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04 March 1998

"From Vision To Reality: The Multilateral Trading System At Fifty"

Address to the Brookings Institution Forum "The Global Trading System:  a GATT 50th Anniversary Forum", Washington

At the end of one of the most informed debates on the multilateral trading system and its 50th anniversary, it is for me a great responsibility and an extraordinary opportunity to make some concluding remarks.

It is very rare to hear history recounted by so many of those who played a key r´┐Żle in it, and perhaps even more rare to have them all gathered here at the same time.  Each one of them has shared with us their thoughts on many remarkable events in the world trading system.

The six US Trade Representatives here today have been referred to as the "trade warriors".  But this is only a limited description of their accomplishments.  No doubt in every trade negotiation there is a fight and so you need warriors.  The fight, however, is about building bridges, opening markets, increasing freedom of choice and expanding opportunities.

This is why I prefer to call them pioneers of the global economy.  Men and women, Democrats and Republicans, who have established new frontiers of economic interdependence and in so doing have made the world a more stable and ultimately safer place.

This event has been even more significant for me because of the presence of Henry Kissinger, a giant in the realm of international relations and a peace builder whose achievements must rank with the most oustanding in this century.

All my gratitude to the Brookings Institution and Michael Armacost personally for hosting this impressive event.  Their generosity is matched only by the breadth of vision which has made this institution such a respected contributor 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 over the past 50 years, trade has been a powerful engine for growth.  In 1950 its ratio to global GDP was 7 %.  Now it represents 23 %, and a third of the 25 largest trading countries are developing countries.  Between 1948 and 1997, merchandise trade increased 14 times, while world production increased 5 ´┐Ż times.  In the same period world GDP increased by 1.9 % per year at constant prices and taking account of overall population growth.  Seen in an historical context, this figure is extremely high.

 In particular, over the past 10 to 15 years, when developing countries have more and more embraced trade liberalizing policies, there have been signs that the  tide is turning.  The share of developing countries in world trade overall has increased from 20 to 25 %.  For the manufactured sector it has doubled from 10 to 20 %, and on current trends could exceed 50 % by the year 2020.  Furthermore, in this same period of time, 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 of 5.4 %, three times more than advanced economies.  In this same period of time, exports from the industrialized countries to the developing countries grew each year by an average of 10.1 %, while exports from developing countries to the industrialized world grew an average of 7.3 %.  This is the virtuous circle of globalization.

All of the world's major economies now follow, in their various way, the principles of the market.  Billions of people are becoming increasingly involved in the process of globalization.  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.

The success of the multilateral trading system in the last 50 years and in the three years after the creation of the WTO is evident.  Nonetheless, there are also many signs of the pressing need to renew the case for free trade within a multilateral framework.

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 through their domestic legislative processes - 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 has been 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.  
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 involving 102 countries to liberalize global financial services, bringing trade in banking, insurance and securities into 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 three years of existence this system's enhanced effectiveness has shown in a 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 the dispute settlement 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 coodinated rules in the other fields like the Environment.  An environmental problem needs an environmental answer, not a trade answer, even if the two policy areas should be ever more mutually supportive.

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 new negotiations for reducing industrial tariffs have already been presented by some countries.  With momentum again mounting toward the removal of remaining trade barriers, no one can undervalue the fact that the main role of the WTO remains the promotion of further liberalization.

These fundamental economic and political interests 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 integration when national economic 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.  The case of electronic commerce, now on the WTO table, is evident.

I need not remind anyone here today that 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 share equal 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.  For example, new horizons could be opened in health care by the development of telemedicine.  What is certain is that the pace of development will leapfrog.  Because of rapid technological progress we are now entering a completely different new world.

A global economy calls in turn for a truly global system of trade rules. In addition to our 132 members, there is a "waiting list" of 31 applicants 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 the assurance of equal access to the dispute settlement system.

Most important of all, by opening their economies these countries accelerate their development, while their partners know 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;  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.

The increasing interdependence of the world economy underlines the necessity of having appropriate architecture to manage issues and policies which are becoming more interlinked.  Finance, trade, development, environment, social issues are only some of those growing interrelations.  This is also an important lesson from the financial turmoil in Asia.  The r´┐Żle of the trading system in delivering a solution to this financial 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 proved 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 and South America and Asia itself must all participate in the process of restoring stability and confidence in the affected region.  China and Japan, too, must show the regional leadership that is expected of them.

The multilateral system with its binding commitments to open markets and progressive liberalization can provide the trade framework necessary to meet the challenge of resolving the crisis and preventing its recurrence.

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 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.

This is also why trade's relevance has always gone beyond trade itself.  One of the most striking examples in the last 50 years has been the role of trade liberalization in helping to transform the historic rivalry between France and Germany into a powerful bond that has united the two countries at the heart of European construction.

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.  More than a third of these agreements involve the European Community. 

Their contribution to the promotion of liberalization cannot be called into question.  And yet the logic of regionalism makes less economic sense in an era of globalization.

As production and distribution become increasingly global and as economies become more integrated and more driven by borderless technologies, it is in no one's economic interest to have a fragmented system with fragmented rules and even a fragmented dispute settlement 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?

The implications of this choice go far beyond the trade system.

To avoid a dangerous ambiguity about the future of the world economy and to maintain a mutually supportive relationship between present and future regional areas and the multilateral system, we need to clarify our own vision.

What better time than the 50th Anniversary of the multilateral trading system to reinforce beyond any doubt that our ultimate goal remains the establishment of a rule-based global system of free trade as the main element of a strategy for global development and security in the twenty-first century.