Beijing, 10 November 2003

“Putting the Doha Development Agenda back on track: why it matters to China”

WTO and China: 2003 Beijing international forum

Let me begin by saying how pleased I am to be in China, especially as I am the first WTO Director-General to visit this great country since it entered the organization just two years ago.

Despite being a frequent visitor to China over the years, I am still struck each time I return by the sheer speed and scale of China's economic expansion. For nearly two decades China has recorded an average annual growth of about 10 %, while its merchandise trade has been growing at about 14 %, three times faster than world trade during this period.

No country in history has burst unto the world economic stage as dramatically as China. I remember that it was not so long ago, back in December 1978, that Chinese leaders first adopted their initial economic reform programme. That year, China's total foreign trade amounted to only US$20.6 billion and it ranked 32nd among the world's trading nations. Foreign investment into China was also negligible. Today, just two years after its historic entry into the WTO, China has become the world's fourth largest trading nation after the United States, the European Union and Japan. In 2002, China's total foreign trade in goods and services amounted to US$693 billion and the stock of accumulated foreign direct investment was nearly US$450 billion.

By any measure these are impressive results. Indeed, they are so impressive that it has raised concern in some quarters that it will be impossible to compete effectively against China's immense export capacity and market size. Personally, I believe that these fears are largely exaggerated. Trade is not a zero-sum game. China is not only a major exporter but also a major importer. China's modernization programme and export industries have required, and will continue to require, billions of dollars worth of equipment, technology and raw materials. We should not overlook the fact that in the first nine months of 2003, China's exports rose by 32% while its imports surged ahead by 41 %. On these figures, China will soon overtake Japan as the world's third largest importer, behind the United States and Germany. At a time when the global economy remains fragile, China's robust economic performance should be welcomed as an engine for global growth. It should also be a source of inspiration for other developing countries.

I say this because China's experience shows in the most concrete terms that developing countries can and do benefit from economic openness and integration. Those who warned that China's integration into the global economy might lead to a “race to the bottom” or that the country would be flooded by imported agricultural and manufactured products have been proven wrong. The reduction of tariffs has increased competition in the domestic market with the arrival of new suppliers. This has led to lower prices and larger choice for consumers, and has lowered the prices of essential inputs for many industries, thereby enhancing their competitiveness on domestic and foreign markets. The number of absolute poor in China also dropped by about 200 million during the first two decades of reform. This is a number which is almost as large as the entire population of the United States. Per capita income has grown by sixfold, and farmers and city dwellers are now buying goods that they previously could only dream of.

Of course, not all countries can be as fortunate as China and be endowed with a market that represents nearly a quarter of humanity. But this was not the only reason behind China's success. Size matters in economic development, but it is not everything. China's success today is directly attributable to its unfailing commitment to wide-reaching domestic reform aimed at modernization and growth. Over two decades ago, China's leadership took a bold decision to lock the country into a programme of broad and continuing reforms; reforms that spilt into its legal system and governmental administration. Despite all the painful adjustment required by these reforms, China kept powering ahead by opening up the economy to domestic and foreign competitors. Domestic reform was in turn aided by a liberal international trading environment which for the most part kept markets open for Chinese exports. This in turn boosted China's economic growth and strengthened the hand of the Chinese leadership to further advance the reform programme.

But this is not the end of the story. China is now fast approaching a critical juncture in its development and integration into the global economy. To continue on its impressive path of rapid modernization, and to realize its goal of doubling its GDP by 2010, China will have to face up to a number of important challenges. These challenges, in many ways, reflect the growing pains of success. Let me highlight several, which I believe will have an important impact on China's future development and its economic relations with the rest of the world.

First, as China's economy transforms from an overwhelming agricultural/rural society into an industrial/urban society, a major challenge for the economy will be to create enough jobs in the industrial and services sector to absorb the surplus labour from agriculture. Agriculture still makes up 17% of China's GDP and 50% of employment. Another related challenge is to spread the benefits of rapid development and to avoid a widening of income differences between regions, and between rural and urban areas. As long as these differences remain, Chinese cities will be under tremendous pressure to accommodate people trying to find more opportunities and higher incomes.

Second, the last two decades have seen a parallel shift from an inward-oriented command economy based on state-owned enterprises to a more outward-oriented open market economy with a rapidly rising number of collectively or privately owned enterprises. The private sector now accounts for a very high share of economic activity, and is now China's main economic driver. The rapid development of the private sector brings with it the challenge of institutional change. To reach its full potential, growth in the private sector has to be matched by an equal development of a stable market-oriented legal framework and financial sector. This will be important in determining the ability of the private sector to thrive. In turn, private entrepreneurs will also have to improve their competitiveness and efficiency, and seek to compete on all fronts, and not just on cost.

Third, China has been remarkably successful at preserving stability while recording outstanding growth. China has managed to handle these profound structural changes while ensuring that it sustains a stable social environment. It must continue to meet this challenge. Throughout the world, as in China, there must be a concerted effort to see that more of globalization's benefits go to the poor. This is a moral imperative and a political necessity. If economic growth mostly helps those who are already more or less well-off, the resulting backlash could be disastrous for the entire reform programme.

Fourth, China has become a major player in the global trade arena. As its economy expands in the future, so too will its ties with the global economy and other trading nations. These ties mean that further trade liberalization undertaken in the context of WTO negotiations could prove the biggest stimulus yet to China's economic growth. I know that this is fully appreciated in China. As a leading trading nation, China needs the opportunity of market access and the legal guarantee of consistent and non-discriminatory trade rules offered by the WTO. And the WTO, in turn, needs China, as a leading trading nation, to play a full and active role to help open markets, strengthen multilateral trade rules and keep international trade policies liberal. China cannot afford to stand on the sidelines and let others write the trade rules of the 21st century. This was why China joined the WTO and now as a fully fledged member of WTO, it is in its interest that China uses its position to help ensure that the Doha Development Agenda succeeds.

Let me dwell a bit on this last point, as I believe it is key to the evolution of China's integration into the multilateral trading system and in turn, its future development. What I have said, so far, shows that the value of China's membership in the WTO goes well beyond the business of trade. Membership signalled China's commitment and willingness to play by international trade rules and to bring its economy into harmony with the rules and disciplines of the WTO.

With its hard-fought-for membership in the WTO, China has in front of it a unique opportunity to strengthen the rules of the trading system and to further drive down barriers to trade. This opportunity is the current Doha Round of multilateral trade negotiations launched two years ago. This Round, commonly known as the Doha Development Agenda, reflects the commitment of Members to ensure these negotiations bring benefits to all who participate, but most particularly to developing countries, for whom trade can play a central role in their efforts to achieve economic development.

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 a final “single undertaking” package. This means that a successful result on services, for example, depends 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.

As you know, last September, we had our Fifth Ministerial Conference in Cancun. At this meeting, Ministers were expected 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, commonly called the “Derbez 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.

There has since been a lot of 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. But terms such as “collapse” are completely inappropriate. The Doha Development Agenda is intact and the negotiations are continuing. At the end of the meeting in Cancun, Ministers reaffirmed their commitment to the Doha Development Agenda and they gave us until December 15 to decide how to move forward. I have since been engaged in intensive consultations with Ministers around the world and their Ambassadors in Geneva. The overwhelming message I have been hearing from both developing and developed country Members 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 there is willingness to work harder and to reach deeper to find the flexibility to push ahead with the negotiations.

More than ever we need China to join in with other Members to put the Round back on track and to move it forward. After all, it is very much in the interest of China that the Round succeeds, just as it is for the system overall. At a time when the WTO faces an impasse, we need China to use its influence to be a bridge between developed and developing member countries. China holds a unique position as being both a developing economy and an emerging superpower. China can use its position to show to developing countries that the path to growth and modernization is also the path to economic openness and integration. By the same token, China as a major trading partner can help ensure that the results of negotiations are balanced and can bring benefits to all.

In no other country is the public as aware or as interested in what the WTO is and what it means for their future. In China, countless numbers of books and articles have been published, and numerous television and radio programmes aired, on this subject. Just type in the words “China and the WTO” on any internet search engine and you will find hundreds of websites devoted to this topic. In the WTO, China has shown a desire to play a significant role in shaping the future direction of the organization and to ensure success in the Doha Round. And we need China to play this role, and support efforts to put the Round back on track, by helping to build a bridge that will serve the ambitions of both the developing and developed world.

Failure to advance the Doha Round would certainly be a lost opportunity for China, as well as for other countries, to benefit from the economic growth that further liberalization can generate. The absence of new progress in the Doha Round would further damage confidence in our already fragile global economy. Despite China's strong economic performance, many of you, 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 US$651 billion dollars - half the peak reached in 2000. Trade flows recovered last year after a decline in 2001 – but they are still well below levels achieved in 2000.

Let me briefly now touch upon some of the elements of the Doha Development Agenda Work Programme which are critical to advancing the Round. Indeed, the challenges China faces highlight some of the pressing issues confronting the WTO as it tries to live up to its mission of facilitating global prosperity.

Notwithstanding the major achievements made in past rounds, there remain serious impediments to trade in agriculture, in industrial goods and in services. Tariff peaks and developed country tariffs which escalate with the level of processing are of particular concern for developing countries. But so too are high tariffs between developing countries. Barriers to trade tend to be concentrated in agriculture, food products, textiles and clothing and other manufactured goods 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.

Delivery on the Doha mandate on agriculture should help China to address its concern to raise rural incomes in order to avoid excessive migration to urban centres. It would broaden existing, and open new, avenues for China's agricultural exports, while at the same time levelling the playing field by reducing or phasing out trade-distorting domestic support and export subsidies. As a result of trade liberalization, no doubt some sectors in China may contract but others will expand. Moreover, under the WTO framework effective ways to support rural areas exist, such as research into improving productivity and introducing the results of that research, market information, pest and disease control, credit programmes, as well as measures to promote diversification of production away from the least efficient sectors. As a member of the G-20 and in its own right, I would urge China to exercise its considerable influence to help establish a framework in agriculture by mid-December. Overall, full delivery on the Doha mandate for further reform in agriculture will ultimately improve China's competitive position relative to other countries.

In industrial goods, it goes without saying that as a major exporter and importer of manufactured goods, China stands to gain very substantially from further liberalization in the non-agricultural sector. Although following reductions made in successive trade rounds, tariffs are less of an issue for market access in industrial products, they are still important impediments to trade. And we should not forget that the impact of high tariffs is borne by 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 Members, 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. It also offers the opportunity to tackle non-tariff barriers which have grown as industrial tariffs come down.

Equally, further liberalization and rule-making in the services negotiations offers great scope to China just as it does for other countries. The WTO's General Agreement on Trade in Services (GATS) 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. The World Bank has estimated that welfare gains from a fifty per cent cut in protection in the services sector would be five times larger than for non-services sector trade liberalisation. Ranging from accountancy to telecommunications, and to construction and tourism, services are the largest and most dynamic component of both developed and developing country economies.

China has a service sector which is growing in importance. In the future, more jobs will need to be created in the service sector in order to absorb China's adjustment from an agricultural/rural society to an urban society. Apart from being a potentially huge exporter of services, China also stands to gain very significantly from an improvement in its own service infrastructure. All the more developed economies have an efficient services sector which accounts for more than one half of GDP.

It is impossible for any country to prosper today under the burden of an inefficient and expensive service infrastructure. Producers and exporters of any product will not be competitive without access to efficient banking, insurance, accountancy, telecoms and transport systems. China's financial services sector, in particular, has a huge potential to expand and to provide key services to companies and consumers. Without the spur of competition they are unlikely to excel in this role and this will be to the detriment of overall economic efficiency and growth. China's services sector also needs to obtain the know how and technology applied in services industries in more developed countries. China has, so far, played an active role in the services negotiations. It needs to maintain this constructive approach and help convince other developing country members to be more active in the services negotiations.

The Doha Round also covers strengthening of existing WTO rules as well as the possibility of extending them 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. Clearly, China has a lot to gain from strengthening the disciplines on anti-dumping. As an exporter, China is subject to far more anti-dumping measures than any other country. Since 1995, its exports have been subject to 324 anti-dumping investigations.

We are also 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 value of the Doha Round for China, like China's membership in the WTO, however, goes well beyond the business of trade. Tremendous reforms have been accomplished by China and much of the groundwork for further reforms has been laid. The Doha Round by breaking down the remaining barriers to trade and bringing economies closer together will help ensure that the momentum for change in China continues. WTO, like China, cannot stand still. There is much to be done to ensure that the multilateral trading system evolves in tandem with the global economy and meets the needs of business people and consumers around the world. It would be a waste if the Doha Round were to go dormant and the hard won gains made in the negotiations, so far, squandered. It would be equally tragic if China and other Members do not fully seize the opportunities offered by the Doha Round to improve the lives of their peoples.

Without further progress in the Doha Round, there is a strong risk that regional and bilateral arrangements would distract attention from multilateral negotiations. 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. China's economic relations with the world are simply too large and too pervasive to be managed effectively through a maze of arbitrary, shifting and unstable bilateral deals. China's best guarantee of coherent and consistent international trade policies, just as it is for other countries, is to be found inside the rules-based multilateral trading system. This is the best way to resist bilateral pressures or threats of unilateral action. It is also the best way to sustain and promote domestic economic reform - knowing that China's efforts in this direction are being matched by its trading partners who share the same obligations under the WTO Agreements.

So far, China's participation in the WTO dispute settlement system has been limited and it has yet to be a defendant in WTO dispute settlement. However, the flipside to a slowdown in the negotiations is the potential rise in dispute settlement activity. While the willingness of Members to bring their trade disputes to the WTO is an important signal of confidence in the system, it also indicates that there are issues that still need to be worked out amongst Members. Dispute settlement is a vital function of the WTO but it is a tool of last resort to be used only if rights are impaired. Members will always need the negotiating mechanism of the WTO to lead the way to find mutually beneficial compromises to difficult issues. It is in the interest of all Members to push ahead with the negotiations and to find ways within the Round to deal with frictions that are likely to arise as economies come closer together and to create new opportunities for trade.

China has achieved in one generation what in the past would have taken countries, three, or maybe four, generations to do. This has been possible mainly because of China's own pragmatic economic policies and its willingness to stay on the road of reform despite having to encounter painful adjustment. But it has also been because of China's willingness to embrace the brave new world of opportunity and risk, which globalization represents. China is, today, at the very centre of this process and its future path to growth and development will be inextricably linked to the prosperity of the global economy.

Ancient China boasted impressive technological achievements ranging from gunpowder to paper. Modern China has only just recently joined the ranks of a very small handful of nations able to successfully send an astronaut into space. For many centuries, China's developed civilization and vast population made it the world's largest economy. China's role in the WTO system is about more than trade. It is about China's role as one of the world's leading economic nations. At a time when the WTO system faces important challenges, the world needs China to show that it can play that role and help rebuild ambition and confidence in the Doha Development Agenda.