Next Steps in Strengthening the Global Trading System

First, the most important instrument of the new organization—the dispute settlement procedure—has shown credibility and effectiveness. Up to this moment, 35 cases have been submitted—quite a good number. Many of these cases have been settled “out of court,” before the real procedure began. The United States has initiated ten cases out of the 35. Roughly half of these ten have been settled “out of court,” with four favorable outcomes so far for the United States. So the United States continues to be a very strong user of this procedure, and this procedure works in favor of the United States. For the first time developing countries are very much involved. In practically two-thirds of the cases developing countries are complainants, either singly or with industrialized countries. So this really is a generalized system now, no more—as it was in GATT—mainly focused on the main trading partners.

Second, the WTO—the multilateral trading system—is a very popular system. We have 29 candidates for membership. It is such a big and difficult process to negotiate with 29 candidates at the same time. They are knocking at the door and want to become members. Among the 29 are China, Russia, Taiwan, Saudi Arabia, Vietnam, Ukraine—very large partners. Well, this is certainly a sign of the success of the system. It is also a big challenge. We have a shared responsibility—shared among the candidates and the existing members—to make a success of these negotiations.

Third is a seemingly technical but highly political point: implementation. We have to be sure that what has been agreed during the Uruguay Round will be implemented by all the members. There are 27,000 pages of agreement, so it’s an immense job.

Forward Movement Has Not Slackened
Since the conclusion of the Uruguay Round, the forward movement of the multilateral system has not slackened at all. If anything, the reverse is true. We have no more the very big headlines—because when there is good news, there is no news. But the reality is that the system works.

Take financial services first. What we have so far is a second-best result— the fact that the United States does not participate in the improved offers is extremely important. But it is also important that the improved offers that were presented, not only by other industrialized countries but by developing countries as well, were kept on the table. This shows that everybody is convinced that in the end—which means before July ’97—the United States will come back with an improved offer.

A modest but significant agreement was made on the movement of individuals, linked to the provision of services. This is very important because it is the first sign of a rule-based circulation of persons in the world.

More than these, there is every reason to expect that at the end of the month, on April 30, we will conclude the very important negotiation on basic telecommunications. There are still difficulties to overcome, but there are clear signs that the major trading partners are committed to the success of this negotiation. [Editor’s note (May 9): In the end, the telecoms negotiations were not concluded by April 30. A new deadline was set of February 15, 1997.] The telecommunications sector generates business worth more than $500 billion, more than 2 percent of world income—something which is fantastic.

Thus in qualitative terms, and perhaps even in quantitative terms, the WTO has made progress over the last year and a half which no one could consider any less valuable than what we achieved in the Uruguay Round.

Separate Negotiations, Not Immense Packages
And these negotiations are being accomplished without any packages— because for the first time, people and governments have begun to understand that the give and take is not between different negotiations but inside each one of the negotiations.

Take, for instance, financial services. One of the arguments that has been recognized by developing countries is that, while liberalization of financial services is certainly in the interest of developed countries (because they want to be assured that they can conquer markets), it is also in the interest of developing countries (because without good financial services they cannot attract investment). And so the logic is no more to put together immense packages—taking seven years of negotiations—but to negotiate even extremely delicate and important issues within the sector.

You know very well that the negotiation in telecoms is extremely complex because we are not only negotiating the level of liberalization, but also the rules of competition—which for the first time, in a certain sense, will be incorporated into an agreement on liberalization. In 1995 world trade in office equipment, including telecommunications equipment, was more important than trade in agricultural products. So things are changing completely.

We still have in front of us the challenge of securing a good multilateral system in the current negotiation in maritime services. This is very difficult. Here the difficulties again are in the U.S. position. We cannot have a failure of this negotiation. We have to find a way that this engagement will be honored by the end of July.

“New” Subjects for the December WTO Ministerial
At the same time that we have all these negotiations going on, we are pushing forward with the preparation of the first WTO Ministerial Meeting, which will be held in Singapore in December. Here we certainly have some problems in the pipeline of negotiation, like trade and environment. Two years ago when we were talking about trade and environment, it seemed this was an impossible question to be negotiated in the WTO—the gap between developing countries and industrialized countries was too big. Not true. We are negotiating in Geneva. I can not say that everything is easy, but we are very encouraged by the progress we have been achieving, and feel that the basic division between developing and developed countries in this field of action has been strongly reduced.

We have other “new” subjects, and I want to mention just the most important. Trade and investment is one. There is a fundamental interest of both developed and developing countries to have this negotiation in the WTO as soon as possible. What is now being done in the OECD is certainly important, in order to have a deal among the industrialized countries. But with all due respect, in the present time this will not be sufficient. I don’t think you Americans meet too many difficulties in your investments in Europe, or vice versa. The problems are in developing countries. So we must have a negotiation with the developing countries, inside the WTO.

Perhaps more important is trade and competition. We have to bring the rules of competition inside the system. We have too many cases in which we cannot fully operate because rules of competition are out of the system. As we reduce barriers to trade, it is more and more clear that rules of competition are essential for the right functioning of the system.

Last but not least is the problem of labor standards. This is a complex issue, and can be highly divisive between the North and the South. But in the last few days we had some good events in Geneva. We had two statements, one from the European Union and one from the U.S. delegation, both saying practically the same things. First, to raise this issue in the WTO does not mean that they want trade restrictions in order to defend labor standards. Second, which is also very important, they do not want to put in question the comparative advantage of low-wage countries. So, they said, what we want is to be sure that the political objectives in the preamble of the GATT and now in the preamble of the WTO—that trade has to secure growth, and growth has to secure better standards of living—will be kept. So, in this sense we are moving forward with fewer difficulties than we have had up until now.

High-Profile 50th Anniversary in the United States
I want to call your attention to one further point. We are already talking about the the celebration of the 50th anniversary of the creation of the multilateral trading system. This should be a very important event (due at the end of ’97 and beginning of ’98) because we all have an interest, first, to recall that the founding fathers of the multilateral trading system were American and British, at the end of the Second World War, and to underline the major contribution of this country to the creation and the success of the multilateral trading system. Mankind has not in its own history, and especially in economic history, had many success stories to tell, or at least as successful as the story of the international trading system. So I do hope that governments will accept the idea I launched to have a very high-profile celebration of the 50th anniversary of the multilateral trading system—and, I repeat, to recall to American public opinion especially the contribution this great country has made to the creation and to the fulfillment of the system.

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Globalization and Its Implications
The common thread in everything I have said so far is the reality of a global economy. Globalization is not an option. You cannot say, well, “I want it” or “I refuse it.” Globalization is a reality. Globalization is a high-speed train that is running very fast already. In the last six years, the growth of trade has exceeded by three times the growth of world output. Globalization is also driven by capital movement liberalization—and by technological progress. Anyone who believes that globalization can be stopped has to tell us how he would envisage stopping economic and technological progress. This is tantamount to trying to stop the rotation of the earth.

The global economy has acquired a momentum of its own. This is very important. Globalization is no more something that can be driven by governments, by public decision. It is driven by you, by business. One striking recent example is the agreement between U.S. and European car-makers toward standardizing testing and equipment. In the past such standards have been an embodiment of national barriers. Now they are coming together not under the pressure of governments, but in recognition of the fact that we are now in a global industry.

With the liberalization of telecommunications, we are gradually abolishing the constraints of time and space on the flow of information. In so doing we are implementing what billions of people have dreamed about throughout history: a world which provides more equal access to the most important raw material of all, knowledge and information. Those countries or individuals are mistaken who still believe that what is at stake in negotiations like the one in telecommunications is sovereignty. None of our present concepts of sovereignty can cope with the rate of change in these sectors. What is really at stake is opening the door to the people of every country towards a better level of information and knowledge—which also means improving their future prospects for economic progress.

Globalization has clearly reduced the marginalization of countries and of people. When the GATT was founded, only 11 developing countries were members of the system. Now 80 percent of the 120 members are developing countries or economies in transition. And all 29 candidates for membership are developing countries or economies in transition. We cannot claim to be a universal system until we have shown the necessary degree of shared responsibility to make it possible for all the present and future candidates to become members of the WTO system.

It is also clear that the multilateral system is no more a rich countries’ club, if it ever was. A third of the top 25 trading nations are now developing countries. Developing countries now account for an estimated 25 percent of world trade, compared with 19 percent two decades ago. In 1995 the merchandise imports of the ten leading Asian developing economies amounted to $750 billion, almost equal to U.S. imports of $770 billion. Between ’90 and ’94, the fifteen most dynamic traders in the world have been developing countries. In 1970 less than 5 percent of industrialized countries’ imports came from developing countries. In 1990 this figure was 15 percent, and it’s still growing.

Some people claim this endangers jobs and incomes in industrialized countries. However, as the OECD reminded us, in 1990 the 15 percent of manufactured imports that industrialized countries took from developing countries represented only 1.5 percent of the industrialized countries’ combined GDP. It cannot represent a threat; yet we still hear claims that the most dynamic developing countries export too much. This is economic nonsense—you cannot export too much—and it is not supported by the facts. On the contrary, the growth of Asian imports over the past four years has been consistently higher than the growth in Asian exports. Some Southeast Asian countries have trade deficit problems. Moreover, for the first time in economic history, industrialized countries have been helped out of recession by the growth in their exports to Asia, Central Europe and Latin America. It is not my role to enter into a discussion of the merits of different economic and social models, but I want to cite an example which shows clearly that to link job loss and economic openness is a mistake. Both President Clinton and the late Secretary of Commerce Ron Brown—to whom I take this opportunity to pay homage— have pointed out that in the last three years the United States created 8.4 million new jobs, and that close to 60 percent of these jobs had a higher-than-average salary. Perhaps this indicates that the problem of job creation is linked more to a country’s choice of economic and social model than to the external influence of trade liberalization and global integration.

From Open Regionalism to One Free Global Market
Finally, I want to say something about what I see as the main political and economic challenge facing the multilateral system at present. The trading system is now moving forward on two tracks—regional and multilateral. Regional trading initiatives are expanding and have ambitions to expand further. As I said at the outset, it is wrong to assume that the multilateral system is in a period of dormancy. I have given you examples of the system’s dynamism. Where we are perhaps lacking, however, is in showing a level of ambition at least equivalent to that of the major regional systems.

Let me explain what I mean. Up to the present, we have received in the WTO notification of around 100 regional trade agreements. There is practically no member of the WTO who is not a member of a regional agreement. Of course, those regional agreements differ widely in their origin, scope and ambition. Some are truly gigantic. Take for instance, the European project to create a preferential trade area with all the Mediterranean countries by 2010; or the framework agreement between the European Union and Mercosur; or the plan set out in the Miami Declaration to create a free-trade area of the Americas by 2005; or APEC’s commitment to create a free-trade area in two stages, between 2010 and 2020. The multilateral system has no comparable road map towards the elimination of all barriers.

Fortunately, some of the newer regional groupings, such as APEC and Mercosur, contain a commitment which is very important for the future of the multilateral system. This is open regionalism. Nobody knows what “open regionalism” really means; but among the different possibilities, I can see two basic alternatives.

The first is to ensure that any preferential area under consideration will be consistent with the legal requirement of the multilateral system. Such areas could at the same time be legally compatible with the WTO rules and preferential in their nature, which means they would be an exception to the MFN clause which is the basic principle of the multilateral system. The possibility of such a legal exception to the MFN principle was conceived in a completely different time and situation. Today, with the proliferation of regional groupings, the exception could become the rule and risk changing completely the nature of the system.

The second interpretation of open regionalism, the one I clearly prefer, is the one I hear from a number of governments who are members of APEC and Mercosur. In this scenario, the gradual elimination of internal barriers to trade within a regional grouping will be implemented at more or less the same rate and on more or less the same timetable as the lowering of barriers towards non-members. This would mean that regional liberalization would, in practice as well as in law, be generally consistent with the MFN principle.

The choice between these alternatives is a critical one. They point to very different outcomes. In the first case, the point at which we would arrive in no more than 20 or 25 years—nothing in historical time—would be a division of the trading world into two or three inter-continental preferential areas each with its own rules, with free trade inside each area but external barriers still existing among the blocs. Is this the sort of world that any of us would want? I leave you to imagine the consequences of this division of the world economy for world stability and security. Where, for example, would China and Russia be in such a world? The second alternative points towards the gradual coming together, on the basis of shared aims and principles, of all the major regional groupings. At the end we would have one free global market, with rules and disciplines internationally agreed and applied to all, with the capacity to invoke the respect of rights and obligations to which all had freely subscribed. In such a world, there could and must be a place for China, Russia, and all the other candidates to the WTO.

Let me observe in passing that the current U.S. bilateral difficulties with China over intellectual property rights only underline the reason why it is so important to bring China within the rights and obligations of WTO membership, and therefore the dispute settlement system.

Only a free global market and a global trading system can cope with the global challenges of our time. In the next 20 years the world population will grow by some 2 billion people. Already at present billions of people—in Asia, in Latin America, in the economies in transition, and in parts of Africa—are joining the global market economy. The World Bank forecasts that in the next forty years the workforce of the world will increase by 1.2 billion people, which is a little more than the entire workforce of all the industrialized countries put together now. In the face of facts of this magnitude, it is clear that there is no rational alternative to an increasingly integrated free global market, within the rules and discipline of the multilateral system.