Article 10 December 2003
Leif Pagrotsky, Minister for Industry and Trade

The WTO and the multilateral trading system after Cancún (UD:s ansvarsområde)

Näringsminister Leif Pagrotsky ger sin syn på WTO-rundans utveckling efter Cancún i skriften 'Where Next for the WTO', som givits ut av Federal Trust och Commonwealth Council i Storbritannien.

The failure of Cancún has placed the multilateral trading system at a crossroads. Faced with a new disappointment less than four years after Seattle, many have grappled with finding solutions to this unfortunate situation. Three alternative paths for the future of the WTO and the trading system have been expressed, finding varying support among countries, the media and the public at large. Some have claimed that countries should take their business elsewhere, to turn their attention to regional agreements and bilateralism. Others have underscored the need for lowering the ambitions for the round. Yet others have wanted to backtrack on the broad and comprehensive agenda that were established in Doha.

I believe in none of these alternatives.

They will not provide the necessary impulse to promote growth in our economies and break the depressingly slow growth in world trade. They will not make trade a real engine for development that the poor countries so desperately need. And they will not make the world trading system up to date with global political and economic developments.

Let me explain why.

The Fallacy of Relying on Regional Trade Agreements

The WTO-round and regional agreements can, and must, go hand in hand. We do not have to choose one over the other. Since the mid-1990s, the EU has been a driving-force for the WTO-round. At the same time, we have successfully pursued an unprecedented enlargement of the EU. We have deepened our commercial relations with Russia and other neighboring countries to the East. We have decided to create a Free Trade Area around the Mediterranean by 2010. We have managed to conclude ambitious agreements with South Africa, Mexico and Chile, as well as made serious progress with Mercosur, with a view to finalize an agreement by the end of 2004. And we have initiated negotiations on Economic Partnership Agreements with the African, Caribbean and Pacific countries under the Cotonou Agreement.

Regional agreements are useful in promoting trade between countries. They tend to be less burdensome and faster to negotiate. Also, they are obliged to produce a substantially higher level of openness.

For me, there is no zero-sum relation between multilateral liberalizations and freer trade on a regional basis. Quite the opposite. I am open to discuss new regional negotiations by the EU in the near future. Openness should be pursued on all fronts. The overall aim of achieving more open and fair trade relations should not be held hostage by the present lack of progress in the WTO. Vast trading opportunities remain unexplored.

But that should not entail shifting the attention from the WTO to regional trade agreements. Regional negotiations can never replace multilateral achievements. No regional agreement in the world will ever be able to substantially reform the agricultural policies of the developed countries. Only within the WTO can such reforms be negotiated.

Also, many challenges of today are truly global in nature. This includes many of the items on the WTO-agenda, such as, to name a few, access to medicines in poor countries, the overly bureaucratic and burdensome trade procedures, the proliferation of non-tariff and trade defense measures and the depletion of fishing stocks due to excessive subsidies. All of these challenges require global action. For these and many other issues, there is no substitute for the WTO.

The Fallacy of Reducing Our Ambitions

Reducing the ambitions of the Doha-round, means settling with status quo. That is not good enough. The present world is not good enough.

First of all, this round should put an end to the many unfair practices of developed countries that jeopardize the livelihoods of millions of poor farmers around the globe. The case of cotton has made visible the unsustainability of the present rules for trade in agriculture. It is only one example out of many. Developed countries should have stopped treating agricultural trade separately from all other sectors a long time ago. It will benefit both consumers and producers. Due to the openness of the EU internal market, the EU’s industry for processed food has grown increasingly efficient, competitive and export-oriented. But barriers to trade with countries outside of the EU still hamper its growth in production and exports.

Secondly, it is time for making a serious commitment to the overall simplification of trade. In 1972, my predecessor as Swedish trade minister, Kjell Olof Feldt, launched the idea of zero tariffs on industrial goods. That was more than 30 years ago. I remain committed to this vision. Now would be a good time to decide to turn this vision into reality for all industrial and advanced developing countries.

Thirdly, today enormous amounts of time and money are wasted because of outdated, complicated and non-transparent procedures at the borders. These losses correspond to somewhere between 2.5 and 10 percent of the value of all traded goods. Overly bureaucratic and burdensome trade procedures easily absorb the benefits from low tariffs in poor and rich countries alike. Therefore, it is also time to make real progress on trade facilitation.

And fourthly, while services account for the bulk of world output and are the fastest growing segment of world trade, the actual conditions for most of the global trade in services largely remain unregulated in the WTO. Contrary to public beliefs, economists have shown that developed countries have merely made commitments of some kind for 47 percent of all possible sectors and modes of supply. For developing countries at large the commitments amount to only 16 percent, with fewer than half of these entailing no restrictions to market access and national treatment. Open trade in services remains far away.

Meaningful achievements in these four areas would, no doubt, bring substantial gains for our respective economies. This is true not only for industrialized countries. At present, too many discussions in the WTO start from the premise of exceptions. Special and differential treatment is part and parcel of the WTO rules-based system, and should continue to be so. Nonetheless, while exceptions in some instance help facilitate integration in world trade, they may also serve other purposes that might damage the long-term development of developing countries.

In addition, exceptions perpetuate false pretences of a north-south divide in global trade. Malaysia or Brazil do not have the same legitimate concerns, needs and interests as Honduras or Kenya. Trade barriers between developing countries are just as an important hurdle to development as trade barriers between rich and poor countries. Trade among low- and middle-income countries constitutes a large, and rapidly growing, opportunity that no developing country can afford to overlook. Yet in the WTO, demands for access between various developing countries are still unusual. More needs to be done in this area. Ambitions need to be elevated, not lowered.

The Fallacy of Narrowing the Agenda

The WTO Agreements of today reflect the ambitions and aspirations of governments at the time when the agenda for the Uruguay round was prepared. That was 20 years ago. Since then, thankfully, the world has changed and it will continue to do so in the future. The WTO must reflect these changes. This round must meet the demands and interests of citizens, entrepreneurs and governments for at least 20 years to come. This was one key lesson from the Seattle Ministerial Meeting in 1999. After the failure in Cancún, however, it is easy to loose sight of the systemic concerns that surfaced in Seattle and that need to be addressed in this round. This is what I mean when I say that this round is a once in a generation opportunity to modernize the trading system for the future. Backtracking on the Doha mandate, by narrowing the agenda, would mean compromising this goal.

For long, trade policy was regarded as a highly technocratic and isolated matter. That is no longer the case. The world faces new global challenges and new problems related to trade. Trade policy is becoming increasingly intertwined with other policies, both domestically and globally.

Trade policy simply cannot, and should not, evolve in a vacuum. Neither can the WTO. Issues related to trade, and international organizations dealing with trade-related issues, must not be kept at the gate. It merely fuels suspicions and misunderstandings. Potentially, it might undermine countries’ capacity to find domestic support for open markets and globalization.

The concept of a broad-based agenda must all be viewed in this light. The Doha Development Agenda includes the Singapore issues, trade and environment as well as, for example, the relation between TRIPS and biodiversity and the protection of traditional knowledge. Coherence must be the guiding principle in the WTO, irrespective of whether we are talking about the Millennium Goals, the Monterrey Declaration, the Plan of Action from the Johannesburg World Summit on Sustainable Development or multilateral environmental conventions.

Some worry that coherence implies a departure from the core business of the WTO, or that the Doha-round will be hijacked by vaguely trade-related concerns. I do not share this concern. WTO member states need to take responsibility for how the trading system interrelates with other international ambitions. Member governments are responsible for finding coherence between the WTO and policies that the same governments are pursuing outside the WTO.

The Difficult Way Forward

The successful completion of this round will require that we, collectively, meet three important challenges:
· we need to target the special needs of developing countries;
· we must make better use of trade as a tool for growth in our domestic economies; and
· we should strengthen the world trading system and the coherence that should underpin the system for the future.

The Cancún Ministerial Meeting offered an important stepping-stone towards realizing this potential of the Doha Development Agenda.

It did not come about.

However, the opportunity of a meaningful outcome is still there. But it will require some tough choices both for the coming months and for the rest of this round.

The potential of the Doha Development Agenda cannot be realized unless we make a serious effort to bridge the substantive differences in the positions of different groups of countries in the WTO. In light of that, we must recognize the need for all members of the WTO to bring home new opportunities from the negotiations. That will only be possible if all members are prepared to show flexibility in the negotiations.

A new trust needs to be built. We need to find a more constructive tone in our talks. Ultimately, no progress will be made if countries value more making a point, rather than making a difference. The WTO is not about rhetoric. A rapid resolution of the cotton issue therefore should be a high priority. But the new issues also require more constructive dialogue. We must find a way of opening negotiations in such important reform areas as trade facilitation and transparency in government procurement, at the same time as the special needs and interests of the developing countries are safeguarded. We need to make progress on the minimalist environmental agenda in the spirit of coherence. And we should exercise self-restraint and seek conciliation on existing and forthcoming disputes.

The work done in Cancún should not be wasted. Important advancements that were made – in drafting and consultations – should form the basis for future negotiations. Lower, narrower and geographically restricted ambitions are not the answer to the world’s needs. Let’s at least agree on that.

Leif Pagrotsky