23 September 1998
"The Trading System of the Future: Challenges and Opportunities"
Thank you first of all for inviting me to share some thoughts on the future opportunities and challenges facing the world trading system. My special thanks to the International Chamber of Commerce for launching this initiative - an initiative which appears more and more timely with each passing day. The world we live in is being influenced by the private sector as never before in the technologies you develop, in the alliances you are building across borders, and in the global scope of your markets. Just as the private sector has played an important part in constructing this global economy, so too will you be looked upon to help address the challenges we face.
THE INTERDEPENDENT ECONOMY
What makes the global situation so immediate and so serious is the degree of our interdependence. A quarter of global output is now exported compared to just seven per cent in 1950. And in the developing world the share of GDP dependent on trade is even higher, at 38 per cent, demonstrating first the success of trade liberalization for these countries, and second that keeping world markets open is of a particular interest to them. At the same time, financial capital moves around the world far faster and in volumes many times greater than ever before - for the United States alone in 1996, capital flows amounted to almost US$ 10 trillion, or five times as large as US goods and services trade. All of this is made possible by technological change, particularly in the areas of communications and computers change which is creating the closest thing yet to a single, "borderless" world economy.
The reality is that our interdependence is about more than trade or capital flows. As distances shrink and barriers fall, we are increasingly dependent on each other's economic security, on our shared development, environment, health, and stability. More and more there is a globalization of our hopes and concerns. In recent years we have seen how growth in the developing world can radiate its very substantial benefits in the advanced economies. We are now seeing that the reverse is also true - how declining growth in important parts of the developing world can have major repercussions for the whole of the world economy.
HOW THE TRADING SYSTEM CAN HELP
I do not pretend that the Multilateral Trading System can provide all the answers to our present difficulties. But it would be equally wrong to underestimate or ignore the very significant contribution that our system, based on mutually agreed rules - with multilateral procedures and flexibilities to cope with specific economic difficulties - can give to the world economy. The trade system is like the circulatory system of the human body. If the blood does not flow, then no amount of macroeconomic medicine will cure the patient.
There are three essential messages that the world trading community must send in the days ahead:
First, that protectionism, particularly under the present circumstances, would be a tragic mistake. With so much of our economies dependent on one another, no country has an interest in closing off markets or weakening its ties with the rest of the world. No country, especially in the developing world, has an interest in building walls against technology and productive investment flows from outside: the very flows that have been responsible for the unprecedented rise of the emerging economies, and which will be indispensable to their recovery.
Those who suggest that foreign investment poses a threat to development have it backwards. It is the absence of investment which is now the greatest threat to development in the emerging markets. The reality is that global trade, investment and technology flows are increasingly three aspects of the same phenomenon. Cut off one, and you risk cutting off the others. It is also these flows that give us a shared interest in each other's success. They are the fragile ties that help bind us together.
Protectionism in today's interdependent world is a self-defeating strategy. Worse, it is a contagious and divisive instrument that will not solve anyone's problems. It will only make the present problems of the international community much, much worse - by preventing adjustment, reducing the free flow of goods and services, and, as a consequence, diminishing growth and employment. The first message that the international community has to send is that we share an awareness that only by keeping markets open by maintaining free-flowing trade can we improve the chances of an early recovery.
The second message is that every economy has a role to play both those inside the trading system and those on the doorstep. This means that we have to redouble our efforts to advance current negotiations with the 32 candidates who want to join the WTO, and to reaffirm our strong determination to conclude these negotiations in the shortest period of time. These candidates are highly significant. They include giants such as China, Russia and Ukraine; ex-Soviet republics in the Baltic and Central Asia; Saudi Arabia and Chinese Taipei; and many other important players for the world trading system.
As global trade becomes ever-more interdependent we cannot sustain for long a world divided into two categories on the one hand, 133 economies which are inside a system of rights and obligations, and on the other hand, a significant number of economies which are outside those same rights and obligations. This is a recipe for imbalance, for instability and for uncertainty. And because the process of global economic integration will not wait for us, these imbalances will only become more pronounced in the time ahead. We need vision and creativity on both sides and from the applicant countries a necessary degree of flexibility. But our objective must be clear: To finalize these negotiations expeditiously in order to send a powerful signal of confidence to the world economy. A confident symbol of our ability to maintain and even advance free trade in a rules based system.
Which brings me to the third message. In the current circumstances it is absolutely vital that we demonstrate our resolve to move ahead. We agreed in May, at the Second Ministerial Conference, on a balanced work programme that takes into account the needs and aspirations of the Members, in terms of implementation and future negotiations. As we prepare for our Third Ministerial Conference next year, which will be held in the United States, we must show the world that we intend to keep our work programme firmly on track.
THE TRADE AGENDA AND BEYOND
What does this programme include? As we approach the year 2000, there are already an impressive number of existing commitments in the WTO's agenda - including negotiations in agriculture, services and aspects of intellectual property. In addition, decisions must soon be taken about investment and competition. Other suggestions, like further negotiations for reducing industrial tariffs, have already been presented by some countries. And electronic commerce and other technology-related issues are well in progress in the WTO system. They will be of fundamental importance to narrowing the gap between the advanced and emerging economies.
Currently there is a debate about whether this agenda should move forward sectorally and rapidly - or as part of a much broader negotiating Round. Under the present circumstances, it is extremely important that we find a strategy that embraces the advantages of both approaches. In other words, a broad enough negotiating package reflecting the shared interests of developing and developed countries alike but one that can also deliver early momentum and an early harvest. In any event, the horizon of the next negotiations is very different from the horizon of the Uruguay Round. And there are many reasons to believe that the negotiations can be much shorter.
This is already an ambitious agenda. But even more is expected of the trade system. More than ever before, the trade system intersects with a growing list of issues and concerns that have a powerful impact on people's lives from investment and competition policies, to environmental, development, human rights, labour standards, health, animal welfare, distribution of resources, ethical issues, and even security. More and more the WTO is under pressure to expand its agenda because more and more it is seen as the focal point for the many challenges and concerns of globalization.
It is clear that the trade system cannot ignore these vital concerns. But it is equally clear that it cannot give solutions to all the issues which globalization raises. Every global issue needs its own solution. Environmental and social problems need environmental and social answers. And seeking solutions through trade rules can never be a substitute. In each policy area we need to define what these solutions are. And these solutions should be multilaterally agreed in the proper forum so that different policies can reflect common values and be mutually supportive.
In particular, I believe that the environmental community needs its own house as Mr. T´┐Żpfer, the new head of UNEP, is rightly working to build. Without a house it will be difficult to find a consensus on internationally agreed rules and standards for environmental protection. And without rules and standards, it will be impossible to build a durable bridge to the rules of the WTO.
The success of the multilateral trading system was the result - not the cause - of a broadening international consensus about the value of trade liberalization, painstakingly built up over the past fifty years. In the same way, we will only reach global solutions to the many other global issues now on the agenda by constructing the same kind of international consensus from the bottom up. The WTO is a key pillar of the emerging international architecture. But it cannot and should not be asked to play this role alone.
We live at a time of extraordinary change and technological progress progress which is moving us towards an ever-more interdependent, even borderless economy. It is critically important to underline this reality. Globalization is not a policy to be judged right or wrong. It is a process. And it has introduced a whole new dimension to the management of the problems of our daily life, in all our countries.
What is lacking is the appropriate international architecture to manage this complex reality. We need an architecture which embraces around the same table the needs of developing and developed countries alike. One whose horizon encompass, not just trade, finance, or development, but the human dimension of globalization in all its many facets. This is the future we need to invent.
The choice we face is between an interdependent world that moves forward on the basis of shared rules, or on the basis of power. Between stability or uncertainty. Consensus or conflict. How we manage the challenges in the months and years ahead will depend on the choices we make today. The prospect of a borderless economy has enormous potential to generate growth, to spread the benefits of technology, and to weave a more stable planet. But it also challenges the status quo. It demands that we adapt. This is not the moment to turn back to the past a past which has shown us with such stark clarity how building barriers to one another can only make our economies poorer and our world less secure.