Council on Foreign Relations
New York, N.Y.
(Note: These are remarks as prepared for delivery. A transcript of the speech as delivered and the question-and-answer session that followed will be posted when it is available.)
This year marks the 10th anniversary of the WTO [World Trade Organization]. It is an occasion for us to reflect on the 10 years that have passed and consider ways of preserving and improving those things we have done well, while addressing areas where we can do better.
But it is also an occasion which warrants some celebration because, ten years after its foundation, the WTO has never been more relevant and more important. Robert Zoellick says the World Trade Organization is the most important organization created in the last 50 years, and I agree with him. Ours is an organization where trade disputes are resolved in a systematic and orderly fashion, where trade policies are analysed and debated rigorously, and where the governments of the world come to negotiate the continued reduction of trade barriers and to set the rules which govern international business activity.
These ten years have transformed the way in which nations interact commercially and have brought the WTO a lot of attention. The GATT, the General Agreement on Tariffs and Trade, while instrumental in reducing industrial tariffs in the post World War II period, was a small, relatively tranquil institution to which most people paid little attention.
The WTO has been anything but this. True, these years have brought us Seattle and Cancun. Some commercial disputes in the WTO era have been given far greater prominence, whether they concerned turtles, bananas, tax incentives, or steel.
Sometimes, I am amazed that an organization which spends the vast majority of its time deciding matters of a supremely arcane nature has attracted so much media attention and controversy.
Yet there can be no doubt that, in an era of ever-increasing economic integration, there is real need for such an organization. The global economy has advanced with remarkable speed over the past decade. Developments that no one could have foreseen in 1995 are today shaping the way we live. Products which many of us had never imagined and which few people owned are now a central part of everyday life. Countries like China, India, Brazil, and Mexico now play a major role in the global economy and in international economic policy making.
Technological change and global economic integration have not come without cost. There has been displacement in the work force and anxiety about the future in many countries, particularly in the industrial word. For this reason, the concept of globalization has sparked much debate. But, with or without the WTO, global integration is a reality and there is every indication that it will continue to be so.
It was into this maelstrom that the WTO was born. Many of the fears and concerns that have arisen from this remarkable economic transformation have been laid at the feet of the World Trade Organization. The WTO is a soft target. But the factors driving globalisation are numerous and complex. The WTO is not the problem but rather part of the solution. There is no escaping the fact that global problems require multilateral solutions. Absent global rules which address the problems that stem from an often unpredictable and sometimes unsettling phenomenon, we are left with uncertainty, heightened international tensions and possibly chaos. Absent the rule of law, we have the law of the jungle.
It was the United States, perhaps more than any other nation, which recognized the importance of the rule of law during the Uruguay Round and sought to broaden and deepen its relevance to international trade. Weary of the unreliable dispute settlement system in the GATT which enabled a respondent party to block the establishment of dispute panels and the issuance of panel reports, Washington sought and achieved a strengthened dispute settlement system which follows predictable procedures and delivers outcomes within a reasonable time frame.
The United States has been among the most active users of this system, bringing more case to the WTO than any other member— nearly 80. It has been involved as a party in over 60 percent of all cases brought before dispute panels and the Appellate Body.
In establishing the current WTO Dispute Settlement System, the United States and other WTO member governments have proven that multilateral solutions to global conflict are not only possible— they are desirable. One of my predecessors, Peter Sutherland, said earlier this year that no one foresaw 10 years ago that the WTO Dispute Settlement System would be so successful that it would be used more often in 10 years of activity— 325 cases have been brought to date— than the old GATT system was used in nearly a half century. But that is in fact the case.
This system has been successful largely because WTO member governments have been prepared to implement panel and Appellate Body rulings and to bring their laws and regulations into conformity with WTO rules should a panel decision go against them. The United States has a reasonably good record here: when the matter can be resolved administratively (such as with respect to removing an import safeguard measure or revising an anti-dumping order), Washington has responded quickly and decisively. When the problem requires action by the Congress, the process is inevitably more complicated and, to no one’s surprise, the U.S. record is more mixed. On the positive side, Congress did pass legislation in 2004 to bring the United States into compliance with adverse WTO rulings in the Foreign Sales Corporation and 1916 Anti-Dumping cases. In several other cases, however, there has been political resistance and Congress has yet to act, despite requests from the Bush administration to do so. I can only say that the durability of WTO rules rests on the principle that governments will abide by those rules, which after all they themselves have written and approved.
Beyond dispute settlement, it was the United States which pushed most aggressively for the incorporation of agriculture, intellectual property protection, and services trade into the global trading rules. Today these areas represent vital elements of our negotiating agenda, an agenda which has once again been largely shaped through U.S. leadership.
You will also recall that, on 1 January 2005, WTO members eliminated quotas on textile and apparel trade, marking the end of more than 40 years of managed trade in this sector. The increased competition resulting from this will surely bring significant benefits to consumers everywhere, and it is the poorest consumers, who pay a much larger share of their incomes on clothing, who shall benefit most.
The information age has been given a significant boost through our 1998 agreements on telecommunications and information technology products. Trade in information technology products rose sharply after this agreement and it is notable that the gains have been registered not only in industrial countries, but in developing countries as well. From 1996 to 2002, developing countries’ share of world exports in this sector have risen from 40 percent to 52 percent.
The smoother flow of capital around the world has been supported by the WTO’s 1998 Financial Services agreement which established global rules on trade in this sector and which has provided greater certainty and predictability.
Surely, one of the most important achievements of the last 10 years has been the enhanced integration of developing countries into the WTO system. Never before have so many been such active participants in the global trading system. The rise to prominence of the “G-20” in the agriculture negotiations, the high level of dispute settlement activity by developing countries, and the important place that cotton holds in the Doha negotiations, are clear illustrations of greater participation by developing countries. With respect to cotton, for example, it would have been unimaginable 10 years ago that four poor West African nations could have persuaded the global community to include a trade topic of great interest to them on the global negotiating agenda. Regardless of your substantive position on the cotton issue, we can all agree that active participation in the trading system by even the poorest member countries is a positive development.
This level of participation is due, at least in part, to the significantly improved delivery of technical assistance. Technical assistance funding has increased manifold in recent years and this increase has greatly enhanced the capacity of developing countries to participate in the system. The process has also been facilitated by our much-improved coherence with other international organizations. Better working relations with the United Nations, its agencies, the World Bank and the IMF [International Monetary Fund] have also allowed us to better address the trade adjustment concerns that members have expressed.
We have brought 23 new members into the global trading system, including major trading economies like China and Chinese Taipei, as well as small and vulnerable countries like Nepal and Cambodia.
Chinese membership has brought under global trading rules an economy which is growing at an astounding rate and which has already become one of the world’s three largest trading nations.
But as important as these achievements are, there can be no doubting the fact that we can improve in all areas of our work, including reforming the Dispute Settlement Understanding, improving our operating procedures, and improving our links with other international organizations and with civil society.
It’s probably fair to say as well that our image could use a bit of polishing.
How can we best address these challenges? How can we ensure the WTO’s continued relevance to the goals of economic growth, development, and international cooperation? The answer is both simple and complex: conclude the Doha Development Agenda in timely fashion and with an ambitious outcome. Easier said than done, I know.
But I don’t think there is any doubt that the single most important thing WTO member governments can do to strengthen this organization and the global trading system is to conclude as rapidly as possible an ambitious agreement on the Doha Development Agenda Round of Negotiations. Such an outcome would 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 once-in-a-generation opportunity to help to use the trading system as a vehicle for sustainable development.
Advanced countries too will reap the benefits arising from expanded trade. An ambitious agreement would result in greater market access for services providers, farmers, and manufacturers; wider consumer options and greater certainty for exporters. Increasing prosperity among developing countries is a win-win situation, as they become the markets of tomorrow. These achievements would greatly assist governments in their efforts to keep their economies expanding.
WTO member governments are now giving positive signals that they want to conclude this round by 2006. Their objectives for the Hong Kong Ministerial Conference in December are: agreement on “modalities” for trade in agriculture and industrial products, a critical mass of market opening offers for trade in services, significant progress in areas such as rules and trade facilitation, and a proper reflection on the development dimension. This would indeed provide a springboard for the final negotiations.
I believe the political commitment is there on the part of all governments and I know that in Geneva ambassadors are prepared to expend every effort towards the objectives of an early conclusion to the round. WTO member governments deserved considerable praise for agreeing on a framework deal in agriculture last July, but I sense a degree of complacency that concerns me.
I am particularly concerned about the pace of negotiations on trade in services. Services make up more than 50 percent of economic activity for nearly all WTO members. Trade in services makes up nearly a quarter of overall global trade. Member governments committed themselves in Doha to negotiating an agreement further liberalizing trade in services and establishing more equitable rules for such trade.
And yet, there are more than 40 countries which have yet to make even an initial offer in this area of negotiations. This is unacceptable. Governments cannot expect others to show interest in areas of concern to them, if they are unwilling to participate in negotiations in a sector as vital to the global economy as services. I have written to the ministers of these countries encouraging them to put in offers, and pointing out that the future of this round, a round dedicated to improving the trading prospects of developing countries, is at risk unless they participate.
One of the more troubling elements of the hesitation of some members to participate is that they are hurting themselves. The data are clear on this point. In transportation for example, in 168 countries the barriers to access in provision of transport services are more onerous than tariff barriers. This constraint on competition means higher fees. In developing countries, transport costs are an average of 70 percent higher than in developed countries. Freight costs in Africa are twice as high as the world average. Improvement of a country’s transport infrastructure has obvious benefits for trade and one study says such improvement could lift trade volumes by as much as 68 percent(1).
Telecoms services are essential to virtually all economic sectors and positively affect trade volumes. Advances in this sector mean lower costs and greater access to other services.
The quality and price of financial services are key factors in overall trading costs. Greater competition in this sector has proven to be central to increased efficiency and diversity of these services.
We have a deadline of May 31 to submitted improved offers. Understandably those 72 members which have submitted offers (the one EU offer covers 25 countries) will be reluctant to submit improvements when so many of their trading partners have refused to come forward. Should this deadline be missed, it is inevitable that there will be a spill-over into other areas of the negotiations, and the delicate balance and steady progress we have achieved will be undermined.
It is always difficult to translate political energy into concrete action but unless we begin to show real progress in services— and across our very large agenda of negotiations as a whole— we will not have sufficient time to deliver an ambitious outcome at the Hong Kong meeting. Progress in other areas like industrial goods, rules, and the environment have lagged behind. Even in agriculture, many of the most difficult elements remain far from resolution.
We have an unfortunate tradition in this organization of waiting until the very last minute before we negotiate in earnest. It’s a tradition which has outlived its usefulness. We have too many governments in the negotiations and our agenda is simply to large and too complex to expect that ministers in Hong Kong can resolve all differences in a matter of three or four days. This is why it is essential for governments to be clear by the Spring what they want from Hong Kong and to deliver significant progress toward that objective by the end of July.
Fortunately, ministers seem to have learned this lesson, which is why they have urged negotiators in Geneva to agree this July to build on the achievements of last summer, reduce the number of differences between them, narrow the gaps in other areas during the autumn, and bring to Hong Kong a manageable number of politically difficult issues for resolution. It’s a tall order, I realize, but it is the only way negotiators at the Hong Kong ministerial conference can attain the objectives they have set for themselves and the only way we can conclude this round by the end of next year.
I would note that successful conclusion of the Doha Round will also depend on the outcome of the congressional debate this spring on two important WTO-related items— the two-year extension of the Trade Promotion Authority for President Bush and the second five-year review of the U.S. participation in the WTO. I have spent a large part of the last two days on Capitol Hill discussing these issues with congressional leaders, and I came away optimistic.
Not all our problems can be addressed through the Doha Round, I know. There are questions about our processes, our sometimes inefficient methods of decision making, and our budget. These problems will need to be addressed through actions by governments after the round has been concluded.
You may know that I commissioned a group of distinguished trade experts, chaired by Peter Sutherland and including the Council’s own Jagdish Bhagwati, to ponder these subjects and offer their recommendations for the future. These men have performed an extremely valuable service for which I thank them and congratulate them. As director general, I cannot take a position on their suggestions— though I may have something to say about them after I step down from this position on 1 September. But I urge you all to read this report and form your own conclusions.
On balance, I can say with confidence that these past 10 years have been a success. A qualified success perhaps, but certainly a success. We have learned important lessons about transparency and inclusiveness, about more effective management of the secretariat, and about how to better manage the negotiations themselves.
But we have also learned that there is no alternative to the global trading system in international commerce. No other route to rule-making offers such compete coverage of sectors and countries. Absent global rules, the problems we face would not go away, they would merely become more difficult to resolve.
I have no doubt that the next 10 years will bring difficult times, but I am also confident that the lessons learned during our first decade will help future leaders to chart the course for greater equity, stability, and prosperity.
1 Limao, N. + Venables, A. (2001), “Infrastructure, Geographical Disadvantage, Transport Costs and Trade,” WORLD BANK Economic Review 15:451-474.