24 March 1998
"The multilateral trading system at 50: meeting the challenges of a globalized economy"
Address on International Trade Policy by WTO Director-General Renato Ruggiero given today (24 March 1998) in Oslo to the Norwegian Institute of International Affairs.
Influence in the multilateral system is not just about Gross Domestic Product or percentages of world trade. There is another kind of power - what Joseph Nye has called "soft power" - the ability to influence the course of international events through the force of ideas and the strength of moral example. By this measure, Norway consistently ranks among the great powers of the multilateral system. You are in the forefront of efforts to build a trade policy consensus, as today's conference, and the many others before it, attest. You are one of the most generous financial contributors to the system - especially towards ending the marginalization of the least-developed countries. And time and again you have been prepared to back up your faith in multilateralism with unwavering political commitment. It is this kind of power we need to help steer the trading system into the twenty-first century - and this is why I am so pleased to have the opportunity to speak to you today.
This fiftieth anniversary celebration comes at an important turning point for the trading system. Over the last two decades in particular, the system has changed in ways that even the most optimistic of the founding fathers could never have predicted. No one foresaw the growth of the system to over 130 members - or that the majority of members would be from a fast-rising developing world. No one predicted the collapse of the Berlin Wall, and the shift of the communist world towards a global market system. And certainly no one could have guessed that technologies like the Internet would push us towards a global electronic marketplace and the closest thing yet to a single world economy.
Today we have the potential to create something truly revolutionary - a universal system, bringing together all of the world's major economies under agreed and enforceable international rules and disciplines. But the task of managing this more globally integrated system will be even more complex, and many of the challenges we will face will be new. How we meet these challenges will go a long way to determining the stability as well as the prosperity of this new global age.
Understanding these challenges begins with an understanding that the multilateral trading system has always had a political and security dimension, as well as an economic role. One of the guiding ideas of the architects of the post-war international system was that open trade, and its role in promoting economic prosperity, was an essential element in international stability - that a new economic order had to be at the foundation of a new political and security order. All had lived through the economic destruction of the Great Depression - when turning inwards had created a descending spiral of declining trade, collapsing demand, and generalized economic chaos. All were agreed that the only route to economic reconstruction and recovery lay with open markets and liberalized trade.
They were also convinced that stability in trade relations could only be secured through a mutually agreed system of non-discriminatory rules - an idea which arose out of the conviction that exclusionary deals and preferential blocs had helped to fuel the inter-war rivalries, insecurities, and conflicts that drove the international community into another world war. The importance of the non-discrimination principle can scarcely be over-emphasized. It was key to the system's stability in subsequent years - avoiding the patchwork quilt of arrangements that had so undermined coherence and confidence in interwar relations. And it is the key principle which sets multilateralism apart from regional or bilateral approaches to trade relations.
Today's globalized world - a world of growing integration, widening circles of development, and unprecedented prosperity - is in many ways the fulfilment of this post-war vision. It is of course not a perfect world. 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 globalization, or the reality of the great opportunities it has opened up for economic prosperity, for technological progress and for political stability on a global scale.
multilateral trading system has provided a firm and
essential foundation for many of these developments and
advances over the last fifty years. First it has
contributed to an extraordinary period of growth in world
trade and output. World trade flows have increased
fourteen fold since 1950 - exceeding US$ 6000 billion for
the first time in 1995 - compared to a five-fold increase
in global production. The ratio of trade to global
output is now over 22 per cent, compared to just 7 per
cent four decades ago. And with global trade
projected to grow at some 7 per cent per year in real
terms, this ratio will continue to grow in the
foreseeable future. In the same period, world GDP
increased by 1.9 per cent per year at constant prices and
taking account of overall population growth - an
extremely high figure by historical standards.
The second achievement was to widen the circle of participation in the global marketplace - an achievement reflected in the rising membership of the system. While early GATT rounds in the 1950s typically involved some 20 to 30 countries, the Uruguay Round had 123 participants. And today the WTO has 132 members - eighty per cent of which are developing or transition economies. Developing countries as a whole now account for a quarter of world trade today, compared to less than a fifth a decade and a half ago; and for the manufactured sector, its share has doubled from 10 to 20 per cent. Over the same period of time, 10 developing countries with a combined population of 1.5 billion people have doubled their income per head.
The system's third achievement was to place international trade relations on the firm foundation of the rule of law rather than the rule of power. From its early focus on tariff reduction and quantitative restrictions, the rules of the system have increasingly moved inside the border - incorporating government procurement, trade in services, trade related aspects of investment, and intellectual property rights. The rules, moreover, are enforced by a strengthened dispute settlement mechanism. Some 106 cases were presented in the first three years of the WTO's existence, compared to approximately 300 cases throughout the life of the GATT - and many more of these cases are being brought by developing counties, underlining their growing faith in the system.
The economic or political role of the multilateral trading system has not been diminished by globalization. Just the opposite. As countries become more interconnected economically and technologically, they increasingly need a framework of rules and institutions to structure their relations. And this reality of economic interdependence is as true of Norway as of any other country. Norway is of course a member of the European Economic Area and the European Union accounts for between 70 and 80 per cent of your exports and imports. But these figures do not capture the full picture of how internationalized - global - Norway's economy has become. If, for example, a Norwegian-owned petrochemical firm in Qatar exports to India, these exports will not show up in Norwegian statistic - though they are clearly important to a Norwegian multinational, to Norwegian investors and suppliers, and ultimately to the Norwegian economy. And there are numerous other examples where Norway's economic interests are being woven into the fabric of the world economy as never before.
This need for greater security and stability through multilateral rules not only gives Norway and other countries a growing interest in the multilateral system. It is propelling the WTO towards the centre of a new global economic system - at once deepening the need for transnational rules, while vastly widening the circle of economic actors. Let me suggest five of the challenges that lie ahead:
First there is the challenge of advancing the liberalization agenda. In the last twelve months, we have reached major agreements to free trade in information technology products, telecommunications, and financial services - agreements which, taken together, are the equivalent of a major global round. Clearly trade liberalization has not slowed down in the post-Uruguay Round era - it has accelerated. The debate now is about whether future liberalization should move forward sectorally, or as part of a much larger Round covering a multitude of subjects. My guess is that both approaches will converge as the logic of our negotiating agenda becomes clearer and more immediate. At the horizon of this century we see 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 new issues like electronic commerce are demanding a response from the WTO system.
leads us to a second, and related challenge, keeping pace
with a technological frontier which is literally
advancing with the speed of the Internet.
Breakthroughs in information technologies and
telecommunications are justly referred to as
borderless. These technologies are opening
unprecedented opportunities to reach a new global
frontier in the 21st century. We can see opening
before us the possibility that billions of people in the
developing world can for the first time have immediate
access to information and knowledge, the two most vital
raw materials of the information age. The shrinking
of time and space which is the consequence of the
impressive development of telecommunications and
information technologies will reduce significantly the
physical marginalization of an increasing number of
people - in areas like health care, through the
development of telemedicine, of education through
long-distance learning. The role for the
international community is to ensure that policies and
rules are in place to ensure that the benefits of this
revolution are shared equitably and evenly around the
planet - as the WTO is already doing in
telecommunications and information technologies.
A third challenge is to make the global trading system truly global - and this is one important reason why the accession process is such a high priority for the WTO. The 31 candidates are all developing or transition economies. They include giants such as China and Russia; ex-Soviet republics in the Baltic and Central Asia; and also some of the smallest island states. The fact that such a diversity of economies, including the former bastions of central planning, have made WTO membership a key objective leaves no room for doubt about the system's relevance and appeal. Clearly we must complete these negotiations as soon as possible. The process of global economic integration will not wait for us, and it is everyone's interest to have it take place within the coverage of the WTO's rules. The urgency is that much greater when we consider that with the new century we are already committed to major new negotiations in key sectors. But, equally, enlargement of the WTO must strengthen the system, not dilute it - and it must be done under sound commercial conditions.
There is another important dimension to universality - the need to ensure that all countries have the capacity to participate fully in the global economy. At the High Level Meeting in October last year, the WTO launched an initiative to provide assistance, in collaboration with UNCTAD, UNDP, the World Bank, and others, to address the needs of least developed countries. One objective is to integrate the use of the new technologies more effectively, so that least developed countries are aware of the opportunities in the global trading system, and better equipped to seize them. Another objective is to integrate our policies - linking technical assistance with capacity building and market access to design a mutually reinforcing strategy for development. Norway has been a leading positive force behind this and other initiatives to help reduce marginalization. In 1996 Norway became the first major donor to the WTO Trust Fund, contributing SF 2.9 million towards technical assistance for least-developed and sub-Saharan countries. An example which other countries are now following. And both the High Level Meeting, and the follow up to it, were to a large extent made possible by the Norwegian contribution.
Fourth, there is the challenge of managing the relationship between the multilateral system and regionalism. The celebrations of the 50th anniversary are also taking place in a time of rapid expansion of regional trading systems. More than 90 preferential regional agreements are currently in place, and over three quarters of them entered into force in the last four years. Norway itself, as an EFTA member, is actively negotiating free trade agreements with other European and Mediterranean countries, and there is now talk of free trade arrangements with Canada, ASEAN, and Mercosur. The contribution of these kinds of initiatives to the promotion of liberalization cannot be called into question. And yet as a relatively small and trade-dependent economy, on the edge of one of the world's largest trading groups, Norway's fundamental and overriding interest must be the security and vitality of the multilateral system.
Heads of State and Government have already agreed to free trade in the Pacific, free trade in the Americas, free trade in Europe and between Europe and the Mediterranean. Now there is the prospect of creating new free trade areas between Europe and the nations of sub-Saharan Africa, the Caribbean and the Pacific and there is the possibility of free trade across the Atlantic. These numerous initiatives are planned to come into full effect within the next twenty years. What, then, is to hold us back from the logical next step of global free trade?
In the next few years, as we approach the target dates set for completing the various regional arrangements, we have to better define what kind of a future we want. Do we want a world which is based on non-discrimination, which is rules-based and global in coverage? Or do we want a very different world, fragmented into a few huge regional trading areas, with different rules and which are based - by definition - on discrimination among trading partners?
This last point underlines an even broader challenge. Globalization is pushing all of us to develop an international architecture to manage our growing interdependence not only in trade and economics, but across all the other policies which now spill across borders and jurisdictions. There is a growing recognition that shared challenges - whether they be monetary instability or the prospect of climate change - are too large to be solved by single approaches or single governments acting alone.
The WTO forms a key part of this new international system. In addition to advancing trade liberalization, the WTO has an equally important role in providing the rules and institutions need to secure our growing economic integration. But the WTO is only a beginning. The blurring of policies, as well as borders, clearly underlines the need for progress on the broadest possible front. It underlines, in other words, the need for a global architecture to oversee a new kind of global system. The WTO's experience over fifty years encourages us that it is possible to build such as system on consensus and mutual respect, on the rule of law rather than the rule of power. Seizing this opportunity will not only contribute to global prosperity and stability - it will contribute towards building a sustainable global community as well.
I began by observing that the fiftieth anniversary marks an important turning point in the trading system and in the world economy. The end of this century will go down in history as one of the most dramatic periods of political and economic change. The Cold War has ended. The divisions between North and South are blurring. If over the last fifty years our challenge was to manage a world divided, our challenge over the next fifty years will be to manage a world of deepening interdependence - a task as least a difficult as the previous one.
I hope that the fiftieth anniversary celebration will be an occasion for political leaders to come to Geneva and reflect together not only the system's achievements, but also its future directions and its place in the international architecture. Looking at the multilateral system at fifty it is clear we have not reached the end of a process - rather we stand at the beginning of a whole new phase of internationalism. We have an occasion to send a political message about the reality of global transition, but also about the important opportunities this offers. An opportunity to reaffirm our political will to move towards a better system of global governance - for developed and developing alike. And an opportunity to be as creative in shaping the institutions of an increasingly borderless economy as our forefathers were a half century ago in building the post-war international system. I am convinced that Norway's record of internationalism - and your tradition of moral leadership - will place you in the forefront of these efforts."