01 July 1999
The WTO: The Challenge Ahead
Address to The New Zealand Institute of International Affairs
Last year was the 5Oth Anniversary of the multilateral trading system. Recently I read a number of speeches by world leaders at that celebration.
From President Clinton to President Castro, Prime Minister Blair to President Mandela, President Cardoso, to then-prime Minister Prodi - all saw this system as central to development and stability in our interdependent world. Each stressed the reality of the globalisation process and the need to improve its governance.
Why does this consensus exist? Because the history of the latter half of this century has taught us that there is really no rational alternative. The post-war architects were guided by a central idea - that a durable international peace must be built on the foundations of progressive liberalisation and economic interdependence. They knew that the Great Depression was made deeper and more prolonged because of extreme protectionist policies, which bolstered the twin tyrannies of our age - fascism and communism. In their vision, removing barriers to trade would lead to shared prosperity and a shared commitment to international stability. The principle of non-discrimination in trade relations would restrain destructive economic nationalism, and help prevent the resurgence of the protectionist policies which had done so much to increase inter-war tensions. Theirs was a vision centred on the rule of law, not the rule of force, built on consensus among nations, binding commitments freely entered into and the settlement of disputes through procedures available to all and applicable to all. The proposed IT0 was to be a sister organisation to the UN, IMF and World Bank. With all their imperfections the world would be a more dangerous, less predictable place without them.
As it happened only part of the trade vision, the GATT, came into being. It took us until 1994 and the Uruguay round to transform the GATT into the WTO. But the principles underpinning international trade have remained constant over that time. I see this international architecture as advancing the independence and sovereignty of the nation state. Far from a threat to the nation stare, the opposite is the truth. Our independence is best guaranteed by interdependence. Globalisation is with us; it cannot be uninvented. No nation, great or small, in the world of today and tomorrow can secure its future alone. No nation can run a tax system, cure cancer, or aids, or enjoy clean air and water without the co-operation of others.
Alas, in many countries, including my own, there are an increasing number of citizens who feel locked out, forgotten, angry and hurt, believing falsely that globalisation is the cause of all their problems. They sit waiting for a train that may never come, their faces pressed against the window, easy victims to old and dangerous songs that yesterday was better'.
We must be strong and proud advocates of the benefits that a more open multilateral trading system can have for all peoples. Thus the advocacy role of leadership must be advanced to support the actions of sovereign states who, on every continent, have taken brave and bold reform . Yet when they are making successful adjustments, they can often find the door closed to their products, and minds closed to their problems.
Ambassadors in Geneva representing developing countries tell me about the contradictory obligations and advice their Governments have sometimes had from the IMF, World Bank and the WTO.
The WTO has no power over debt reduction, nor can it guarantee development funds or infrastructural spending to assist development, to take advantage of open markets. However, and its plain to see, its clear that trade and development policies are linked. There has been a false separation between these policies and between organizations like UNCTAD, the WTO, IMF and the World Bank. We need to play a leadership role to ensure that ideas about the new international economic architecture, that world leaders have spoken so often about, are fleshed out and have practical meaning.
The future safety, security and progress of all our peoples will be more and more based on economic diplomacy. If we fail to provide a fairer, more even result we risk outbreaks of dangerous, inward-looking, costly protectionism which so often, sadly, turns into something more dreadful.
While most countries have seen incomes rise, the gap between the haves and the have-nots has also risen. People are appalled and dismayed when they see the few living in splendour and the many in squalor, with half the world dieting and the other half starving. These people are not impressed by being told that on average they are better off than before. This is not the fault of the world trading system; indeed, it is an argument for making it fairer, stronger, and advancing the multilateral principles of trade. Indeed, those countries that have liberalised have done the best. We must say so.
We must make our case, otherwise the WTO will continue to meet, and Ministers assemble, behind barricades, ringed by the police. In the absence of other "isms to vent frustration upon, globalism is the only ism left. The WTO has already attracted the kind of abuse and demonstrations that the IMF attracted in the 1970s. The words Free Trade are now negatives in many nations. The irony is that if free trade existed at all before the WTO and GATT, it was because the powerful did what they liked. The WTO, on the other hand, is about fair rules, contractual obligations and binding dispute resolution mechanisms. Its the rule of law, not the rule of force. Its about consensus decision making, and not forcing decisions by a vote. Not perfect. Not good enough. It can be improved.
We must show leadership, explain ourselves, involve the people, not be frightened by civil society, and set out to win the political debate with national argument, or the doors of the wealthy nations could be slammed shut to poor countries. In wealthy countries, opinion polls reflect concern about so called cheap imports. Whether we like it or not, this impacts upon politicians and their policies.
But, lets celebrate that this system has delivered higher living standards, for most, than at any time in human history.
We ought also to celebrate that there has never been a time in the history of our species where more people have enjoyed freedom in the polling place and the market place. Twenty years ago most of South America was in the tyrants grip, so was half of Europe, and most of Africa. Why is it, that when the smoke cleared from Cambodia to Chile to South Africa, people chose freedom? Economic freedom cannot be separated from political freedom. They are each others guarantor.
Freedom and democracy is now the only valid revolution. At the dawn of the new millennium, the rule of law must be the main pillar of an improved, civilised management of our globalising world.
These values now find a consensus of support from practically every part of the world. The Berlin Wall fell because millions of people rebelled, not only against the loss of their political freedom, but against the loss of their material and economic freedom as well. With the end of the Cold War came the end of any pretence of a viable competition between state-planned and free market economies. Equally significant is the economic revolution which has been unfolding in much of the developing world, and the changing dynamic of North-South relations. Countries in Latin America, Asia, and now Africa, have moved, or are moving, from a world of import substitution and protectionism towards a world of freer markets and more open, rules-based trade. This change in outlook has, in turn, had a profound effect on the multilateral trading system. Whereas only 23 economies participated in the first GATT negotiation in 1947, today the WTO has 135 members, and 30 candidates are waiting to join - ranging from giants like China and Russia, to small island states in our region. This impressive number of members and candidates in the WTO is an unmistakable sign of the validity of this system.
The point is not that the global economy is somehow perfect - or that the widening range of public concerns are without substance or validity. The point, rather, is that the challenges we face can only realistically be addressed inside this global system - not outside of it. If people, especially young people, say that unemployment is too high, they are right. If environmentalists say that growth must be sustainable - and not destroy the planets essential equilibrium - they are right. When developing countries say they are not getting fair access and justice, they are right. But none of these international - and national - problems will be resolved any more easily by restricting trade, closing borders, or undermining the international rule of law as embodied in the WTO. Just the opposite. As President Castro reminded demonstrators in Geneva, "It is unemployment we are fighting, nor the WTO".
Of course the world we live in is still full of injustices. As Renato Ruggiero, the former WTO Director General, said: "far too many people lack proper access to food, water, health care, education, or justice. The benefits of development are not evenly shared, and marginalization remains a real threat for too many. To deny these realities is not an option. But it is equally not an option to deny the reality of globalisation, or the reality of the great opportunities it opens up to find answers to our shared global problems."
The reality of globalization is the reality of interdependence, an interdependence that, as I said at the outset, extends far beyond trade or strictly economic criteria. But trade remains a key element in sustaining and spreading the benefits of interdependence.
Over the past 50 years, trade has been a powerful engine for development. In 1950 its ratio to global GDP was 7%. Now it represents 23%, and a third of the 25 largest trading countries are now developing countries. Between 1948 and 1997, merchandise trade increased 14 times, while world production increased 5½ times. In the same period world GDP increased by 1.9% per year at constant prices and taking account of overall population growth. Seen in an historical context, this figure is extremely high.
In particular, over the past 10 to 15 years, when developing countries have more and more embraced trade liberalising policies, the benefits have been clear. The share of developing countries in world trade overall has increased from 20 to 25%. For the manufactured sector it has doubled from 10 to 20%, and on current trends could exceed 50% by the year 2020. Furthermore, in this same period of time, 10 developing countries with a combined population of 1,5 billion people have doubled their per capita income. The World Bank reports that 25 years ago 70% of Indonesians lived in what could be called extreme poverty, now, despite all their problems, the figure is less than 10%.
South Koreas capital, Seoul, has been levelled to the ground three times this century. It now boasts rising living standards, which in turn have lifted human rights. Contrast this with North Korea: famine and fear. Night and day. Mirror opposites.
Take the stark contrasts in Europe today. On one hand a united Europe, where people respect each others culture, and religion, and where people, ideas, information and commerce travel freely. A European Union. A force for good. Then theres the Balkans, where tribal hatred, and insular, inward looking policies have reached their natural extreme of ethnic cleansing. The lessons are clear.
For me its always been more than trade - its about peace, security and development. But trade is an important part of that. Trade in itself will not solve all the worlds problems, yet the absence of trade and commerce will make the worlds problems worse. Imagine how much worse the economic problems of our region would be if the markets of the wealthy nations were not open to products from developing countries.
On the surface there seems to be an historic contradiction at work. As the world globalises and regionalises, new life is being given to ancient cultures, not the least in the old ex-Soviet republics. Scotland has its own Parliament for the first time in 400 years. Czechoslovakia divided into two separate nations, and both want to join the EU and Nato. People want to assert their cultural identity. Indigenous rights are on the agenda. Therefore issues of culture will be important. How to solve this without distorting trade is a complex but achievable objective. Perhaps the new age of technology, with dedicated TV channels and radio stations by the hundreds, will assist.
This speech was supposed to be about the future of the multilateral system. I have made the case historically for the system. Ive argued for confident Ieadership to advance that proposition. There needs to be progress, a broad-based new round beginning at the end of this year. We know that in the modern economy standing still means going backwards, and that the status quo is just yesterdays compromise.
To gain the confidence of countries and people that have yet to be convinced, we have to reform the WTO itself. It must look like the world it represents. Many countries cannot even afford to have representatives in Geneva. Others are overwhelmed by the technical details and thousands of pieces of paper. One ambassador from an economy in transition, when I asked him what he did, replied: "Everything. Therefore nothing. Equipping smaller economies with the technical and research capacity cannot wait until the ministerial meeting in Seattle. Thats the down payment they want now. This year. Capacity to engage must be built-up. Thats in everybodys interest, the mighty and the modest. There can be no back-tracking on agreements already entered into. Thats equally true of the biggest and the smallest nation involved.
We are proud of our disputes settlement system, where contracting parties commit themselves to the outcome. Thats something we could wish were a model for other areas of international conflict. But some small economies cannot afford, nor do they have the technical skills, to pursue their legitimate self-interest. The powerful can say they are free to do so, They are. We are all free to shop at Tiffanys, but some never will.
A World Trade Organisation should represent the world. Therefore, getting China, Saudi Arabia and others into full and engaged membership and partnership is a priority. It would be splendid if this could be done before Seattle. Alas, the delay in appointing a new D.G. has made that very difficult.
We have an in-built agenda for Seattle, that can, and should, be added to. Some of the possibilities are well known and others are just emerging. I would do neither myself, nor anyone else any favours if at this time I went into a personal agenda. Theres no place for that in the WTO anyway. Im frequently asked what will be the issues of the future? I say "Issues we have not thought of". At the beginning, indeed, at the end of the Uruguay round, no one had heard of the Internet. Now business is doubling every 100 days. Twelve months ago few had heard of genetically modified food. Yet, without commitment to rules and respect for objective standards these types of issues can derail all our best endeavours.
Remember when Dollyphobia swept the world. If only the breakthrough had been done in China with Pandas, I read last week that Chinese scientists are almost there. Good people fear what science may do.
New Zealanders must prepare for a different future. What the computer chip did for manufacturing and information, biotechnology will do for farming.
The future is not to be feared, its to be faced.
Remember George Orwells book 1984 and how technology would imprison us? I believed that in the 1970s. I was wrong. The opposite is the truth. Relative to income the cost of technology has fallen dramatically. The US uses less steel now than it did in 1960, yet its GNP has gone up 250%. Super rice and super wheat now feed the world. When I was a boy it cost a working class parent almost a years wages to purchase the Encyclopaedia Britannica. Now, its a weeks wages on a CD. 100 years ago it took almost a months wages to put one word on a cabIe to London. Now email is almost costless. Nobody is a racist, or an ultra nationalist, or a protectionist when their child is sick. They want the best the world can offer, and why not?
An interesting book I read recently, "The Wealth and Poverty of Nations," claimed that positive people and places win. It concluded, "In this world, the optimists have it, not because they are always right, but because they are positive. Even when wrong, they are positive, and that is the way of achievement, correction, improvement and success. Educated, eyes-open optimism pays; pessimism can only offer the empty consolation of being right. The one lesson that emerges is the need to keep trying. No miracles. No perfection. No millennium. No apocalypse. We must cultivate a sceptical faith, avoid dogma, listen and watch well, try to clarify and define ends, the better to choose means."