Jeddah, 19 January 2004

The future of the WTO and its role in global economic growth

Jeddah Economic Forum

Ladies and Gentlemen,

I am honoured to address such a distinguished audience here today. And I am particularly pleased to be here at a time when the accession process of Saudi Arabia to the WTO has taken such a giant leap forward. After over ten years of negotiations, the prospect of Saudi Arabia's accession to the WTO is no longer a dim light at the end of the tunnel, but an imminent reality. If all goes well, there is a realistic chance that Saudi Arabia will accede to the WTO before the end of this year. This to the very great credit of Minister Yamani for the energy and determination he has invested in driving this process forward, and to the Government of Saudi Arabia for the high priority it has attached to achieving WTO Membership.

The very fact alone that important economies like Saudi Arabia are seeking to join the WTO is testimony to the success of the multilateral trading system and its continued relevance today. In the year 2000, your neighbours Jordan and Oman joined the WTO; two years ago China – the world's fourth biggest trader became a fully-fledged Member. Indeed, membership of the multilateral trading system has expanded over six fold since its creation in 1948. Its Member states cover 92 of the world's population and 95 per cent of world trade. It is within a hair's breadth of becoming a truly universal organisation.

The multilateral trading system has been a vital part of the fabric of international economic relations for over half-a-century. It has provided for stable trading relations between its Member governments through a framework of mutually agreed rules and reconciliation procedures. It has also bought tangible welfare gains from negotiated trade liberalisation. It is this unique role that the WTO will continue to play in supporting and fostering economic growth in the years ahead. And in this light, I will be focusing my comments today in two areas:

Firstly, on the core function of the WTO in ensuring transparency, stability and predictability in international commerce.

And secondly, on the potential for the current round of trade negotiations — the so-called Doha Development Agenda — to contribute to global economic growth. I will be touching upon some of the challenges we are up against today in driving this process forward.

Only yesterday, I had the opportunity to visit Bangladesh to take part in an event organised by the Bangladesh National Committee of the International Chamber of Commerce. Next week, I shall be back in Switzerland for the World Economic Forum's annual gathering which is attended by entrepreneurs and captains of industry from around the world. And it is at events like these, and this meeting here today, that I have the chance to listen to the real experiences of people involved in the day-to-day business of trading and investing. Of course, access to markets is always emphasised as a high priority. However, I have heard repeated time and again, that certainty is just as important — and that in an operational sense, uncertainty is a major non-tariff barrier to trade. Investors want to know their investments are secure, traders need to be confident that their access to foreign markets will remain open and predictable.

This is why the mere existence of the multilateral trading system as a body of transparent and legally binding rules and bound tariffs, backed up by a strong dispute settlement procedure, is so fundamentally important. It provides the confidence and certainty export industries need in accessing other markets. Its existence has a pre-emptive effect – making governments think twice about randomly intervening in trade policy for short term political gain or to use trade policy as a tool to achieve other foreign policy objectives. Indeed, a prime objective of the founding governments of the multilateral trading system was to limit their own freedom to recklessly tamper with trade policy. They directly experienced the damaging consequences of global tariff hikes and trade retaliation in the 1930s, which not only had devastating economic consequences, but also had consequences that went far beyond economics.

Perhaps for political reasons, Member governments tend to speak of the commitments they make to other Members as being “concessions”. This is the same for countries involved in rounds of trade negotiations and also for countries going through the process of acceding to the WTO. While this rhetoric is not altogether surprising, because negotiations by their very nature are a process of give-and-take, it never-the-less distorts the reality that by undertaking obligations and by binding tariffs, governments are making their own economies a more attractive place for investment. Moreover, by opening up their markets, governments foster more dynamism and efficiency at home. Consumers benefit from a greater choice of goods and services at lower prices. User industries benefit from cheaper inputs. Our experience has clearly shown that open economies have consistently outperformed those that are closed.

These are some of the benefits that Saudi Arabia can expect to reap from Membership of the WTO – benefits which will support Saudi Arabia's efforts to invigorate its private sector, diversify its economy and provide more jobs for its growing workforce. Indeed a recent World Bank report on the Middle East and North African Region called “Engaging the World”, highlights that the best and most sustainable way for all countries in the region to meet the challenge of job creation is to accelerate their trade and investment integration. It projects that with more non-oil exports and a better investment climate, domestic private investment in traded goods and services would be much higher, and FDI inflows to the region could be five to six times what they are today. As pointed out, however, by another report on “harnessing trade for development and growth in the Middle East” chaired by a former Director-General of the WTO, the real benefits of trade can only be reaped if accompanied by domestic reform.

As I said before, the fact that Saudi Arabia is seeking to join the WTO is a clear reflection of the multilateral trading system's achievements in rule-making and trade liberalisation. Through a series of rounds of trade negotiations the system has renewed itself, refined its rules, opened up markets and kept pace with changing economic realities. 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. In the last Round, the trading system's coverage was extended to include important issues such as trade in services and the protection of intellectual property rights. Since 1948, trade has grown faster than output in all but eight years. Today, slightly more than half of the world's imports are traded duty free.

This brings me to the second issue that I wanted to touch on today — what is at stake in the current round of trade negotiations. This round is commonly known as the Doha Development Agenda, reflecting the commitment of WTO 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 development and reduce poverty.

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.

High barriers across the board also tend to prevail in developing countries — not only hampering trade flows between developed and developing countries, but also trade between developing countries themselves. Of course, market opening has to be carefully planned. Some countries rely heavily on tariffs for government revenue in the absence of a well-functioning domestic tax system. Poor countries are less able to cope with the transition costs of liberalisation than rich ones. And market opening in developing countries has to be carefully sequenced with domestic reforms. But none of this is an excuse for standing still.

There have been a number of studies dedicated to estimating the potential economic benefits of the Doha Development Agenda. The results vary quite significantly depending on the parameters used. But the central message from all of them is that potentially there are big economic gains to be reaped from ambitious trade liberalisation. And these gains could have a significant effect on reducing poverty around the world.

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 trade round. And we are also considering ways of strengthening the WTO's dispute settlement mechanism.

The Doha Development Agenda is ambitious and it is complex. There are 148 Members participating – from the poorest and most vulnerable countries to the big players like the United States and European Union. There are a lot of legally and technically complex issues on the table.

Like past negotiations, progress in the Doha Development Agenda has been difficult and sometimes tortuous. Often, when we take two steps forward, we take one step back. For example, a historic agreement on access to essential medicines for poor countries reached in the autumn of last year, was followed by a disappointing outcome to a gathering of trade ministers in Cancún, Mexico. Part of the purpose of this Cancún meeting was for Ministers to give renewed impetus to the negotiations, to bring negotiating positions closer together and to provide a roadmap for the final phase. While progress was made – we did not achieve nearly as much we had hoped or we needed.

It is perhaps instructive and certainly encouraging that none of the past eight rounds of multilateral trade negotiations failed. All eight of them faced their own disappointments and setbacks. But all succeeded because the scope and breadth of the negotiations allowed trade offs to be made between governments with different interests and priorities and hence the ability to reach a package that satisfied all. And they succeeded because of political will and determination.

These essential dynamics are the same today as they have always been. The Doha Development agenda is an ambitious and a broad agenda. There is something in these negotiations for everyone. This is a recipe for success, not for gridlock. The missing ingredient at the moment is political will. Over the past months I have heard Heads of State and Trade Ministers the world over, express their commitment to bring the Doha Development Agenda to a successful conclusion. Recent developments and statements by the main players are encouraging and I hope that these words will soon be translated into real flexibility in negotiating positions.

We have a window of opportunity to significantly advance our work in 2004 by agreeing on the frameworks for further trade liberalisation under the Doha Development Agenda by June and preferable before then and have a reality check by July. We cannot waste time. We have to grasp this opportunity.

At the beginning of each new year, many of us resolve to make improvements where something has been lacking. I hope that we shall see some serious resolutions in 2004 by governments to build a stronger, more universal and more inclusive multilateral trading system. I hope we shall see a renewed determination to drive forward the Doha Development Agenda, with the achievement of concrete results by the middle of the year. I also hope that 2004 will mark the accession to the WTO of a nation whose trading history spans some 3000 years. It is time for Saudi Arabia to take its rightful seat at the WTO's table and I should like to see Saudi Arabia playing its part in bringing the Doha Development Agenda to a successful conclusion.

Thank you.