Mr Pascal Lamy's lecture text on 'Trends and Issues Facing Global Trade', 17 August 2007, Kuala Lumpur, Malaysia

Thank you Rafidah,
Your Excellency Prime Minister Badawi,
Distinguished Guests,
Ladies and Gentleman,

It is a great pleasure for me to join you all today. I would like to take the opportunity to thank my good friend Minister Rafidah for her kind invitation to share with you my vision of the trends and challenges facing world trade today. Malaysia is a good place to do so. Its economic development provides a good example of how an open market economy and strong government leadership work well together. Thanks to the Government's successful growth-oriented policies, including openness to trade, prudent macroeconomic strategies and structural reforms in key areas, the economy is now on track and has fully recovered from the Asian financial crisis. This was a formidable task and Malaysia should be commended.

Global trade is different today due to globalization

The first point I would make is that due to globalization, world trade is very different today compared with 50 years ago. The number of countries involved in global trade has expanded, the cost of trade has been significantly reduced, production methods have changed, as have trade barriers.

The key feature of globalization is the internationalisation of economies through trade. Since 1950 world trade has grown 30-fold in volume terms. This expansion was more than 3 times faster than growth in world GDP, which expanded 8-fold during the same period.

When the GATT was first established 60 years ago there were only 23 signatory countries; today we have 151 WTO Members. It simply shows that more countries are now involved in global trade and abide by the same set of global trade rules. In the past, tariff and quantitative restrictions were major barriers to trade. Following several rounds of multilateral trade negotiations, quantitative restrictions have basically been abolished and tariff levels of countries have been gradually reduced, with the exception of agriculture. Today's and tomorrow's barriers to trade are and will be more in the area of standards, sanitary and phytosanitary measures, rules of origin or antidumping measures. Today almost all countries are involved in trade, they trade much more, at much smaller costs.

So what are the "big issues" facing world trade today? In my view, three issues deserve our immediate attention. Firstly, the challenge to continue open up markets globally and the risks of trade protectionism; secondly how to ensure that trade benefits all, and finally multilateral versus bilateral trade opening.

The first issue mostly concerns international policies: whether countries choose to continue to open up their markets to the outside world or restrict imports will have global implications.

The second issue is as important, but it is more related to domestic policies. The lack of appropriate domestic policies to ensure that the benefits of trade flow evenly might end up affecting the general public's support for more open trade.

The third issue is about where and how trade opening should take place, whether to do it globally, or do it through bilateral FTAs or regional integration, or both at the same time. How do these choices affect each other?

Continue with trade opening or turn to trade protectionism

Globalization has enabled individuals, corporations and nation-states to influence actions and events around the world — faster, deeper and cheaper than ever before — and equally to derive benefits for them. Globalization has led to the opening up of markets, the vanishing of many walls, and it has the potential for expanding freedom, empowerment, democracy, innovation, social and cultural exchanges, while offering outstanding opportunities for dialogue and understanding.

But the global nature of an increasing number of some worrisome phenomena - the scarcity of energy resources, the deterioration of the environment, the migratory movements provoked by insecurity, poverty or political instability - are also products of globalization. Indeed, it can be argued that in some instances, globalization has reinforced the strong economies and weakened those that were already weak. In this context, public opinion has become considerably more anxious about the effects of globalization. We have thus seen concerns, for instance, about the impact on socioeconomic fabrics of increased competition or about outsourcing labour-intensive services. The issue of global trade imbalances has also been taken up in similar terms. Some people are no longer convinced that a rising tide of trade lifts all boats. Many countries today are at a crossroad, whether to continue to support more open trade or erect new walls to imports, or foreign investments.

I am convinced that raising trade restrictions is surely not part of the answer. The damage that would create would be unthinkable. More often than not, the real cause of pain is not so much trade, but failure to accompany the efficiency gains of trade opening with other economic policies that would underwrite the beneficial impact of opening up to foreign competition. It is all too easy to allow the blame for lost jobs, economic insecurity and huge trade deficits to be placed, unchallenged, at the door of globalisation and as a result see public support for the multilateral trading system waning.

The political management of trade opening has therefore to mature to cope with these shifts in sentiment to a more critical view of globalisation. The public is demanding more from the WTO as the central pillar of modern global economic governance, and is looking to the Doha Round to deliver on that.

The memory of 1930s' great recession which started with trade protectionism and finally led to WWII now seems blurred in some people's minds. The establishment of the Bretton Woods system including the GATT/WTO in pursuit of an open and rules-based global economic system was designed to prevent the tragedy from happening again. We should avoid committing the same mistakes, starting with the recognition that the politics of trade opening suffer from an inbuilt asymmetry: those who benefit from gains in purchasing power stemming from trade opening are millions who are little aware of the source of their gains. Those who suffer from trade opening are thousands who can easily identify the source of their pain. For politicians such an asymmetry is difficult to cope with and the easy way out too often is to treat foreigners as scapegoats, which we know is one of the safest old tricks of domestic politics.

How to ensure all benefit from trade?

This leads me to the second issue I would like to raise today, which is how to ensure trade benefits all. It has two sides to it. A first one is how to ensure trade benefits are shared more fairly among nations.

I believe two elements are fundamental: fairer multilateral trade rules and building of trade capacity in developing countries. One primary objective of the on-going WTO negotiations under the Doha Development Agenda is precisely to remove the remaining imbalances in the WTO rules against developing countries, whether in agriculture or in areas such as textiles or footwear. Over the coming weeks WTO members will have the opportunity to demonstrate that they want to fulfil the promises they made in Doha in 2001 to open more their markets and address the most egregious trade distortions. All WTO members will have to make their contribution for the Round to succeed, each one according to its own level of development.

But a fairer playing field will not be enough. New trade opportunities do not automatically convert into growth and development. The international community also has a responsibility to make sure poorer countries have the capacity to trade and make full use of the market access opportunities provided to them, through more and better focused Aid for Trade. In less than a month the WTO together with the Asian Development Bank will host an Aid for Trade conference aimed at drawing recommendations on how Aid for Trade should be focused within Asia and the Pacific region, to encourage beneficiary countries to make trade a greater priority and to encourage aid donors, whether multilateral or bilateral, to scale up trade-related official development assistance. Similar events will also take place in the African and Latin American regions leading to a Conference to take place at the WTO in Geneva on 20-21 November.

The second point is how to ensure a better distribution of the benefits stemming from trade within a nation. Trade opening can and does translate into greater growth and poverty alleviation, but this is neither automatic not immediate. Trade opening must be accompanied by a solid domestic agenda to spur on growth and cushion adjustment costs. Appropriate tax policies, competition policy, investment in quality education, social safety nets and innovation fostering healthy environments must all be part of the mix needed for trade to translate into real benefits for the people.

In this respect, trade policy cannot be isolated from domestic macroeconomic social or structural policies. The same trade policy will result in different results depending on the quality of economic policies, and this is true across the board, whether you look at the US , Europe, Japan , or at Vietnam , Cambodia , Kenya or Paraguay.

WTO or FTAs?

Assuming this is the case, the choice of the right framework to continue trade opening remains open.

At a time when Free Trade Agreements seem to be the fashion, the multilateral trading system deserves all your attention and investment. First, we should never underestimate the value and contribution of multilateral trading system. Thanks to the commitment and vision of successive governments and groups of negotiators, the GATT/WTO has been one of the most successful examples ever of sustained international economic cooperation. At times when progress remains slow and agreement elusive, it is as well to remind ourselves of the success story that underpins our organization, and of the challenge of preserving that tradition of co-operation that has served the world so well. Second, multilateral trade negations continue to be the most cost-effective way of trade negotiations. Any market access results from WTO negotiations will be global and cannot be matched by those of any bilateral trade agreements. This is especially true for medium and small developing countries, who have much less negotiating power in bilateral negotiations with big partners. Third, key issues such as agricultural subsidies, antidumping, fishery subsidies disciplines cannot be addressed in bilateral agreements, but only in the WTO.

Put simply, due to its inherent advantages, the multilateral trading system can be complemented but not replaced by FTAs. However, it could be eroded in some ways and these should be carefully avoided. For example, given that trade negotiators are scarce human resources, especially in many developing countries, prioritizing FTAs could affect the active participation of that country in the WTO activities.

Nobody claims that the record of the multilateral trading system is beyond reproach. Much can be improved and much remains to be done. The repeated efforts of Governments to negotiate improved outcomes and the smooth functioning of dispute settlement over the years are clear indications of a commitment to the system and its improvement.

Malaysia Story

Before I conclude, let me say a few words about Malaysia. It is clear that trade is important for Malaysia: Malaysia's strong economic performance in recent years shows that trade opening has contributed to the development of the country. I would like to pay tribute here to the tireless efforts of Minister Rafidah in support of a more open trading system, as well as Malaysian Ambassador to the WTO – Ambassador Noor – currently Chairman of the General Council. They both carry a lot of weight in the WTO due to their seniority, their expertise and their engagement.

A successful conclusion of the Doha Round has the potential to bring substantial benefits to Malaysia. In 2006, Malaysia 's manufactured exports, which account for almost 80% of Malaysian overall exports, grew by almost 10%, the majority of manufacturing sub-sectors recorded double digit export growth, with the ASEAN countries, the US , Japan , China and Hong Kong, China being the biggest export markets for Malaysia. Current proposals to cut industrial tariffs already on the table would reduce the average US and Japan tariffs by around 60% to a level below 3% and China 's average industrial tariff would be reduced to around 7%. This would significantly improve the market access conditions in these key markets. Other major developing countries such as India, Brazil or South Africa will also cut some of their tariffs which will improve South-South trade and help diversify Malaysia's export markets. Furthermore, discussions are also on-going to achieve sharper tariff cuts on specific sectors of interest for Malaysia such as electric and electronic products.

Agriculture is also an area where the Round can bring positive results for Malaysia. Even if trade in agriculture account for only around 8% of Malaysia's overall exports, it still bear great importance in isciplines on trade facilitation, improved rules on anti-dumping and fishery subsidies would also benefit Malaysia .

But an active participation in WTO is not contrary to Malaysia's efforts in building up the ASEAN community. If properly managed, the two trade opening processes can contribute to each other.

In short, trade has contributed to Malaysia 's economic take off. An open and stable global trading environment has helped Malaysia walk out of the shadows of Asia financial crisis. In my view, a more open, fair and predictable multilateral trading system deserves Malaysia's investment today. At a time where financial markets once more show how unstable they can be when risk pricing gets off track, a predictable, transparent and reliable trading environment appears, by contrast, all the more valuable.

%0 disciplines on trade facilitation, improved rules on anti-dumping and fishery subsidies would also benefit Malaysia.

But an active participation in WTO is not contrary to Malaysia's efforts in building up the ASEAN community. If properly managed, the two trade opening processes can contribute to each other.

In short, trade has contributed to Malaysia's economic take off. An open and stable global trading environment has helped Malaysia walk out of the shadows of Asia financial crisis. In my view, a more open, fair and predictable multilateral trading system deserves Malaysia's investment today. At a time where financial markets once more show how unstable they can be when risk pricing gets off track, a predictable, transparent and reliable trading environment appears, by contrast, all the more valuable.

CONCLUSION

Let me conclude by saying that resisting protectionist tendencies, investing in policies which ensure that the benefits of trade are spread fairly among and within countries and investing in a stable multilateral trading system are the three key policies in front of us today. To make sure the world economy continues to grow in a healthy and stable way, governments need to work together to come up with the right policy answers to these challenges.

Today, completing the Doha Round is not only technically possible but also a political must, because of the boost it will give to international trade and economic growth and to the key role that the WTO needs to continue playing in helping to manage globalisation and economic cooperation on a political level. Given what is already on offer on the negotiating table, and what remains to be done, my sense is that concluding this negotiation is both necessary and doable. Of course, trade negotiators are clever tacticians and they only go the extra mile if they feel this will be reciprocated by their colleagues. Like many economic challenges, at the end of the day, it is a matter of trust between partners.

Malaysia is a country that has benefited enormously from trade opening. External trade has boosted the country's economic development and will continue to do so. Malaysia has been an active participant in the WTO for years and the multilateral trade system looks forward to your continuing support. I am confident that under your authorities' able leadership and engagement in the multilateral trading system, Malaysia will have a bright future. I wish your country great success.

Thank you for your attention.

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