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WTO NEWS: SPEECHES — DG SUPACHAI PANITCHPAKDI

14 June 2005, Bangkok

Stability is as important as freer trade, Supachai tells Asian business leaders

A good outcome in the current WTO negotiations will be vital both for increasing trade and for modernizing global economic management, Director-General Supachai Panitchpakdi told a conference, BusinessWeek magazine’s 14th Annual Asia Leadership Forum, in Bangkok on 14 June 2005. This is what he said:

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‘A stable environment can be as important as lowering barriers’
The WTO at Ten: What is at Stake for Asia

Ladies and Gentlemen

I am deeply honoured to have been invited to speak to this Annual Asia Leadership Forum. The WTO is an organization of governments. Its negotiations, its agreements and its dispute rulings sometimes seem to be the intricate territory of specialized trade officials and lawyers. But it is important never to forget that the objective is to enable people who manufacture, who trade and who supply services to do so more effectively for the benefit of all. It is vital that business leaders as well as their counterparts in government and in the community at large are engaged in the WTO’s work.

I have been asked to talk about the achievements of the WTO, particularly as regards Asia, and what is at stake in the work we are currently undertaking. This is an important subject, and while there are some issues that dominate the headlines from time to time, there are some others that are equally important, if not more so, that we should not forget even though they might be less dramatic and do not make the front pages. Occasions such as this 10th anniversary year provide a good opportunity for us to remind ourselves.

I’m sure everyone is aware of the WTO’s role in liberalizing world trade and I will return to this in more detail in a minute. But first, I would like to look at an important side of the WTO’s work that is not directly about liberalization. Views differ, but there are some people who argue that this side of the WTO’s role is even more important than trade liberalization. I tend to agree with them. The issue here is the stability of the trading system and, ultimately, the international economy. A stable environment can be as important as lowering barriers in ensuring that trade flows smoothly and that people’s lives are not disrupted too much. Asia’s recent experience is a vivid example.

We can look back to a time before the WTO, and its predecessor, the General Agreement on Tariffs and Trade or GATT. In 1929, a trade war broke out that worsened the financial crisis and deepened the Depression. Fear, distrust and the lack of confidence meant that governments yielded to protectionist pressures. Instead of cooperating with each other to deal with the crisis, they competed to raise trade barriers against each other. In January 1929 world trade stood at an average of nearly three billion US dollars per month. By March 1933, only barely four years later, two thirds of that had been wiped out. World trade had slumped to less than one billion US dollars. The effect was devastating, economically and politically. There were other causes as well, but by the end of the decade the Second World War had broken out.

That was before the WTO. Jump now to 1997, almost a decade ago, but I’m sure, still vivid in many of your memories. We had a financial crisis in East Asia. Currencies were devalued and Asian exports suddenly became cheaper in Europe and North America. Just as in the 1920s and 1930s, there were protectionist pressures from those who feared the cheaper imports would deprive them of their jobs. But the trade war never broke out. World trade dipped slightly from 5.6 trillion US dollars in 1997, to 5.5 trillion the following year, rebounding to 5.7 trillion in 1999. So this is the big difference. In the 1930s, before we had what we call the multilateral trading system, two thirds of world trade was wiped out. In the 1990s, with the system well established, less than two percent was lost, and the recovery was much quicker.

The Asian financial crisis hit the headlines. The stabilizing effect of the multilateral trading system, and the trust and confidence it engendered among governments was not so visible and never hit the headlines. But the system was successful in weathering the storm, and provided the platform for the recovery. This is an achievement of the trading system that has been built up over almost 60 years, which the WTO inherited when the system was modernized 10 years ago. Does that mean trade negotiations are less important? Far from it. It’s an important reason why further modernization through the current Doha negotiations is also vital.

In the same vein, we read a lot about the international trade disputes that are brought to the WTO. We should not be misled into thinking that this means trade conflict is increasing. Again, the test is what the world would be like without the WTO system. The WTO actually defuses conflict by providing a forum for negotiating and settling differences. The negotiations establish agreements, more commonly called “rules”, which also reduce conflict because relationships based on rules are more predictable and manageable than those without rules. And then we have the system, again based on rules, for settling disputes. Imagine the chaos and conflict if all of that did not exist.

The rule of law, and peaceful and stable trading relations between WTO Members, was one point I emphasized when I spoke about the WTO after 10 years at our recent public symposium. Two other points are relevant particularly here in Asia. First, the great strides the WTO has taken to become a more universal organization — China, Chinese Taipei, Nepal and Cambodia have joined, and Viet Nam is close to joining. And secondly, the significant efforts that have been made to integrate Asian and other developing countries into the multilateral trading system through technical assistance and capacity building, and through their own increasingly active participation to ensure the negotiations serve their interests.

And now allow me to turn to the need to further liberalize trade and the road ahead for the WTO. What we call the Doha Development Agenda negotiations have entered a critical phase. WTO Members want to finish the round by the end of 2006. That means a substantial amount of work will need to be completed by our Ministerial Conference in Hong Kong in December this year. Central to this will be an agreement on detailed formulas for cutting agricultural and industrial tariffs and for trimming those agricultural subsidies that are considered harmful — a package of what we call “modalities”. After that, the formulas with all their flexibilities would still have to be applied to thousands of products, and further details would still have to be worked out. In the step-by-step approach that is essential in such complex and sensitive negotiations, that means we need a picture of the December deal to emerge by the end of next month, July. You might hear this described as a “first approximation” of the Hong Kong deal.

We are only six weeks away from the end of July and an immense amount of work remains to be done. As Chairman of the Trade Negotiations Committee, I have warned Members that we are still well behind where we should be, and time is not on our side. Part of this is because of a four-month delay in the agriculture negotiations over a highly technical issue, something called “ad valorem equivalents of non ad valorem tariffs”. I won’t burden you with a detailed elaboration of this, but it was an essential issue that had to be settled before Members could get down to actually cutting tariffs. First steps towards cutting tariffs are now underway and the momentum has increased, but as I said, time is running out.

The picture is not entirely desperate. On a set of issues related to agricultural export subsidies, we seem to be on target, because we already have an agreement to eliminate them completely. Progress has also been made in domestic support, but some difficult issues still need to be thrashed out, even at this preliminary stage. But it is market access in agriculture that is proving to be the most difficult subject, with a range of complicated issues, and countries taking a range of different positions, almost all of them represented among Asian countries. For example, the confident exporters such as Thailand and Malaysia seeking greater access; less confidence on the import side in India, Indonesia and the Philippines, which want greater flexibility; a more mixed picture from China, which reminds us that it is already liberalizing as part of its membership agreement; and Japan, the Republic of Korea and Chinese Taipei, which emphasize the non-trade importance of farming (food security, environmental protection and rural cultures).

Other areas of negotiation — industrial tariffs, services, revised rules, and so on — are also not moving fast enough, in some cases because there is always a temptation to wait and see what emerges in agriculture.

A successful conclusion of the DDA negotiations will generate great trade opportunities for all. Failure would be a setback for global economic management and the interests of so many countries, not least the Asian members. WTO Members are certainly committed to try to meet the targets under the Doha agenda but in the WTO, even where there is a will, there is not always a way. It will take skill, imagination and compromise, plus a huge amount of effort. For my part, I am determined to ensure that at least we have a decent package in July so that my successor can have a chance of achieving a good deal in Hong Kong in December. We will both need all the help we can get from all of you and your governments.

Thank you.