Regional initiatives, global impact: cooperation and the multilateral system
Attached is a speech due to be given by Renato Ruggiero, Director-General of the World Trade Organization, to the 3rd Conference of the Transatlantic Business Dialogue (TABD) in Rome today (7 November).
This is why this dialogue is so valuable. You are operating at the leading edge of economic integration, and the accelerating pace of globalization gives your work an importance which reaches well beyond your region. In this time of rapid transition, business and government must work together as never before to ensure that our national and international rules keep pace with our evolving economies; to ensure that they help, not hinder adjustment; and to ensure that they provide a common ground of stability in a period of breathtaking change.
The problem is not globalization, as some think; the problem is governance.
Tonight I want to talk about this challenge of governance in an integrated and interdependent world - and how the transatlantic community has a central role to play in bringing together the two main paradigms of this emerging international order - multilateralism and regionalism.
Fifty years ago the central challenge facing the postwar trading system was to prevent a return to protectionism - a path which had led directly to the Great Depression of the 1930 and ultimately to the descent into world war. The deep levels of economic integration we have achieved today are in many ways a testament to the success of that system. The new international competition is for wider markets, more investment, and better technologies, not for building higher tariff walls. And yet for all our progress, it would be unrealistic to assume that deeper integration is inevitably leading to a period of universal cooperation and stability. The impulses for international rivalries, competition, and protection have not disappeared in our interconnected world - arguably deeper integration makes them stronger than ever. In many ways, these new challenges facing the international trading system are now being played out in the debate over the relationship between regionalism and multilateralism.
Most observers have concluded that regional agreements have made a generally positive contribution to the liberalization of world trade. In many cases, regional arrangements have provided stepping stones for integration into the global trading system - helping industries, sectors and countries adjust to the competitive winds of globalization. They have served as important crucibles for trade policy innovation, the results of which have frequently spilled over into the multilateral arena. Regionalism has also often been a source of creative tension in the global system as a whole, forcing the pace of other regional and multilateral initiatives. It is not coincidental that the Kennedy Round moved forward with the creation of the European Community, the Tokyo Round with the Community's first enlargement, and the Uruguay Round with the Single Market initiative and with NAFTA.
Perhaps most importantly, regional integration has offered countries a way to resolve issues that would be more difficult to resolve in the wider multilateral context. For the European Community - to take perhaps the best example - greater trade and economic integration was seen above all as a way of welding Europe's political future together and making another continental war unthinkable. The goals of NAFTA were explicitly economic rather than political. But here too the idea was that North America's degree of economic integration called for deeper and more comprehensive regime of rules than could be achieved in the larger multilateral system.
Now, however, we find ourselves in a new phase of regionalism - one which is qualitatively and quantitatively different from the kind of regionalism represented by the European Community or even NAFTA. The last decade has witnessed an unprecedented proliferation of regional arrangements. Since the entry into force of the GATT in 1947, 163 regional trade agreements were notified to the GATT or the WTO. In the period 1986-1991 only five agreements were notified to the GATT; the equivalent number for the period 1992-1996 is 77. Of these 163 agreements, around 60 per cent are currently in force. Thus over three quarters of the operational regional agreements in existence today have entered into force in the last four years.
And it is not just the pace of regionalism which is different today, but its breadth of ambition as well. The proposed Free Trade Agreement of the Americas (FTAA), to take one example, covers all but one of the 35 countries of North, Central and South America, boasting a combined market of well over half a billion people. And then there is the grandest regional project of them all - APEC. Spanning both sides of the Pacific Ocean and incorporating three of the world's four economic superpowers - the United States, Japan, and increasingly China - APEC includes 40 per cent of the world's population, some 54 per cent of the world's GDP, and 42 per cent of its trade.
The central argument for regionalism has always been that smaller groups of countries may be able to move further and faster towards integration than in a much wider multilateral system. But does this logic still lie behind the vast regional arrangements we see unfolding around us today?
For one thing, it is very difficult to make the argument that liberalization is any easier in, say, APEC, the FTAA or between the EU and the Mediterranean countries, than in the WTO. Many of these new regional arrangements contain countries as different in outlook, economic size and level of development as any countries in the multilateral system. And the points of trade friction are no less vexing. For example, are negotiations between Japan and the United States really any easier in APEC than in the WTO? Can the Europe resolve the issue of agricultural liberalization any more swiftly transatlantically with Mercosur, or across the Mediterranean with the countries of the Middle East and North Africa?
A second point is that the globalization process itself underscores the logic of global rules for global firms operating in a global marketplace. As firms increasingly internationalize their production and distribution systems, and as economies become increasingly integrated, it is in no one's economic interests to have a fragmented system with fragmented rules and even perhaps a fragmented dispute settlement system. This is even more true in the world of borderless technologies we are now entering - world where economic activity in areas like telecommunications, financial services, and electronic commerce will more and more take place in a single, global economic space, one which is basically indifferent to distance, time and geography. In this borderless information economy, regional preference becomes an increasingly inadequate - even anomalous - instrument for managing the integration process.
This leads to a third important point - the new strength of the WTO system itself. This year alone we have reached path-breaking agreements in information technologies and telecommunications - the combined value of which equals world trade in autos, textiles and agriculture. I believe a successful financial services agreement is within our grasp. And we have made important progress in the 32 accession negotiations currently underway, one of which, China's, will have an economic effect roughly equivalent to the Tokyo Round. Hardly the signs of a system unable to keep up with the fast pace of globalization.
If the logic of regionalism often makes less economic sense in an era of globalization, why are we witnessing such a dramatic expansion of regional initiatives? Perhaps part of the answer could be that in some cases these initiatives are less about advancing regional economic efficiency or cooperation - as the TABD clearly and commendably is - and more about securing regional preferences, even regional spheres of influence, in a world marked by growing competition for markets, for investment and for technology. This, in my view, is potentially the most worrying feature of the new regionalism we see unfolding around the world today. Let's be clear that it is a feature which stands in stark contrast to the unifying vision of the founding fathers of the multilateral system half a century ago.
What makes this competition more worrisome is that at its heart lies the world's two major economic players - the United States and the European Union. What we see when we look at the pattern of regional expansion in the world today is essentially two focal points with concentric circles of preferential trade arrangements radiating outwards - almost as if they were competing to see who can establish the greatest number of preferential areas the fastest.
If it is true that the strength of the multilateral system for fifty years rested on the strength of the transatlantic partnership, it is also partly true that the sudden proliferation of regional arrangements reflects a certain inability of the transatlantic community to coordinate its trade interests and vision.
One danger is that this transatlantic competition could encourage other regions to form more preferential groupings of their own. The other danger is that we could run a risk of re-opening the North-South divide - after all, the only countries presently excluded from the expanding web of regional arrangements are the least- developed countries. This, in my view, would be one of the most tragic outcomes of all since globalization's greatest promise is its potential to erase the barriers between previously separate worlds.
The fundamental point is that while regionalism can provide an important complement to the multilateral system, it cannot provide a substitute. The solution, in other words, is to globalize regionalism, not to regionalize globalization. I see two important dimensions to this task.
First, we must ensure that the foundation of the trading system remains non-discrimination as embodied in the two fundamental principles of National Treatment and Most-Favoured-Nation. Regional agreements which are preferential by nature represent an exception to the most favoured nation treatment. When the number and extension of these exceptions to the most favoured nation treatment reach a very significant level, the exception could become the rule and the multilateral system would be substantially changed. Surely our goal must be to make regionalism conform to multilateralism, not vice versa.
The second challenge is to ensure that regionalism and multilateralism converge in their goals and aspirations - which means that we must ensure that our multilateral goals remain as ambitious as our regional efforts. More and more the success of regional arrangements must be measured in terms of their ability to help design and build this new economic order - both in terms of their own interests, and in the interests of the global economy as a whole. Here initiatives like the Transatlantic business dialogue can play a critical r´┐Żle in channelling regional energies and initiatives into multilateral negotiations - as you helped to do so successfully in the case of the information technology agreement and the recent telecommunications deal.
I know that you are playing a similarly positive r´┐Żle in financial services - the key priority for the WTO in the coming weeks.
The objective of the financial services negotiations is to achieve real improvements in access to markets. Essentially, this means the right for foreign investors to operate on equal competitive terms with national companies in national markets. It also means the removal of unnecessary restrictions on the cross-border supply of financial services - restrictions which will, in any event, become increasingly anomalous in a world of borderless, electronic commerce. And it means protecting equity rights already achieved in these markets.
I believe that an agreement should now be close at hand. Ninety-five countries have already made provisional market access commitments on financial services in the two previous negotiations, and in the negotiations which are due to end on 12 December we shall see improvements or new commitments made by something like 40 countries. This is a highly significant harvest. The number and the quality of the commitments negotiated are essential for a positive outcome. But it is equally essential that we firmly anchor the financial services sector in general in the multilateral system of rules and procedures. We cannot afford continuing doubt about the commitment of the major powers to multilateralism in this fundamental services sector. We cannot afford to lose at the last moment what has taken so long as so much energy to attain.
Many ask about the possible effects of the recent turbulence in financial markets in Asia on the WTO negotiations to liberalize financial services. Partly these reports spring from confusion about the distinction between liberalization of market access - which is our aim - and capital account liberalization - which is not. They are quite different, and the Services Agreement explicitly recognizes not only the right of all governments to regulate financial markets but their responsibility to take whatever prudential measures that are necessary to safeguard the integrity of those markets and their liberalization. I am greatly encouraged by the affirmation of all participants in the negotiations that recent events in the markets have not shaken either their belief in liberalization or the commitment to this negotiation.
The transatlantic community's unique contribution to the global system has always been as a bridge - across the Atlantic, across languages and cultures, across interests. It is a community which already represents the most important economic link in world - some US$ 300 billion in two-way trade in 1996, $810 billion in investment, against a combined transatlantic output of over $16.5 trillion. Nor do these statistics capture the essential quality of the transatlantic relationship - the extent to which Europe and North America are at the epicentre of a growing web of transborder investment, technology and ideas - the new arteries of the global economy. In many ways the economic ties between your two continents represents a single transatlantic market.
In such an intense economic relationship disputes and differences are inevitable - and fortunately we now have in the WTO a new binding dispute settlement mechanism where most of these conflicts can be resolved expeditiously on the basis of mutually agreed rules and disciplines. It is not only in the interests of all government to strengthen and build upon this system - it is there responsibility.
Yet, having said this, it would be difficult for me not to be concerned about certain recent signs of deterioration in the tone of the transatlantic relationship. And this is why an organization like the transatlantic business dialogue is so vitally important. It is not that closer transatlantic cooperation is an end in itself or an alternative to broader global cooperation; it is rather that a strong North Atlantic relationship is central to our ability to advance a broader and multipolar global community.
Let me conclude by summing up what I see as being at stake in this fundamental relationship. It comes down to the basic question of what sort of world we want; one of three or four major regional blocs - each of which discriminates against the other's members - or a truly global system of rules to deal with our globally integrating world.
Perhaps more than any other force, the principle of non-discrimination - as embodied in the rules-based multilateral trading system - has reduced power politics, and guaranteed all countries equal rights as well as equal responsibilities, irrespective of their size and power. This has proved a remarkably cohesive force over the years, providing a unique and invaluable foundation for international cooperation and consensus. Non-discrimination was the vision of the transatlantic community which arose out of the ruin of the two world wars and which has guided us to today. It is a vision which has helped us to expand trade and investment, to break down barriers between economies and peoples, and to build the multilateral institutions which have done so much to spread the benefits of modernization and growth around the world.
It must also provide a guiding vision for the challenges that lie ahead. I repeat, the challenge is not globalization, which is a growing reality, but our system of international governance, which is still clearly inadequate to our interconnected and interdependent world. The transatlantic community is again being called upon to help build a new vision for our globalized world - it must be one still rooted in the basic ideals of non-discrimination and the rule of law.