citizens, but for political gain — whether to secure the support of
vested interests demanding protectionism, or to use trade as an
instrument of foreign policy. We have also seen an unfortunate tendency
for Governments to turn inwards in times of economic difficulty,
sometimes with catastrophic consequences. The most dramatic
demonstration being the events leading up to the Second World War —
where protectionism was one of the misguided responses to economic
failure and rising levels of unemployment. A huge tariff hike provoked
spiralling protection around the globe. Many have identified the ensuing
collapse in global economic activity as being a major cause of war. It
is a pertinent reminder of how bad economic policies can have
consequences that go way beyond economics.
That is why governments planning the post-war international economic order put a premium on building a framework of rules to provide greater stability and predictability in international trade and accepted certain limitations on their sovereign freedom to intervene in trade. GATT and its successor the WTO have been the enabling institutions. They have set the framework of rules and the reconciliation procedures, and above all the culture of negotiation rather than confrontation essential to building mutually beneficial trading links.
The multilateral trading system's great strength has been its broad reach, which can generate the right environment for policy trade-offs needed for liberalisation to take place. Since 1948, tariffs in the industrialized world have been cut by more than 80% in 8 successive rounds of negotiation, and a vast range of quantitative restrictions and bureaucratic controls have been removed. Since 1948, trade has grown faster than international output in all but eight years.
And the WTO is now about far more than import export regulation and other trade rules governing merchandise trade. Expansion of trade rules in the WTO into intellectual property and services has made the multilateral trading system directly relevant to almost all aspects of economic policy-making. The Intellectual Property Agreement is closely related to industrial policy and investment policy. Members have been debating the possibilities of involving other areas of bio diversity, traditional knowledge and extension of protection of geographical indications. The Services Agreement relates to a wide range of policies, including investment, movement of persons as well as covering the whole range of services sectors; from telecommunications and financial services to transportation, distribution, energy and professional services.
When the GATT became the WTO in 1995, its mechanism for resolving disputes between Members was strengthened and made more predictable. Over the last eight years over three hundred cases have been brought to the WTO. This is the same number as were brought to the GATT in all fifty years of its existence. The dispute settlement system has been remarkably successful in isolating these trade disputes from one-another and resolving them through recourse to consultation and the rule of law. A few headline grabbing cases belie the fact that one third of cases brought to the WTO are quietly settled between parties to the dispute without litigation. Indeed, less than half of the cases have been taken as far as panel proceedings. One of the system's great successes is its strong record of compliance.
And the WTO is close to realising its objective of becoming a truly universal organisation. Today, the WTO has 146 Members of all sizes and levels of economic development — the diversity of which is reflected in our most recent accessions. China, the world's most populous country and its fourth biggest trader joined the WTO two years ago. This September, Nepal and Cambodia, two of the poorest and most vulnerable countries in the world, signed their accession treaties and will soon become full Members — bringing total WTO Membership up to 148.
But I am not standing before you now just to sing the praises of the WTO, its achievements, and what it represents in terms of economic and international legal principles. Because what the WTO is really is just the agent for enterprise and initiative, the decisions and the choices of business people and of consumers all over the world. That is why we need to understand each other fully as to what we should be trying to achieve in the near future.
In front of us we have a unique, and some have said a “once in a generation” opportunity to strengthen the rules of the trading system and to drive down further barriers to trade through the current round of multilateral trade negotiations. This round was launched two years ago in Doha, Qatar and the deadline for conclusion is 1 January 2005 — some fourteen months from now. It is commonly known as the Doha Development Agenda, reflecting the commitment of Members to ensure these negotiations bring benefits to all who participate, but most particularly to developing countries and the poorest among them, for whom trade can play a central role in their efforts to achieve economic development.
Let me briefly now touch upon some of the elements of the Doha Development Agenda Work Programme.
First the work programme invigorates and extends the negotiations for liberalizing access to markets which are the core business of the WTO — in agriculture, in industrial goods and in services. Notwithstanding the major achievements made in past rounds, there remain serious impediments to trade, competition and economic efficiency. Tariff peaks and tariffs in developed countries which escalate with the level of processing are of particular concern for developing countries. These tend to be concentrated in agriculture, food products, textiles and clothing and other manufactures in which developing countries have comparative advantage. In agriculture, these impediments are also severely compounded by the fact that developing countries also have to compete in markets where huge subsidies abound — to the tune of 1 billion dollars a day in OECD countries.
On the other hand, the negotiations must involve market opening in developing countries, with careful consideration to the pace and sequencing of reform. Our experience has clearly shown that open economies have consistently outperformed those that are closed. And we should not forget that the impact of high tariffs held by many developing countries is borne by their domestic consumers as well as user industries in the form of more expensive goods and services. These costs tend to hit the poorest hardest, and hamper the competitiveness of user industries. The negotiations offer the chance for developing countries, who have not already done so, to increase the level of their tariff bindings to help create a more predictable climate for trade and investment. They are an opportunity not only to stimulate trade flows between developed and developing countries, but also among developing countries themselves.
Equally there is great scope for reform in the services negotiations. And I appreciate that speaking to this audience about the benefits of services liberalisation is like preaching to the converted. Today the UK is Europe's biggest exporter of commercial services. The UK exports three times more financial services than France, Italy and Germany combined.
The WTO's General Agreement on Trade in Services is a relatively new agreement and hence the commitments made in the last round of trade negotiations generally reflect the status quo of market opening. This is, of course, not to be sniffed at, as it guarantees a level of access. However the Doha Development Agenda offers the opportunity for real liberalisation — which could yield very significant results. The Agreement offers all the flexibility needed to ensure that national policy objectives and constraints can be properly accommodated and that access liberalisation is not at the expense of necessary regulatory safeguards for services, consumers and the economy overall. The World Bank has estimated that welfare gains from a 50% cut in protection in the services sector would be five times larger than for non-services sector trade liberalisation. Can we afford to ignore this?
The negotiations also cover strengthening existing WTO rules as well as the possibility of extending WTO rules to other areas. Amongst other things, we are looking at how to strengthen WTO disciplines on anti-dumping. It is important that we have strong disciplines to prevent unfair trading practices, but at the same time these should not be used to undermine liberalisation achieved. We are looking to make special provisions for developing countries more precise, effective and operational to assist these countries to participate more actively in international trade. We are exploring ways of accommodating the concerns many developing countries have about the implementation of WTO agreements that were negotiated in the last round of trade negotiations. And we are also considering ways of strengthening the WTO's dispute settlement mechanism.
The Doha Development Agenda is, without question, one of the most ambitious rounds of trade negotiations yet attempted. Never before have there been so many Members involved. Never before have there been so many negotiating subjects on the table. And all areas of the negotiations need to be agreed together in final “single undertaking” package. This means that a successful result on services, for example, is contingent upon successful results in agriculture and other areas of the negotiations. These are, of course, all ingredients for a balanced outcome and one that could bring very significant results. The breadth of the negotiations offer opportunities for trade-offs and something of interest to everyone.
The ambition of the Doha Development Agenda, however, is also matched by its complexity. This has meant that when we take two steps forward, we sometimes also take one step back. But on balance we are moving forward in a constructive way. This is often lost in media reporting where good news becomes old news very quickly, and only sensational developments grab the headlines. There was, I know, a great deal of coverage of the WTO's Fifth Ministerial Conference which took place in Cancún this September. There was talk of “catastrophe”, the “collapse of the round” and in some more extreme cases “the end of the WTO”. I can say quite frankly and openly that the meeting in Cancún was a disappointment. We did not achieve all that we set out to achieve. But it was not the death knell of the Doha Development Agenda, nor has it consigned the WTO to a period of irrelevance or dormancy as such analysis would lead us to believe.
The Cancún meeting was an opportunity for WTO Ministers to give political momentum and direction to the Doha Development Agenda to bring it to a timely conclusion by the set deadline of 1 January 2005. It was not intended to be the end of negotiations — a make or break situation — but an important milestone in the process. It was an opportunity for Ministers to build on two years of work in Geneva, where we had begun to see positions move gradually closer together.
In Geneva we had worked on different areas of the negotiations in sequence. In the first phase of the negotiations we concentrated on the issues of particular interest to developing countries, and by Cancún we had achieved agreement on twenty-eight proposals for special and differential treatment for developing countries. We also reached a historic deal on access to medicines for poor countries who lack domestic manufacturing capacity. Later on we also focused on the different areas of market access — services, agriculture and non-agricultural market access in turn.
The Cancún meeting was an opportunity for Ministers to look at the negotiating package as a whole to seek trade offs, to bridge gaps at a higher political level, and to take decisions on issues mandated by the Doha work programme, in particular on the future of the so-called Singapore issues. What we were hoping to achieve was agreement on a text which would serve as a roadmap for the final phase of the negotiations. A draft text was put on the table and I would say that Members were in agreement with about three quarters of this text. Towards the end of the meeting we tried to bridge the gaps where positions remained apart. We did see a lot of flexibility being shown. But in the end it was not enough, and time ran out.
At the end of the meeting Ministers reaffirmed their commitment to the Doha Development Agenda and they gave us until December 15 to decide how to move forward and I have since been engaged in intense consultations with Ministers and Ambassadors. The overwhelming message I have been hearing is of a strong commitment and determination to get the negotiations back on track.
This indicates to me that Cancún has served as a wake-up call for Members and provoked some reflection about what the world would look like without a strong and dynamic multilateral trading system and without a successful Doha Development Agenda.
Regional and bilateral arrangements could assume even greater proportions. No country is satisfied with the status quo. All want access to new markets, and new business opportunities. Already bilateral and regional trading arrangements are a prominent feature of the trading system. Today there are around 250 agreements currently in force and there could be close to 300 by 2005. Every WTO Member, with the sole exception of Mongolia, is either already party to one or more bilateral or regional deals, or in the process of actively negotiating one. Regional deals can be helpful if they are open and move forward in tandem with global trade liberalisation. But they are not a substitute. They are, by their very nature discriminatory. None have really succeeded in opening markets in sensitive areas like agriculture. They add to the complexities of doing business by creating a multiplicity of rules. And the poorest countries tend to get left out in the cold.
We may also see a rise in dispute settlement activity. As I mentioned as many disputes have been brought to the WTO in the first eight years of its existence as were brought to the GATT in the previous fifty years. This is an important signal of confidence in the system, but it also indicates that there are disagreements under the new system that need to be worked out. If Members are to retain their confidence in the system, and their willingness to abide by WTO dispute settlement recommendations, litigation in the WTO must be used as a last resort. As much as possible, differences should be resolved through consultation and negotiation before parties turn to the WTO's quasi-judicial bodies to rule on their differences.
Failure to advance the Doha Development Agenda would certainly be a lost opportunity for developing countries to become more fully integrated into the global economy, and to benefit from the economic growth that trade can generate. As well as being a moral imperative, we must all realise that a world where prosperity is more widely spread is in the interests of all. These are the markets of the future.
The absence of a commitment to global trade liberalisation, would further damage confidence in our already fragile global economy. Many of you who are on the cutting edge of business, will of course, have felt the impact of the global economic slow-down. Global investment flows in 2002 fell for the third consecutive year to 651 billion dollars — half the peak reached in 2000. Trade flows recovered last year after a dramatic drop in 2001 — but they are still well below levels achieved in 2000.
There is no question that this is a challenging time for the WTO, but is its also a time of great potential opportunity. The trading system has faced difficulties in the past and no doubt it will face set backs and difficulties in the future. It is only when we consider what the consequences might be if we do not keep this negotiation on the road, that we must go on fighting to advance the arrangements we have painstakingly built up for over half a century. And that is one fight we cannot lose.