Keynote address by the WTO Director-General "The Challenge of Policy in the Era of Globalization" PAFTAD 30 Conference on "Does Trade Deliver What it Promises?: Assessing the Critique of Globalization" Honolulu - February 19, 2005
Ladies and Gentlemen, I am delighted to join this auspicious gathering. Sometimes it may appear that we economists devote too little of our attention to really analyse and discuss criticisms levelled at the benefits of freer trade and its role in globalisation. But I believe that a debate of this nature is both timely and essential. Trade policy and the multilateral trading system have taken centre stage in both the media and public eye. No doubt this scrutiny will intensify over the course of this year. Not only are we at a critical phase in the Doha Development Agenda round of trade negotiations, but this year we are also celebrating the 10 th Anniversary of the World Trade Organization. This anniversary has already stimulated a good deal of reflection about the multilateral trading system's benefits and challenges. I should like to focus my brief comments here today in an area in which I perhaps have a comparative advantage. That is in providing an overview of the challenges facing WTO Members in concluding the Doha Development Agenda. But given the overarching theme of this conference, let me, first of all, to reflect back on the role and objectives of the multilateral trading system. I believe these are too frequently misunderstood and too often the target of misguided criticism. In this respect I will focus on three issues, which I am sure you will be taking up in greater detail over the course of this conference.
Firstly, the importance of multilateral trading system as a body of agreed, predictable and enforceable rules; secondly, the role of the WTO in fostering trade liberalization, and finally, the WTO's aspirations to become a truly universal organization. I would argue that the core role of the WTO as a body of multilateral trade rules, underpinned by a binding dispute settlement mechanism, is often forgotten or taken for granted. Perhaps this is because few of us can remember a time when there was a serious and sustained breakdown in international trade relations resulting from random and protectionist interventions by governments. Of course, trade spats often capture the headlines. These, however, are isolated incidents which are, for the most part, eventually resolved. This is to the great credit of the multilateral trading system, and is proof that it is functioning effectively. Certainly, one of the most impressive achievements of the multilateral trading system has been Members' record of compliance with dispute settlement rulings, particularly since the system was strengthened and reformed as a result of the Uruguay Round. 3
Over the last ten years [1 January 1995 to 31 December 2004], 323 complaints have been filed with the Dispute Settlement Body, leading to the creation of 162 panels and the circulation of panel reports in 115 cases. Around 75 per cent of these panel reports have been appealed. More disputes have been brought to the WTO in a decade than were brought to the GATT in nearly five decades of its existence. Members have, in general, implemented the recommendations and rulings made by panels and by the Appellate Body within a "reasonable period of time". It is clear that WTO Members have confidence in the WTO dispute settlement system and respect it. What also stands out is the fact that over half of the disputes brought to the WTO do not reach the panel stage, with many of these cases being resolved through bilateral consultations. Diplomatic solutions are often found before litigation is necessary. As concerns the role of the WTO in fostering trade liberalization, I would like to take off my hat as Director-General just for a moment and speak to some of my experiences and observations in Asia. It is now well accepted that all Asian countries open to trade have benefited from globalization. Japan, has risen from the devastation of the Second World War to be one of the richest countries in the world. Korea has grown from poverty to being an OECD member in some thirty years. More 4
recently China has grown at almost 10 per cent a year, lifting millions out of poverty. India is following a similar path. A common characteristic in each of these economies has been the ongoing programmes of structural reform, in which trade liberalization has played an integral part. These structural reforms, embedded in generally stable macroeconomic environments, have allowed resources to move into their areas of comparative advantage. It has widely been shown that the sectors in the Asian economies that have been liberalised manufacturing, and particularly electronics have done better than those sectors that have remained protected. Moreover, Asian economies have been largely successful in devising policies to compensate the losers that inevitably result from structural reform. The Asian experience has demonstrated that, more than any other policy approach yet tried, openness to trade is an important component as an engine for rapid economic growth. Granted, however, there is space for debate about the scope, sequencing and pace of reform. And most importantly, trade openness alone will not generate economic success. Other accompanying policies are required to create the right conducive environment. 5
I would argue that multilateral trade negotiations are by far the best route to achieve trade liberalization and to maximise the potential benefits of freer trade. The multilateral route also provides the broad trade-offs which make liberalization politically digestible. It gives all players a voice, and allows smaller and poorer countries to exercise greater clout by banding together. We have seen this recently with the emergence of the G20 and growth of a stronger alliance between the G90 countries. Our experience has also shown that only multilateral trade negotiations have succeeded in tackling the more sensitive and politically charged issues where regional and bilateral agreements have singularly failed to make headway. Two particular examples are textiles and clothing and agriculture. An important achievement of the Uruguay Round was the agreement to integrate textiles and clothing fully into normal multilateral disciplines by the progressive phasing out of quotas that were held by some Members. Last year saw the end of that phase-out period, ending the special and discriminatory regime that had lasted for more than forty years. The elimination of these quotas will benefit the global economy through welfare and efficiency gains and through increased market access opportunities. While there are some concerns and anxieties about the adjustment costs likely to result from the abolition of quotas for some Members, the removal of these distortions should be seen as a 6
major achievement. Efforts are being made with the World Bank and the IMF to explore and identify ways to address liberalization-related adjustment challenges, among other things. Although agriculture was covered under the GATT, related disciplines were rather weak. As a result, trade in many agricultural products was impeded by high tariffs, a host of non-tariff measures and increasing recourse to tradedistorting subsidies. The Uruguay Round signalled a collective U-turn in the direction of agricultural protection and support that had been developing, and greater transparency in agricultural trade regimes through tariffication of nontariff barriers. The Uruguay Round also included a commitment to continue the process of agricultural reform which began in the year 2000, and is continuing through the Doha Development Agenda. And I must say that the current DDA negotiations provide a historic opportunity to inject real substantive changes to agricultural policy around the world. Agriculture is the crucial issue for so many countries in the DDA that it will be central to a successful outcome to the negotiations. As I mentioned before, regional and bilateral deals have failed to make headway in advancing agricultural reform. They are not a viable policy alternative for multilateral trade liberalization. While regional and bilateral 7
agreements, if they are open, may help to advance the cause of trade liberalization, we should also be cognisant of their inherent risks. One major risk is that they may, in fact, serve to divert more trade than they create. Another, is that they may create vested interests and divert focus and resources away from multilateral negotiations. Thirdly, there is the issue of the systemic impact of these deals on one of the most valuable principles of the WTO that of non-discrimination. Certainly as bilateral and regional deals proliferate, the world becomes a more complex place to do business globally. Differing rules of origin are of particular concern in this regard. Turning to my third subject we are also making headway in achieving the multilateral trading system's goal to be a truly universal organization. At the GATT's inception there were 23 contracting parties, most of whom were either developed or large developing countries. Today, the WTO has 148 Members which account for more than ninety per cent of world trade. Three-quarters of WTO Members are developing countries ranging from the smallest and poorest countries to the big players like China. Over twenty five additional countries are queuing to join, also involving large players such as Russia and Saudi Arabia, a number of Least-Developed Countries as well as countries such as Iraq and Afghanistan. 8
But true universality must involve more than simply the fact of Membership. It must involve real integration into the system and a sense of drawing real benefits from the rights and obligations taken on board. In many respects we have seen some positive developments, particularly over the last ten years. One example is developing countries' use of the dispute settlement to protect their rights under the system. Around one third of the disputes brought to the dispute settlement body are from developing countries. Among the ten biggest users of the dispute settlement system, at least half are developing countries. We have also seen developing countries as a whole becoming much more assertive in the WTO, and pushing hard for their interests both in terms of rule-making and market access within the context of the Doha Development Agenda. Another positive development is the greater emphasis that has been placed by Members on helping developing countries to participate more fully in the negotiations and regular work of the WTO through technical assistance and capacity building. There has been a huge increase in the scope and quantity of trade-related technical assistance activities. In 1995, 84 activities were provided on a budget of two million Swiss francs (around 1.7 million $US). Last year 9
501 activities were organised on a budget of 30 million Swiss francs (around 25 million $US). Efforts are also being made to coordinate with other institutions where joint action can be positive and more efficient. An arrangement to cooperate with UNIDO, for example, is geared towards addressing supply-side constraints. Another example is the Integrated Framework programme for Least-developed Countries which is aimed at helping poor countries to mainstream trade into their development and poverty reduction strategies. We are working with five other agencies in this effort UNCTAD, the ITC, the World Bank, UNDP and the IMF. Without question, however, the most important action that can be taken to more fully integrate developing countries into the trading system is to conclude as rapidly as possible the Doha Development Agenda. The DDA holds the opportunity for all Members to strengthen their economies and to help improve the international trading environment. An ambitious outcome in these negotiations would also be a considerable contribution to the global fight against poverty. Better market access for poor country exports, steep reductions in trade-distorting farm subsidies, and more equitable trade rules would present developing countries with a major opportunity to help to use the trading system as a vehicle for their development. So let me briefly report to you on the state 10
of play of the DDA negotiations and what I see as being the key challenges ahead. As you will know, the Doha Development Agenda has been underway for over three years. It has been a rocky road, with both disappointments and successes. Two steps forward in the DDA have often been followed by one step back. On the one hand we have seen deadlines missed, including the original target deadline for the end of the round, which was set for 1 January 2005. On the other hand, we have seen Members show real leadership and political courage in narrowing their differences on sensitive issues. One example being a waiver decision taken before the Cancún Ministerial meeting on TRIPs and Public Health. This provides additional flexibility to poor countries with an insufficient manufacturing capacity to make effective use of compulsory licensing so as to provide essential medicines at cheaper prices. Another, more recent, example is the so-called July Package. Following the set-back at Cancún, the aim last year was to make up on lost ground and to make substantial progress particularly in the market access negotiations, by agreeing on frameworks for modalities in agriculture and non-agricultural goods, as well as making progress on other areas of the negotiations. We scored a major success, particularly in agriculture where Members agreed to eliminate 11
export subsidies by a date to be decided. They also agreed to make substantial reductions to domestic support and determined the kind of approach they would apply for cutting tariffs. We now have the foundations in place to negotiate the finer details. Members also agreed to launch negotiations on Trade Facilitation (as one of the so-called Singapore issues) as well as the treatment of cotton within the negotiations. Inability to bridge differences on these issues in the past had caused major roadblocks to progress. As a result of the July package, the negotiations have now entered a new phase, whereby we need to move from clarification of issues to real negotiations. We now have in our sights the WTO's Sixth Ministerial Conference which will be held in Hong Kong in December 2005. We must have an ambitious outcome from that Conference if we are to conclude the Doha Development Agenda in 2006, which appears to be a realistic and generally agreed new timeline for the negotiations. In order to make Hong Kong a success, we need to achieve a balanced outcome across the negotiations. In particular, we must have a substantial breakthrough in Hong Kong on five key issues. These include: modalities in Agriculture, modalities in non-agricultural goods; a critical mass of market 12
opening offers in Services; significant progress in areas such as rules and trade facilitation, and finally a proper reflection of the development dimension. In this respect, I believe that we must see July 2005 as an important marker in our progress. By that time we must have made significant progress in each of the areas I just mentioned. In July we should have a reality check to determine how far we have moved and whether we are on course for a significant outcome in Hong Kong. As I have emphasised to Ambassadors in Geneva, we need to keep Ministers continuously and closely involved in the process over the course of this year. It is Ministers who will ultimately make the major political decisions which will determine the fate of the Doha Development Agenda. Indeed, I would argue that agriculture would not have moved as far as it did last year without some procedural innovation, which also involved intensive involvement by Ministers. Already this year I have met with Ministers on the fringes of the World Economic Forum Annual meeting, as well as African and Nordic Ministers in Tanzania. I am very encouraged by the level of commitment and determination they have expressed towards moving these negotiations forward. A number of gatherings of Ministers are being planned in the coming months, and we must ensure that their attention is firmly on the key issues. 13
Ministers have some very tough decisions in front of them. Tough, in part, because they are all politicians who are accountable to their constituents. Some of these constituents may be negatively affected by trade liberalization, and may oppose conclusion of the negotiations. It is for governments to find ways outside of the negotiations to alleviate any such negative impacts, as a successful and ambitious outcome should be in wider interest to their economies as a whole. For other constituents and sectors of society, concerns about the WTO and trade liberalization may be based upon a lack of understanding of the role and objectives of the WTO and the DDA negotiations. That is why your discussions over the next two days are so important. I would urge you to disseminate the outcome of this conference in a way that is digestible to the general public. We need their support. In order to secure their support and confidence, we need to have an informed debate about the critiques of trade and its role in globalisation. The WTO can make a big contribution to improving the prospects of the global economy. Thank you. 2500 words approx. half-an-hour's speaking time 14
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