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Bonn, 09 december 1997

A Shared Responsibility: Global Policy Coherence For Our Global Age

Address to the Conference on "Globalization as a Challenge for German Business; export opportunities for small and medium-sized companies in the environmental field".
Organized by the German Federal Ministry of Economic Affairs and the Association of German Chambers of Industry and Commerce DIHT.

Thank you Mr. Chairman, Mr. Minister, ladies and gentlemen. I am very pleased to have the opportunity to address such an impressive gathering of German business leaders - all the more so because the subject of your conference, "Sustainable Development", represents one of the most powerful ideas of our time. The end of the Cold War in 1989 swept away more than the Berlin Wall. It erased many of the barriers of ideology, politics, and economics which had divided our world for almost fifty years. One of the most unique features of this new global age is the opportunity we now have to tackle shared challenges with a new sense of shared outlook, shared values, and shared purpose. The idea of sustainable development exemplified this emerging picture - and it is about this larger picture that I want to talk to you today.

This has been a year of great achievements for the world trading system. Over the past twelve months, we have launched an important initiative to integrate the Least-Developed Countries into the mainstream of the world trading system. We have reached agreements to liberalize trade in information technology products and telecommunications services - the combined value of which equals world trade in autos, textiles and agriculture combined. And in three days time we have an opportunity to reach an equally sweeping agreement to liberalize global financial services.

These will be three difficult days in Geneva. But what is certain is that this long negotiation has produced a very impressive harvest. In this third and final stage of the negotiations, we have received 46 offers of improved market access. Since one of those comes from the European Union, this represents over sixty offers from individual countries. And at least five others should arrive today. In all, over one hundred countries - representing all the industrialized economies, and more than seventy developing and transition economies - will have made commitments to open markets in this critically important sector. No one can predict at this stage what all the elements of the imminent conclusion will be. But it is hard to imagine - in this final phase - that all of our achievements will be allowed to slip away.

Beyond our advances this year, we have a full agenda ahead of us - encompassing further negotiations in agriculture, services and intellectual property, the possibility of launching negotiations in the area of electronic commerce - an area which opens up new and exciting opportunities for small and medium-sized enterprises to reach markets that were previously unattainable - as well as the accession of China, Russia, and the 29 other applicant countries to the system. Although difficult challenges remain, what the fathers of multilateralism only dreamed of half a century ago is moving closer to reality today - the creation of a global trading system built, not on the rule of power, but on the rule of law.

But the real significance of the WTO's successes goes beyond the expansion of world trade - critically important though this is. Our ability to move towards the construction of a truly global system for an increasing globalized economy stands as a powerful and encouraging symbol for those seeking solutions to the many other issues which now spill across borders, jurisdictions, and cultures. Whether we are talking about the environment, development, labour, human rights or other ethical values - in all these areas there are positive signs that the policy debate is moving beyond the sterile divisions and polarities of the past. The search, instead, is for a more coherent global approach which balances the needs of the planet with the needs of the billions of people who deserve a better standard of living.

Our societies are in the midst of a profound transition - where economic value will be determined more and more by information and knowledge, and where new borderless technologies, especially in the field of telecommunications, will allow broader and more equal access to this new economy. The debate should not be about whether globalization must be slowed down or accelerated - its onward march is a fact of life fuelled by the advances of technology, the rise of the developing world, and the opening of world markets. The debate should be about how we can collectively harness the energy of globalization behind larger global solutions.

This debate starts with recognizing - and reinforcing - the inherent link between economic growth and the advancement of environmental, social, and ethical goals; a link which is central to the idea of "sustainable development". The reality is that trade is a powerful engine of economic growth, and that economic growth is vital to creating conditions which favour advancing environmental protection, improving social conditions, or sustaining ethical values. By opening markets, particularly to exports from developing countries, and by keeping markets open through clear and enforceable rules, the global trading system is a natural ally of sustainable development. This is the experience of our economic history since the creation of the multilateral trading system fifty years ago.

An open trading system is also important in more fundamental ways. One of the keys to sustainable development lies in pricing environmental resources to reflect their real scarcity and true social value. Faced with the prospect of global warming, a thinning atmosphere, contaminated water or disappearing forest, the idea that we cannot afford the cost of protecting the environment is rapidly giving way to the idea that we cannot afford not to protect it - and, moreover, that getting ahead of the business trend towards sustainable development can actually be profitable. This year, the OECD projects that the market for environmental goods and services worldwide is worth between US$ 250 and 400 billion. Although the issue of assigning values and responsibilities for the environment is largely a question of putting in place the right domestic policies, trade liberalization has an important role to play here by reducing market inefficiencies which distort price signals.

Then there is the political value of the international trading system. Open trade on the basis of universally accepted rules helps to build shared international interests and provides a powerful motive for maintaining global stability and cooperative relations. And cooperative relations in turn provide the best possible foundation on which to exert moral influence and build mutual respect. On the other hand, weakening the international trading system in any significant way would most certainly mean destabilizing the global order and closing off opportunities for partnership and dialogue.

Although the Uruguay Round made progress in reducing barriers to developing country products, significant tariff escalation and numerous tariff peaks remain. These must be obvious targets for further negotiation and elimination - especially if we want to relieve the pressure on developing countries to specialise only in natural resource exploitation or low value-added, environmentally sensitive activities. Agriculture, in particular, is a sector where trade liberalization and greater market disciplines could have a positive effect on the environment. Study after study shows how market access restrictions, domestic support policies, and export subsidies have been the cause of direct and significant harm to the environment in many developed countries. And the same time, developing countries have been denied the full export opportunities for their agricultural exports which would have allowed them to "buy" better environmental policies. In the same way, one of the major causes of overfishing throughout the world's oceans is the excessive subsidization of national fishing fleets.

The fundamental point is clear. Trade liberalization - not trade restriction - can be a natural ally of sustainable development. And vice versa. This fact was recognized in the Rio Declaration of 1992 when it observed that "an open multilateral trading system makes possible a more efficient allocation and use of resources and thereby contributes to an increase in production and incomes and to lessen demands on the environment". Just as "a sound environment provides the ecological and other resources needed to sustain growth and underpin a continuing expansion of trade".

Does this mean that trade liberalization on its own can solve all of the complex environmental and social issues we face in today's interdependent world? Of course not. Freer investment will not repair the damage to our atmosphere. Lower tariffs will not halt the destruction of our forests. What an open, rules-based trading system provides is a necessary precondition - in partnership with the appropriate environmental, development, or social policies - for building a more globally coherent policy response to the challenges of globalization.

The broader solution to environmental, social, and other challenges lies in reaching a global consensus in each of these areas. Reaching enforceable global agreements and standards. And building the kind of global institutions needed to manage them. It lies, in other words, with developing global rules to address global needs - as we have done over fifty years with the trading system.

Examples of the kinds of multilateral agreements that are possible include the Convention on International Trade in Endangered Species (CITES), the Basel Convention, or the Montreal Protocol. And as early as tomorrow, in Kyoto, some 150 governments from around the world are poised to agree on targets and timetables to stabilize and reduce greenhouse gas emissions. Although work has concentrated on emissions from developed economies, the negotiations over the past week have also aimed at forging partnerships with the fast-emerging economies of the developing world. The point is that each of these agreements targets the environmental problem they aim to solve with an environmental answer - not with a trade answer. And they exemplify the scope for transgovernmental solutions to specific transborder issues.

Nothing in the WTO stands in the way of the international community pursuing these goals in international agreements. On the contrary, the WTO has every interest in building an effective bridge between the multilateral trade agenda and the multilateral agenda in areas like the environment, not least because without a coherent strategy for addressing these challenges, it is trade liberalization - and the multilateral system as a whole - which will suffer.

Subject to the basic requirement of non-discrimination, WTO rules place no constraint on the policy choices available to a country to protect its own environment or health standards against damage either from domestic production or from the consumption of domestically produced or imported products. Governments can use any type of trade restriction, including import and export quotas and prohibitions, or the imposition of taxes or other charges at the border, for the purpose of environmental protection or resource conservation within their jurisdiction - as long as basic requirements relating to non-discrimination and least-trade- restrictiveness are met. In other cases, protective measures should be based on sound scientific evidence.

What a country cannot do under WTO rules, however, is apply trade restrictions to attempt to change the process and production methods - or other policies - of its trading partners. Why? Basically because the issue of production and process methods lies within the sovereign jurisdiction of each country.

But this larger issue of production and process methods once more underlies the pressing need to reach targeted multilateral solutions to these specific issues. And here again, WTO rules need not stand in the way. Such agreements might, for example, involve compensatory payments or inducements to burden-sharing, and include provisions for monitoring compliance and other follow-up action. As long as the agreement in question is genuinely multilateral in the sense of being consensus-based among WTO Members, the WTO - under Article XX - has little to say about the use of such measures.

It is true that up to now more could - and must - be done by trade and environmental negotiators to coordinate their policy proposals and to forge a common approach towards trade-related, global environmental problems - with the result that a number of the most important Multilateral Environmental Agreements contain trade measures whose consistency with WTO rules might be open to question. But the reality is that - so far - the issue of legal compatibility is a theoretical, not a practical problem for the trading system. Over 200 international environmental agreements already co-exist with the WTO without a single challenge in dispute settlement - suggesting that multilateral cooperation on the environment - as on many other transborder issues - is a practical option.

But what about when a multilateral consensus for global action does not exist? How to exert pressure on countries considered by some to have inadequate, wayward or even distasteful policies? And isn't this an argument for allowing countries to take unilateral measures - including trade sanctions - by adapting the WTO rules to accommodate these goals?

I would argue that the opposite is true. Asking the WTO to solve issues which are not central to its work - especially when these are issues which governments have failed to address satisfactorily in other contexts - is not just a recipe for failure. It could do untold harm to the trading system itself - with all the collateral effects this would have for a sustainable global economy - without making any progress towards the environmental or social goals it was meant to address. Let me outline three broad reasons why:

First there are serious doubts about whether trade agreements offer a useful policy tool to address many of these challenges. Take the example of a steel mill which produces unacceptably high levels of sulphur emissions leading to acid rain. Will imposing trade restrictions on exports from this steel mill really eliminate the problem? It may reduce production for export markets, but not domestically. In fact, it could have the opposite effect of forcing the mill to increase its domestic production at lower costs to compensate for the loss of foreign markets. And this would almost certainly reduce profits which would in turn reduce the company's ability to invest in cleaner, more environmentally-friendly technologies. If the problem is pollution then our goal should be to develop policies which address pollution - not trade. And the same argument, for instance, applies to issues of animal welfare. A trade sanction is not - and cannot - be a lasting answer to the much larger problem of cruelty to animals.

The second point is political. There is a basic flaw in the assumption that an international consensus on environmental objectives, for instance, which eludes countries in environmental fora can somehow be reached less painlessly by the same countries in the WTO. The WTO is a consensus-based organization - and all major decisions are reached on the basis of mutual agreement. A country which has not been persuaded to join a consensus to resolve an environmental problem through a Multilateral Environmental Agreement can hardly be expected to join a consensus in the WTO to change the trade rules in ways that would allow it to be punished. The reality is probably just the opposite. In the WTO such efforts would be more difficult because the logic of the system is trade - and not the environment - and because the rules are enforceable.

The third - and perhaps most important - point is a legal one. The WTO is not - and has no intention of becoming - a supranational body with the power to determine values and standards for the international community - especially in the absence of internationally agreed standards and rules. It is not a world policeman that can force compliance upon unwilling governments. The genius of the multilateral system lies in the way the free pursuit of national self-interest within a consensus-based system has produced such extraordinary collective benefits in terms of open trade, shared interests, and cooperative international action. Equally revolutionary is the core principle of non-discrimination which has done so much to remove power politics from international trade relations, by guaranteeing all countries equal rights within the system - irrespective of their size and power.

The irony is that some would now undermine these basic principles of international cooperation in the name of larger global objectives. Indeed, one paradoxical result of the current search for global solutions to environmental, social and other issues is growing pressure in some quarters for unilateral trade measures. But whose environmental standards, cultural traditions, political systems represent a universal norm? Which one of these values and standards should be imposed on other countries? And do we really want the WTO to play the judge, jury and police of environmental, social and ethical values? Not only are we asking the trading system to perform a role for which it was never intended. Worse, this is the surest way of poisoning the spirit of international consensus and cooperation that we so desperately need to begin addressing the broader challenges of the next century.

I don't pretend that reaching multilateral agreements on many environmental, labour, or ethical issues will be easy. But nor should we pretend that there is a short cut through the WTO - or a magic bullet called trade sanctions. Unilateralism will not convince any country of the validity of the values which another asserts. Nor will trade sanctions serve as a wake up call for public opinion around the world. This approach could be seen as a sign of weakness not strength. It could reflect a basic lack of confidence that one's rights or values can be freely shared by others.

Divisive approaches can only lead to divided outcomes. By definition, the global challenges we all face call for shared and cooperative solutions. And this can only be achieved through consensus. The only road ahead, in other words, is the multilateral road - which will require determination, skill, and patience.

And there is good reason for hope. Last year at the WTO's first Ministerial Conference in Singapore we faced enormous pressure on the highly contentious issues of core labour standards. Positions on either side of the issue were very strongly held. But after months of careful preparation in Geneva, and five days of intense debate in Singapore, we emerged from the Conference with a clear and strong consensus - a consensus first, that members were committed to the observance of core labour standards, internationally agreed; second, that the ILO was the relevant body where the issue of labour standards should be addressed; third, that such standards are promoted by growth and development, fostered by trade liberalization; and fourth, that labour standards should in no way be used for protectionist purposes or to put into question the comparative advantage of countries.

The fact that the ILO is now making important strides in these areas demonstrates, not only that consensus on the most difficult issues is possible, but that consensus is absolutely critical to real and lasting progress. Supporting the current efforts in the ILO towards reaching a declaration on Fundamental Workers Rights is the best way of demonstrating that the real objective is to promote labour standards and not to seek protectionist measures.

The social issue must be at the heart of globalization. As with the environment, the question is not whether the social question should be addressed in our interdependent world. The question is how. The goal of a just society remains immutable and unchanging - it is our strategy for achieving that goal which must be new.

I began by observing that we have a unique opportunity in this post-Cold War world for developing shared approaches to shared challenges. The danger we face in the time ahead is not from the debate about globalization. Its impact on jobs, the environment, labour standards, human rights, or other ethical issues is something which can only be clarified and explained if these issues are brought out into the open in an honest and informative way. The real danger is that we will fail to open up the globalization debate - and allow it instead to be dominated by a dialogue of the deaf. Growth versus the environment. Free trade versus labour standards. Globalization versus Human Rights. This is back to the future - a return to the ideological conflicts of the last century, not a shared vision for the next.

Globalization is a process driven by technological and economic realities. But its historical impact will be decided by our ability to find global answers to increasingly global problems. We all understand the uncertainties and anxieties raised by the sweeping revolution around us. This has been the case throughout history when people face profound change. Imagine what the artisans felt on the eve of the Industrial Revolution - the very feelings and fears which led the Luddites to destroy power looms in early industrial England. And this was a phenomenon affecting less than 200 million people over the course of the century. Now we are confronted with a revolution that affects the greatest part of the world - from 2 to 3 billion people - and all in less than a generation.

The first industrialized country, the U.K., took 58 years to double its per capita living standards after the industrial revolution; the US took 47 years; Germany, 43 years; and Japan 34 years. But from 1966, Malaysia took just 11 years; Chile 10 years, and China 9. Moreover, these periods continue to shrink. Ten developing countries, accounting for almost a third of the world's population - or over 1.5 billion people - more than doubled their average per capita income levels between 1980 and 1995. All this is happening because these countries have chosen to join the world economy and to open their borders.

Who can claim that this is a bad thing? Look at the figures for the German economy. Germany remains the third largest economy in the world, the second largest trading power, and a central pillar of an expanding and dynamic European Union. Last year exports accounted for over 30 per cent of Germany's GDP, up from 15 per cent in 1970. A large share of these exports - some US$ 290 billion in 1995 - still go to fellow members of the European Union. But the fastest growing share of German exports - from US$ 165 billion in 1990 to US$ 218 billion in 1995 - are now destined for world markets outside of the EU.

Greater global coherence in policy-making - for Germany, for Europe, and for the world - is not only a logical but a necessary next step in this age of interdependence. As we begin to address the growing gap between the rules of international trade and the rules needed to manage the many other facets of global integration, perhaps the greatest contribution which the WTO can make is through its example. What the multilateral trading system offers is an important symbol of what can be accomplished internationally through cooperation and consensus - it is a symbol which we cannot afford to tarnish or devalue.