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WTO NEWS: SPEECHES — DG PASCAL LAMY

22-23 September 2005

Steering Committee of the Parliamentary Conference on the WTO — IPU Headquarters

“The WTO Needs Your Scrutiny”

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Ladies and Gentlemen,

It is my pleasure to be here with you today, and to continue the extremely valuable tradition that you have started — together with my predecessors — of having the WTO brief parliamentarians on the most salient issues in international trade.

Like all other multilateral institutions, the WTO cannot survive without a solid democratic foundation. It cannot survive if it fails to explain itself; if it fails to convince. Its very livelihood is contingent on its acceptance by its creators — in other words, by you. More importantly, its future would be undefined if it were not to be led by its members. The shape of things to come — the outcome of the Doha Round — will very much depend on the choices you make.

It is not by accident that I have accepted this invitation. Incidentally, it is one of my first public speaking engagements in my capacity as the head of the WTO! Yours is the oldest multilateral political institution that the world has known. Founded in 1889, you have laboured long and hard to bring transparency and accountability to international relations. If I have accepted your invitation, it is because of the primacy that I give to the WTO's continued accountability. I am convinced that greater accountability can but strengthen any institution.

This meeting comes a few months before the WTO's 6th Ministerial Conference that will be held in Hong Kong at the end of this year. The Conference is one of a series of steps towards the completion of the Doha Round. But, as with all steps that one takes towards an important objective, the Conference must take us “forward.” In fact, I would say that it needs to take us 2/3ds of the way. We cannot allow it to represent a “standstill,” or worse to bring us backwards. The stakes of a feeble outcome would simply be too high.

In a world battered by hurricanes, by political unrest and by poverty — a world in which hundreds of millions continue to live on less than $1 a day — absolutely all engines of economic growth must be switched on. Trade is one such engine and we must continue turning it on. In so doing, of course, we have a common responsibility to ensure that it is switched on for everyone; that no one is left behind.

Launched in 2001, the Doha Round of trade negotiations represents an important opportunity for economic growth. The Round is also an agenda for “development” — an issue that I will be addressing in this talk.

But prior to delving into the specifics of the Round, let me first brief you on the backdrop against which it is taking place.

The international community around us is rapidly integrating. It is integrating not because it likes to integrate, but because it needs to integrate. Integration has become vital to a country's wellbeing. The economic wellbeing of countries necessitates their active engagement in the global networks of trade and finance. Their environmental wellbeing necessitates their effort to protect the global commons. Their health necessitates global action to combat disease.

But if integration is so vital to our wellbeing, how good have countries been at doing so? Let us look at trade.

International trade policy developments in recent years provide us with a mixed picture. Globally, average tariffs have fallen by 2% between 1997 and 2000, and by 1% between 2000 and 2003. While these percentages may seem small, they have led to important increases in trade flows. In fact, merchandise trade grew by 9% in 2004.

The WTO cannot, on its own, be credited for the fall in tariffs. While some of the reduction was the result of a greater commitment to WTO rules, and of accession to the WTO by new countries (like China), it was also the result of autonomous liberalization, and of regional free trade accords. However, the latter are a mixed blessing for international trade. Some 250 regional trade agreements have been notified to the WTO since its establishment. While these agreements have the capacity to open some markets, we also know that they have the capacity to close others (in economic jargon “to divert trade”).

In terms of greater market openness, I would be remiss if I were not to mention that the past few years have stood out for a major reform in an area of particular interest to developing countries — textiles and clothing.

As required by the Uruguay Round Agreement on Textiles and Clothing, the end of 2004 saw a phase-out of the bilateral quotas which had long governed North-South trade. The Agreement provided developed countries with a period of 10 years in which to phase-out their quotas in recognition of the fact that all major changes would also require major adjustments to be made.

But who more than you — the parliamentarians — knows better the political, economic and social difficulties that such adjustments can entail. In the area of textiles, we continue to witness the transitional phase. For the past month or so, the transitional arrangements that were being negotiated with China have been in the press almost every day.

With those who gain from the opening of markets, there are also those who lose. We have an equal responsibility towards them, from which we cannot shy away, and I will be coming back to that. Allow me, at this point, to simply pay tribute to the difficult balancing act which parliamentarians have to play in addressing the interests of different constituencies. Economic systems operate within a political and social fabric, that cannot simply be ignored.

Despite the greater overall market openness that I have just described, tariffs continue to be high in some sectors of the world economy. For instance, applied tariffs remain high in agriculture. In fact, agricultural tariffs are said to account for most of the welfare loss created by trade distortion — they are responsible for 61% of that loss. Then there are the subsidies too. It is for this reason that some members sincerely hope to see greater agricultural trade liberalization through this round of negotiations — i.e. greater opening in a sector long shielded from market forces.

With respect to industrial goods, there is also a downside to the positive picture I just painted. While tariffs between industrialized countries have fallen sharply (and now average around 1%), developing country products face an average tariff of 2-8% when crossing into developed country borders. Perhaps just as worrying, is that developing countries tend to levy higher tariffs on imports from other developing countries. Moreover, some tend to apply higher tariffs on products from within their region. In Sub-Saharan Africa, for instance, average tariffs on African products are higher than on imports from any other region. A somewhat disturbing reality.

In addition to tariffs, non-tariff measures have been on the rise. Export and import licensing requirements and anti-dumping measures, for instance, abound. More than 2600 anti-dumping investigations were launched since 1995. Increasingly, it is the developing countries that are employing this instrument; and many are doing so against each other. Indeed, between 2002 and 2004, developing countries overtook the developed in the number of cases they launched; conducting a total of 441 investigations, as compared to 190 by the developed world.

In addition, there has been a steady rise in health and safety requirements. While many of these are legitimate and are applied even-handedly, numerous developing countries complain that they do not have the technical and other abilities to successfully comply with them.

It is against this mixed picture, that WTO Members are continuing to pursue the Doha Round. After a disappointing outcome at the last WTO Ministerial Conference in Cancun, Mexico, in 2003, life was breathed into the Round through a “Framework” agreement that was concluded in Geneva in mid-04.

The 2004 Framework was an important step forward in many areas of the negotiations; for instance, in agricultural and industrial goods, and in “trade facilitation” where new negotiations were launched.

In agriculture, the Framework was key to defining the contours of the negotiations — or the architecture of the final deal. It was agreed that all forms of agricultural export subsidies would be eliminated. This, of course, was a significant step forward, since export subsidies have long been considered the worst offence.

It was also agreed that the trade-distorting domestic support that is extended by WTO members to their agricultural sectors, would be reduced over time, with a 20% reduction in the first year of implementation. This immediate “down payment” was a clear sign of members' serious WTO engagement. Moreover, members with higher levels of domestic support committed themselves to bigger reductions.

With respect to agricultural tariffs, members decided to cut higher tariffs the most, but maintained the right to nominate certain “sensitive products” that can continue to enjoy special protection.

The objective for Hong Kong is to insert “figures” or “numbers” into the Framework. The goal would be to agree on an “end date” for export subsidies; and on the rates at which tariffs and domestic support will be reduced. Negotiations are also underway at the moment on the “flexibilities” that will need to be built into the system, so as to enable negotiators to reach a final deal.

Due to the importance of cotton as a commodity for developing countries, trade-distorting policies affecting cotton were given special attention in the 2004 Framework. There, members agreed to deal with these policies both “ambitiously and expeditiously.” This is clearly an issue where progress will need to be made for Hong Kong.

Agriculture is undoubtedly an extremely important component of the Doha Round. This can be of no surprise to anyone, since some of the world's poorest countries are amongst the most economically dependent on agriculture. Countries like Congo, Guinea Bissau and the Central African Republic derive 50% of their GDP from agriculture. In fact, over 50% of the exports of 12 of the world's least developed countries are agricultural.

With respect to industrial goods, the 2004 Framework was key to identifying the elements that would require additional work by WTO members. Most important amongst them are to identify the rate at which tariffs would be cut; the flexibilities that would be required for developing countries; and the possibility of sectoral accords.

While average customs duties are now at their lowest levels ever after eight GATT Rounds of trade negotiations, certain tariffs continue to restrict trade, especially vis-à-vis developing country exports. Also significant is the problem of tariff escalation, that discourages industrialization in many developing countries where raw materials originate. All of these issues are being discussed at present, and the goal for Hong Kong — as for agriculture — is to agree on numbers.

Services negotiations are an equally vital component of the Doha Round. The 2004 Framework agreement had urged members to step up their services offers. So far, 92 members have tabled offers for services trade liberalization. However, the quality of the offers that are on the table at the moment remains poor. Many do not represent a substantial improvement on the status quo.

Given how vital the services sector is to the international economy, I intend to urge members to aim higher. Trade in services is not only important because of the value of the actual services being exchanged, but because the existence of efficient and competitive services in a country is the indispensable foundation for absolutely any form of trade. Take for instance, telecommunications services, transportation services and financial services — without these, few countries can properly engage in international trade. Personally, I cannot think of an international transaction that does not require a phone call or some form of communication!

The 2004 Framework was also instrumental in launching “trade facilitation” negotiations as part of the Doha Round. In these negotiations members are looking at expediting the movement, release, and clearance of goods that cross borders. Developing countries are to be provided with technical assistance to implement the results that are reached.

Personally, I do not see trade facilitation as being just another component of the Doha Round. Facilitating trade is the WTO's raison d'être if I may say so. The success of these negotiations therefore, is crucial to the ease with which countries may engage in international trade. Prior to coming here, I was reading a report on the countries in which it will be easiest to do business in 2006. One of the facilitating factors sighted, was that of improved and modernized customs procedures.

In fact, one the countries that has been particularly praised in that report was Egypt. Egypt undertook bold reforms in streamlining its customs procedures, establishing a single window for trade documentation, and merged 26 approval procedures into 5. A time limit of 2 days has now been set for customs clearance. It is these sorts of reforms that WTO members will aim for in these negotiations, and I hope that members will keep their ambitions high.

Let me now turn to the development dimension of the Doha Round. “Development” is a theme that runs across all aspects of the negotiations. Its first pillar is to ensure greater market access for developing and least-developed countries in the areas that are of greatest interest to them. Its second pillar is to facilitate their adaptation to any new rules that would emerge from the Round. To do so would mean, looking into the careful “phasing-in” of new obligations, and the provision of the necessary technical and other support. Developing countries must be aided in re-training or compensating those who lose from greater trade liberalization.

One of the fears often expressed by some developing and least developed countries in the Doha Round, is that of preference erosion. With tariff reduction, lurks the fear of diminished returns from preferential trading arrangements. I would like to comment on this.

While preferential trading arrangements — whose value is indeed likely to erode with further trade liberalization — sometimes help the developing world, sometimes they do not. Such arrangements can be — and sometimes are — circumvented through restrictive rules of origin, or the placement of certain types of products, called “sensitive products,” beyond their reach. Thus, they do not always offer the “preferences” they claim.

But, more importantly perhaps, every “preference” that is given to a country, inevitably implies some amount of discrimination against another. That “other” country — which is the less “less preferred” — may very well be another developing country that is just as badly in need of assistance. In saying this, my intention is by no means to condemn such arrangements, certainly not. I myself had pushed for Everything But Arms in my previous capacity. But I simply say this to suggest that in a WTO context, we can aim for more.

From a WTO point of view, I prefer to think that more can be done for all, and not just some, developing countries — and in a manner that is not trade-distorting. The main alternative that the Doha Round offers is that of a sharp reduction in tariffs and other barriers to developing country trade. This will need to be accompanied by assistance to developing countries to facilitate their adjustment to new rules.

An existing vehicle for trade-related technical assistance is the Integrated Framework. This is a collaborative venture between six multilateral agencies, bilateral donors, and least developed country governments, that offers a mechanism for prioritizing and allocating resources for trade policy reform. In this context, greater thinking must be devoted to “Aid for Trade” — support to address developing countries' supply side constraints, and reduce the costs of trade. Such a tool will be key to enabling developing countries to benefit from the new market access opportunities offered by the Round.

I realize that I have not covered all aspects of the Doha Round in this talk, but I hope that I have nevertheless succeeded in transmitting to you a sense of the main issues preoccupying the trade world today. To end, let me simply say that the WTO has a serious challenge before it — it must bring the Doha Round to a successful conclusion. But as the Doha Round proceeds, it is important to remember that the WTO has, and will continue to, evolve as an organization. Only last week, the WTO witnessed an important evolution — its first “public” dispute settlement hearing. In a dispute between the US, the EC and Canada on hormone-treated beef, the parties agreed to open the doors of the dispute settlement process for the broader public to see. Such a step, which can only be taken with the agreement of the parties, was an important step towards greater transparency. But “transparency” is the name of the day, it is why I now look forward to a lively debate. Thank you.