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26 February 1998

From Vision To Reality: The Multilateral Trading System At Fifty

Address to the Brookings Institution and the World Affairs Council Forum "The Global Trading System; a GATT 50th Anniversary Forum", San Jose, California.

I want to begin by thanking the Brookings Institution and the World Affairs Council for hosting this event.  Their generosity is matched only by the breadth of vision which has made these two institutions respected contributors to the public policy debate.

It is entirely fitting, therefore, that this is a speech about vision.  A very specific vision, however, and one which has become a reality - something rare enough in international affairs.  That reality is the multilateral trading system which is now centred on the World Trade Organization, and whose fiftieth anniversary we are marking this year.

The vision behind the system owed much to American inspiration.  It is a vision which remains as fresh and as relevant to the realities of our present - and the challenges of our future - as it was at the outset.  For fifty years it has fostered economic growth as well as international stability.  Now, in a world of uncertainties, this vision and the system that has been built on it are a priceless global asset.  In celebrating it with you here today, I would like first to look back, so that we can then see ahead more clearly to the significance of the system for the global economy of tomorrow.

The world we see around us - a world of growing economic integration, widening circles of development, and unprecedented prosperity - is in many ways the fulfilment of an idea which arose out of the destruction of the Second World War.

Certainly, inequalities and poverty are still present on an unacceptably wide scale.  But at the same time, in the last 10 to 15 years, 10 developing countries with a combined population of 1.5 billion people have doubled their income per head.

And while the gap between countries is in some cases widening, it is also true that from 1990 to 1996, developing countries recorded an average growth rate of 5.4 %, three times more than advanced economies.

All of the world's major economies now follow, in their various way, the principles of the market.  Billions of people are becoming increasingly interested in the process of globalization.  If the challenge of the Cold War era was to manage a world divided, our challenge in the post-Cold War era is to manage a world of deepening interdependence.  And yet the basic idea behind multilateralism remains as valid to this global age as it was to the post-war era - that world prosperity and world peace can best be built on a foundation of open and non-discriminatory trade.

This idea was central in the minds of the architects of the post-war order for two broad reasons.  One was their conviction that protectionism had been an unmitigated disaster for the world economy.  All had lived through the economic chaos of the 1930s - when turning defensively inwards led directly to the breakdown of international trade, the Great Depression, and ultimately to world war.  All were agreed that the only route to economic reconstruction and recovery lay with open markets and liberalized trade, underwritten by a system of negotiated and enforceable rules.

The other guiding idea was political - the belief that free trade and its role in promoting economic prosperity was an essential element in international stability and security. Trade, in a rules-based system, would promote economic interdependence among nations, making another global war improbable.  The principle of non-discrimination would prevent the kind of exclusionary deals and blocs which had done so much to fuel inter-war rivalries and protection.  Behind all this was a fundamental belief that economic freedom among nations was an essential prerequisite to political and other freedoms.  As one US observer, Arthur Krock, put it at the time:  "economic freedom for all is the basic American foreign policy for the prevention of war." 

The fundamental strength of the system was, and remains, its rule-based nature.  Like the GATT before it, the WTO rests on contractually binding commitments negotiated and undertaken freely by governments and ratified by their domestic legislature - including the US Congress.  It is thus a transparent and profoundly democratic system.

Furthermore, the success of the system testifies to the enduring power of its basic principle - non-discrimination.  GATT's most obvious goal was to reduce barriers to trade - a goal which was pursued through eight successive Rounds of negotiations which have brought industrial tariffs down from an average of around 40 per cent to under 4 per cent.  But a second and equally important goal was to provide a non-discriminatory set of rules - resting on the twin pillars of National Treatment and Most Favoured Nation - to help manage the interaction among distinct and different national economies.  It was this core principle of non-discrimination which did much to reduce power politics in trade relations, by guaranteeing members equal access to the security of the rules irrespective of their size and level of development.

A third strength was the system's commitment to consensus in decision-making.  Its existence depended, not on power or coercion, but ultimately on the willingness of members to sustain it.  Yet far from weakening the system or slowing it down, this principle of consensus has proved a remarkably cohesive force over the years, providing a unique and invaluable foundation for international cooperation in trade matters. 

Likewise, the process of bargaining an exchange of concessions among trade partners - and then multilateralizing these concessions for the benefit of all - has proven a powerful catalyst for liberalization, creating a built-in incentive for developed and developing countries alike to place far-reaching market-opening offers on the table in each successive Round.  The genius of the WTO system lies in the way the national pursuit of self-interest can produce such extraordinary collective benefits in terms of open trade and international cooperation.

The economic benefits are all around us, in a world where trade has expanded nearly three times more than output since 1950.

Over the past twelve months alone, we have launched an important initiative to integrate the Least-Developed Countries into the mainstream of the world trading system.  We have reached an historic pact on telecommunications representing more than 90 per cent of the global market.  We have agreed to remove tariffs on information technology products, one of the fastest growing sectors of the world economy.  And we have reached an equally sweeping agreement to liberalize global financial services, bringing trade in banking, insurance, securities, and financial information in the realm of multilateral rules for the first time.  Taken together, these achievements amount to the equivalent of a major trade Round.

The value of these agreements is underwritten by a dispute settlement process which is the only one of its kind.  In the transition from GATT to WTO it was both strengthened and given an additional element of security through the establishment of an Appellate Body.

In three years of existence this system's enhanced effectiveness has been underscored by the greatly increased use by Members.  The United States has been the major user, and - I would like to emphasize - a strong upholder of the dispute settlement system.  But the success of these procedures is not only a matter of reaching judgements - it has acquired a strong deterrent value, helping to encourage "out-of-court" settlements in about a quarter of cases so far.

Of course the limit of the system is that it can only operate on the basis of trade-rules which have been approved by governments and ratified by Parliaments.  This is why there is a strong need for progress by the international community to establish coordinated rules in other fields like the Environment.  An environmental problem needs an environmental answer, not a trade answer.
These fundamental economic and political characteristics have not changed in this age of globalization.  Just the opposite.  More than ever before, the world's prosperity - and America's - rests on maintaining an open international economy based on commonly agreed rules.  The contribution of trade to US growth has increased significantly over the years - it has been estimated, for example, that exports have generated a third of all economic growth over the past decade.  A decade ago, exports supported seven million American jobs.  The Commerce Department estimates that by the year 2000 this figure will have more than doubled, to sixteen million.

What has changed are the challenges which the system now faces.  One challenge in the time ahead will be to manage global economic integration when national systems still remain very different.  As tariff barriers are stripped away, the trade policy focus is shifting inside the border - to regulatory and structural differences in areas like investment, competition or environmental policy which can have significant impact on market access, and on international trade and investment flows.  Breakthroughs in information technologies and telecommunications are creating the potential for borderless trade in key sectors  - raising important questions about how to regulate or manage an economy operating in cyberspace.

I need not remind anyone here today that these technologies are opening unprecedented opportunities to reach a new global frontier in the 21st century.  Led by your innovation and vision, we can see opening before us the possibility that billions of people in the developing world can for the first time share equal access to information and knowledge, the two most vital raw materials of the information age.  Developing countries are now gaining the means to accelerate the pace at which they raise the living standards of their people.

A global economy calls in turn for a truly global system of trade rules.  Today this system is more global than ever.  In addition to our 132 members, there is a "waiting list" of 31 countries applying for membership in the WTO, another feature that makes this organization unique among the international agencies.

Joining the WTO is not like joining a political forum or an organization which can provide loans or grants;  it means hard negotiation with existing members, and very often major changes in national policies in order to be able to sign on to binding commitments across the whole trade spectrum.  But countries which join the WTO gain security and predictability in their trade relations, and gain a great measure of equality by gaining access to the dispute settlement system. 
Most importantly of all, by opening their economies these countries accelerate their development, while their partners gain the assurance that unilateral economic reforms are henceforth bound into an international legal framework.
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;  Saudi Arabia;  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 like agriculture and services.  But, equally, enlargement of the WTO must strengthen the system, not dilute it - and it must be done under sound commercial conditions.

The response to this challenge will also say much about our capacity to manage our deepening interdependence in a world of multiple powers and multiple interests.  All nations today face a dilemma:  whereas governments answer mainly to local constituencies, increasingly economic systems must answer to global needs.  This dilemma will if anything become more apparent as globalization advances.  As we consider how best the international architecture may need to be adapted to bridge this systemic gap, the experience of the multilateral system in building consensus across a wide range of issues and interests takes on an added relevance.

What we celebrate today is a system of consensus-based rules that could embrace all of the world's economies.  One that is helping to break down barriers, not just between economies, but between peoples.  One that is weaving together a web of economic interdependence which gives us a shared interest in our mutual prosperity.  And one that is helping to equalize the human condition through the spread of technology and knowledge, building a global vision as well as a global economy. If there is a danger facing the multilateral trading system today it is that we risk forgetting the ideals that created it.

This is why the 50th anniversary could not come at a more appropriate moment and why it means much more than just recalling past successes.  The financial turmoil in Asia has underlined once more economic interdependence of our world and highlighted the need for international responses to problems which transcend frontiers. 

The role of the trading system in delivering a solution to this crisis has been and will continue to be critical.  There can be no solution without the positive contribution of the rule-based multilateral system:  a system which has proven itself a bastion against protectionist pressures.

Let me state unequivocally, THIS IS NO TIME FOR PROTECTIONISM.

At this moment, we need the collective efforts of all the key players in the global economy if we are to solve this problem effectively.  Europe, North America, Asia and South America, must all participate in the process of bringing Asia once again to its feet.  China and Japan must show the regional leadership that is expected of them.

Only the multilateral system with its binding commitments to open markets and progressive liberalization can provide the trade framework necessity to meet the challenge of resolving this crisis.

The celebrations of the 50th anniversary are also taking place in a time of rapid expansion of regional trading systems.  In the next few years, as we approach the target dates set for the establishment of preferential areas, we have to better define what kind of a future we want.  Do we want a future which is based on non-discrimination, which is rules-based and global in coverage?  Or do we want a very different future, in which the world is fragmented into a few huge regional trading areas, with different rules and which is based - by definition - on discrimination among trading partners?

There is only one way of avoiding this difficult second scenario and that is to preserve beyond any doubt, the primacy and dynamism of the multilateral system.

The anniversary event planned for 20 May in Geneva will give political leaders of WTO member nations a unique platform from which to send this message of reaffirmation and confidence to their own people and to the global constituency.  I fervently hope they make full use of it in a moment characterized certainly by huge challenges, but also by unprecedented opportunities.