RESTRICTED*
WORLD TRADE WT/TPR/OV/3
5December 1997
ORGANIZATION(97-5159)
Trade Policy Review Body
OVERVIEW OFDEVELOPMENTS INTHE INTERNATIONAL TRADING
ENVIRONMENT
Annual Report bytheDirector-General
I.Recent trends inworld trade
1996: Return totrend
1. After twoyears ofexceptionally goodperformance, tradegrowth in1996returned tothemore
typical trend rateofthelastfewyears. World merchandise trade grew at5percentinrealterms in
1996, compared toanaverage rateof6percentforthefirsthalfofthe1990s. Thelatter average,
ofcourse, waspulled upbytheunusually highgrowth ratesof8percentormore achieved in1994
and1995. Bothmerchandise production andworld GDPgrewat2.5percentin1996. Thisperformance
wasverysimilar tothatof1995, butsignificantly better thantheaverage of1.5percentachieved in
1990-96. Trade growth has,asusual, outpaced domestic output growth byasignificant margin, attesting
onceagain totheonward paceofglobalization.
2. Merchandise trade growth expressed incurrent dollar value terms was,somewhat unusually,
lower thantrade growth expressed involume terms in1996. Thus, thenominal merchandise export
growth ratein1996wasonly4percent. Among themainreasons forlower nominal growth in1996
wastheappreciation oftheUSdollar, andareversal intheprice risesrecorded in1995 forarange
ofprimary andsemi-manufactured products.
3. Notwithstanding these influences oncurrent values, world merchandise exports exceeded the
$5trillion mark forthefirsttimein1996, registering atotalof$5,120 billion. Exports ofmanufactured
goods, accounting forsome three-fourths oftotalmerchandise exports, grewat5.5percentinvolume
terms, much faster thanagricultural andmining products, which registered export growth ratesof2
percentand2.5percentrespectively in1996.
4. Trade performance varied widely onaregional basis, withvalues being heavily influenced
byexchange ratemovements andrelative price changes. TheMiddle EastandAfrica recorded the
highest export growth ratesofallmajor regions in1996, largely duetotherecovery inoilprices in
1996. Latin America recorded anabove-average export andimport performance in1996, at11per
cent, withMexico 'sstrong trade performance accounting forasignificant partofthis. While North
America andthetransition economies achieved export growth ratesabove theglobal average for1996,
at6percenteach, thiswasnotthecaseforWestern Europe andAsia, which recorded export growth
ratesof3percentand1percentrespectively.
*Thisdocument issubject torestricted circulation andpress embargo until10December 1997.WT/TPR/OV/3
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5. Exports ofcommercial services grewincurrent priceterms by5percentin1996, significantly
lower thanthe14percentgrowth raterecorded in1995, butpartly explained bythedollar appreciation.
Thevalue ofcommercial services exports in1996was$1,260 billion. Growth incommercial services
tradehasbeenabove average intheAmericas, andparticularly inLatin America, where agrowth rate
of8percent,ornearly twice theworld average wasrecorded in1996. Asimilar figure wasrecorded
forAsia. InWestern Europe, bycontrast, therateofexport growth ofcommercial services wasonly
3percent. Itshould, however, beborne inmind thatthesearecurrent values, influenced byexchange
ratemovements, andinparticular, theappreciation oftheUSdollar.
Prospects: possible acceleration, buteffects ofSoutheast Asian developments?
6. World trade andoutput areexpected tohaveaccelerated in1997. There willbeanarrowing
ofregional differences, witheconomic activity inWestern Europe andthetransition economies
strengthening. While thedynamic EastAsian economies areexpected toslowdown somewhat, most
ofthemarestillexpected torecord growth rateswellinexcess oftheglobal average. North America
isexpected torecord astrong growth rate,evenifgrowth weakens somewhat inthelastpartof1997.
Latin America 'srecovery isexpected tocontinue, resulting inagrowth ratehigher thanthatattained
inthe1990-95 period. Africa willcontinue togrow faster thanithasdoneformany years prior to
1996, although itisnotexpected toperform aswellasin1996. Theoverall improvement ineconomic
performance expected in1997 willspilloverintoimproved realexport growth. Thecontinued
appreciation oftheUSdollar will,however, depress thenominal value oftrade, perhaps tothepoint
ofreducing thegrowth ofthecurrent dollar value oftrade in1997 below thatof1996.
7. Therecent serious developments inthefinancial sector inanumber ofAsian countries will
continue toposepolicy challenges toallgovernments inthemonths ahead. Itisstilldifficult topredict
howstrong andprolonged theimpact ofthese developments oneconomic growth willbe.Thelength
andstrength ofthedownturn willbealleviated above allbyaforthright approach todealing with
structural problems intheeconomies, particularly thefinancial sector, anddetermined support of
structural adjustment withappropriate macro-economic management. Confidence inthemedium term
potential ofSouth-east Asian economies should stillbestrong asunderlying factors thatcontributed
totheirpastgrowth performance arestillinplace, namely highsavings/investment ratios, highlevels
ofeducation andtraining, andopentrade policies.
II. Trends intrade policies
8. Inapproaching thefiftieth anniversary ofthemultilateral trading system anditsimpressive
achievements,itistimelytolookaheadatthechallengesbeforeit.Anindicative,butnotcomprehensive,
listofsuchchallenges would include: tomaintain -andwhere necessary, improve -theimplementation
ofexisting agreements; tocarry forward effectively the"built-in agenda" resulting fromtheUruguay
Round andtheSingapore Conference; toensure apositive relationship between regional agreements
andthemultilateral trading system; tomake theWTO atrulyWorld tradeorganization, byachieving
thesuccessfulaccessionofallcandidates;andtoensurethat,asWTOmembershipgrows,noparticipants
aremarginalized. Above andbeyond these isthefundamental challenge ofshaping themultilateral
agenda ofthefuture.
9. Themultilateral system isgreatly helped infacing these challenges bythechange ofspirit in
favour ofopentrade observed inthelastdecade. Thishasbeenwidely confirmed since thecreation
oftheWTO. IntheUruguay Round, allWTO members made substantial binding commitments under
theWTO Agreements inregard ofindustrial tariffs andagriculture. Significant additional sectoral
commitments weremade oninformation technology products andpharmaceuticals following theWTO
Ministerial Conference inSingapore. Inaddition, 55trading entities representing 69WTO members
signed theAgreement onTrade inBasic Telecommunications Services inFebruary 1997.WT/TPR/OV/3
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10. TheSingapore Conference provided strong political support forthecontinuation oftheprocess
established withthecreation oftheWTO in1994. Thisinvolves anumber ofmajor undertakings over
thenextfewyears,suchastheexpansionofWTOmembership,theimprovementoftradingopportunities
fortheleast-developed countries, negotiations onthecontinuation ofreforms inagriculture andthe
pursuit ofliberalization intrade inservices, thereview ofanumber ofUruguay Round Agreements
andtheexploration ofissues suchasinvestment, competition, trade facilitation andtransparency in
government procurement.
11. Among WTO Members, thedispute settlement mechanism isproving aneffective instrument
inwhich bothdeveloping anddeveloped countries areparticipating. Theuseofanti-dumping and
countervailing procedures, which issubject tonewdisciplines, seems tohavebeenfalling indeveloped
countries, although anincreasing number ofdeveloping countries areusing such trade defence
mechanisms.
12. Recent Trade Policy Reviews confirm thatthemomentum fortrade liberalization isgenerally
beingmaintained.However,thefocushaschangedandtheinteractionamongautonomousliberalization,
regional agreements andmultilateral negotiations hasbecome more complex.
Formost transition economies, theprocess ofeconomic transformation hasdeepened and
strengthened; forcountries incentral andeastern Europe, much ofthisprocess islinked to
thestrong priority given torelations withtheEuropean Union, withtheaimofeventual
accession. Aseconomic conditions insome transition economies havebecome more difficult,
some newtemporary trade measures havebeentaken forbalance-of-payments reasons.
Liberalization inLatin America hasalsobecome more complex asanautonomous process has
given wayincreasingly toregionally-oriented tradeliberalization. Insomecases, thisiscoupled
withacontinuation ofunilateral reductions intariffs andother measures; however, concern
hasbeenexpressed overrecent increases insome tariffs.
South andSouth-east Asian economies aregenerally continuing theprocess ofliberalization,
within general political constraints; tariff levels arebeing reduced andnon-tariff barriers
gradually eliminated. Therecent turbulence inSouth-east Asian economies hasnot,sofar,
ledtoamajor reversal inthisprocess, although again thereissomesignofnewimport measures
being introduced.
African countries aregradually becoming more integrated intothemultilateral trading system,
andthestrong focus placed onAfrica inrecent technical cooperation activities oftheWTO
anditssister agencies seeks toincrease theirparticipation stillfurther. There islittledoubt
thatthose African countries thathaveundertaken substantial liberalization oftheirtradepolicies
areseeing theirefforts repaid inhigher growth rates.
Thetrade policies ofdeveloped countries (including thelargest) have, uptillnow, continued
toevolve inafavourable direction, particularly under theimpetus ofUruguay Round
commitments, although certain sectors, including agriculture andtextiles, continue tobenefit
fromhighimport protection andother forms ofassistance. There isalsoaclearneedtocounter
negative public andmedia perceptions oftheeffects oftrade liberalization andglobalization.
13. Thesubstantial degree ofconsensus overthedirection ofindividual tradepolicies derives from
agrowing recognition oftheclose relationship between external liberalization, domestic reforms, the
opportunities provided bytheintegration ofeconomies, andeconomic growth anddevelopment. In
recent years, exports haveformany countries beenthemainsource ofeconomic growth. FordevelopingWT/TPR/OV/3
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ortransition countries, tradepolicy oftenserves asaspurtodomestic transformation. Theglobalization
ofmarkets, theemergence ofnewtechnologies andthedemand fornewproducts andservices arealso
creating pressure onpolicy-makers toadapt trade policies andtoensure thatnoopportunities arelost.
14. Nonetheless, longstanding areas ofconcern suchasmarket access stillpresent challenges.
Arecent joint study bytheWTO andUNCTAD secretariats illustrates thateven after thefull
implementationoftheUruguayRound,asubstantialnumberofhightariffswillremaininbothdeveloping
anddeveloped markets, andthatthesectors most affected bytariff peaks arestilltheclassic areas
ofagricultural staples, fruit,vegetables andfish,processed foods, textiles andclothing, footwear, leather
andtravel goods, andtheautomotive sector -inaddition tosome "high-tech" sectors suchasconsumer
electronics, which werelargely excluded fromtheITA. Thispattern isreinforced bytariffescalation,
yielding highratesofeffective protection onsome finalproducts; theuseofspecific rates, particularly
inagricultural andfoodproducts, alsoreduces thetransparency oftariffs. While some ofthesesectors -
suchasfish,orautomotive products -areincluded inregional initiatives suchasthattaken byAPEC,
others -suchasagriculture andprocessed food, textiles, andleather andfootwear -remain excluded.
15. Inrecent years, regional arrangements (customs unions, free-trade agreements, orother
associations withtrade-related objectives suchasAPEC) havebecome thenorm ininternational trading
relations. Inthepasttwoyears, theprocess ofregional integration hasintensified onallcontinents.
InEurope, thenetwork ofagreements between theEuropean Union andother countries has
been strengthened bynewproposals forEUenlargement. Atthesame time, theEUis
reassessing boththepattern ofitsfree-trade arearelationships andtheirrelationships withthe
WTO agreements andwithMFN trading partners. New structures forrelationships with
Mediterranean countries, theLomé Convention group, South Africa, North America,
MERCOSUR andAsiahavebeencreated; technical relations withtheUnited States havebeen
reinforced; andtheGSPscheme hasbeenrevised.
IntheAmericas, Canada andMexico arebuilding ontheirrelationship within NAFTA to
conclude similar agreements withtrade partners inLatin America. MERCOSUR seeks to
complete itsowncommon external tariff through aprocess of"convergence" by2006, has
already concluded agreements withBolivia andChile, andisalsoseeking toconclude free-trade
agreements withother LAIA countries. Chile isalsomoving towards free-trade agreements
withitsLatin American partners, aswellasparticipating actively intheAPEC forum. The
FreeTrade Area oftheAmericas (FTAA) project alsocontinues tobeunder discussion.
InAfrica, acustoms union among, principally, theFrancophone countries ofWest Africa,
isintended tocome intoeffect inJanuary 1998; inSouthern Africa, negotiations havebeen
engaged among themembers oftheSouthern African Development Community (SADC) to
create freetradeamong itsmembers by2004. TheSouthern African Customs Union (Botswana,
Lesotho, Namibia, South Africa andSwaziland), issubject torenegotiation, andnegotiations
areongoing between South Africa andtheEuropean Union onthefuture structure oftheir
trade relations.
InAsiaandthePacific, newmembers havebeenadded toASEAN, andcompletion ofthe
Asean FreeTrade Area(AFTA) hasbeenaccelerated from2008to2005, withexpansion both
oftherange ofgoods covered bytheAgreement andinitsoverall scope tocover services and
intellectual property. Negotiations among themembers oftheSouth Asian Preferential Trading
Arrangement wereinitiated in1996, aiming toachieve aSouth Asian FreeTrade Area(SAFTA)
by2001.WT/TPR/OV/3
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Another long-term regional integration project covering AsiaandthePacific zone(including
theAmericas) istheAsia-Pacific Economic Cooperation (APEC) forum, which aimsatreaching
freeandopentrade andinvestment intheregion by2010 forthedeveloped and2020 forthe
developing economies. Allprogress inthese fields istobeMFN-based. Recently, APEC
Ministers agreed onanumber ofearlysectoral liberalization actions which, theystated, should
remain consistent with, andpromote, further broad-based multilateral liberalization.
16. Theinter-relationship between regional andmultilateral activities isoneofthecrucial features
ofthetrading world today. Itisinareas likethegapsbetween MFN andpreferential ratesofduty,
differences inregional andinternational standards, product approval procedures andhealth regulations,
andtheburgeoning multiplicity ofrules oforigin, thatmany ofthe"traditional" questions oftrade
ingoods needtobeaddressed. Inservices, too,there areobvious risks thatmultiplying regional
arrangements canleadtogrowing differences instandards formarket access through establishment
ofregional conditions forcross-border access, forestablishment orinvestment, orforentry of
professional service suppliers orlabour. Inaddition, onepractical riskofthemultiplication ofregional
activities isthepossible incoherence stemming from thesheer timetaken upbysuchactivities for
governments andadministrators andtheconflicting pressures thattheycreate. These systemic questions
willhavetobeeffectively addressed ifthemultilateral system istoflourish; anditwillbemore than
everimportant, asregional initiatives progress, thatthemultilateral system remains atleastasambitious.
III.WTO Activities
17. Thepaceanddirection ofWTO activities in1997 hasbeenstrongly influenced bothbythe
negotiations ontrade ininformation technology products, telecommunications andfinancial services,
andbytheoutcome ofthe1996 Singapore Ministerial Conference.
18. Details ofWTO activities arespelled outinChapter VoftheAnnual Report, completed by
intheReports ofCouncils andCommittees totheGeneral Council. Thissection thusfocuses principally
ontheareas mentioned above, namely information technology products, telecommunications services,
andwork stemming from thecommitments made byMinisters inSingapore.
19. Intheareaofgoods, 43WTO Members andStates orseparate customs territories intheprocess
ofaccession, agreed inMarch 1997 totheelimination oftariffs oninformation technology products.
Further, agroup ofseven countries andtheEUagreed toaccord duty-free treatment to465
pharmaceutical products. Bothofthese initiatives havebeenundertaken onanMFN basis.
20. Negotiations werecompleted successfully onbasic telecommunications services inFebruary
1997, andintensive work iscontinuing uptothedeadline of12December 1997onfinancial services.
Asatend-November 1997, 37offers hadbeensubmitted by51Members inthefinancial services
negotiations.Inaddition,workisproceedingintheareasofprofessionalservices,includingaccountancy,
thenegotiation ofGATS rulesonsafeguards, government procurement inservices, andsubsidies, and
aninformation exchange programme endorsed byMinisters atSingapore.
21. InSingapore, Ministers stated theirrenewed determination toabide bytherulesandprocedures
oftheDisputeSettlementUnderstandingandotherWTOagreementsintheconductoftheirtraderelations
andthesettlement ofdisputes. Useofthedispute settlement mechanism continues togrow. In1997
todate,theDispute Settlement Body hasreceived 40notifications offormal requests forconsultations
under theDispute Settlement Understanding. Tennewpanels wereestablished during thesameperiod,
andfiveAppellate Body andpanel reports havebeenadopted.WT/TPR/OV/3
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22. TheMinisterialConferenceassessedprogressmadeintheimplementationofWTOcommitments,
reviewedongoingnegotiationsandtheimplementationoftheWorkProgramme,examineddevelopments
inworld trade, andaddressed thechallenges facing theevolving world economy. Ministers noted that
much oftheWTO 'sWork Programme since theentry intoforce oftheWTO hadstemmed fromthe
"built-in agenda" inherent intheWTO Agreement anddecisions adopted atMarrakesh. Some elements
oftheWork Programme, including those dealing withtrade inservices, agriculture andaspects of
TRIPS, involved future negotiations, while many others called forreviews andother work. Ministers
emphasized theimportance ofrespecting thevarious timeframes thathadbeenestablished, while noting
thatwork undertaken would notprejudge decisions thatwould needtobetaken inthefuture.
23. Ministers atSingapore weresensitive totheneedtoensure thattheWTO should develop in
thelightofnewrelationships affecting themultilateral trading system. Inthisspirit, theyestablished
working groups toexamine therelationship between trade andinvestment andtostudy issues raised
byMembers relating totheinteraction between tradeandcompetition policy, including anti-competitive
practices. These working groups areexploring theissues ontheunderstanding that,ifnegotiations
aretotakeplace inthese areas, theywillproceed onthebasisofaconsensus decision regarding such
negotiations. TheGeneral Council istodecide within twoyears oftheSingapore Conference onhow
work intheseareas should proceed. Bothworking groups havemade substantial progress inpreparing
background material fortheirdeliberations. Inaddition, bothtrade andforeign direct investment and
trade andcompetition havebeenthesubject ofspecial studies intheWTO Annual Reports for1996
and1997.
24. Ministers alsoestablished twoother newelements intheWTO 'sWork Programme. Thefirst
ofthese concerned transparency ingovernment procurement, which isbeing studied withaviewto
developing elements forinclusion inanappropriate agreement. Theother newelement requires the
Council forTrade inGoods toundertake exploratory andanalytical work onthesimplification oftrade
procedures inorder toassess thescope forWTO rules ontrade facilitation.
25. Arecurring source ofconcern among Members istheproblem ofmarginalization ofleast-
developed countries, andtheriskofitforsome developing countries. Members havecommitted
themselves towork forgreater coherence andcoordination among international agencies indealing
withtheseissues,includingintheprovisionoftechnicalassistance.Inpursuitofthisobjective,Ministers
agreed toaPlanofAction fortheleast-developed countries. ThePlancallsforpositive trademeasures
ofbenefit totheleast-developed countries, inorder toimprove their capacity torespond tothe
opportunities offered bythetrading system. Italsocallsforaction aimed atenhancing conditions for
investment, andexport expansion anddiversification.
26. Inbringing forward thePlanofAction, aHigh Level Meeting onIntegrated Initiatives for
Least-Developed Countries 'Trade Development washeldinOctober 1997. Themeeting -involving
theInternational Trade Centre, UNCTAD, IMF, UNDP andtheWorld Bank, inaddition tothe
WTO-addressedquestionsofmarketaccessandoftrade-relatedtechnicalassistance,trainingandcapacity
building. NineWTO Members announced newautonomous initiatives toimprove market access for
exports fromleastdeveloped countries, while others reported onrecent actions theyhadtaken inthis
regard. Twelve least-developed countries provided comprehensive assessments oftheirneeds fortrade-
related technical cooperation; other suchassessments willbeundertaken before the1998 Ministerial
Conference. Emphasis wasalsoplaced atthemeeting onthepotential represented bytheuseof
information technology toassist inintegrating LDCs intothetrading system.
27. During theyear,thetechnical assistance andtraining activities oftheSecretariat havecontinued
togrow,supportedbothfromtheregularWTObudgetandfromspecialcontributionsfromgovernments.
Specific technical assistance activities in1996andearly 1997 haveincluded seminars andworkshopsWT/TPR/OV/3
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onmany aspects oftheWTO multilateral trading system, training courses, technical missions onspecific
issues, assistance togovernments intheirpreparations fortradepolicy reviews, support inpreparations
byleast-developed countries forparticipation intheHighLevel Meeting, andtheprovision ofspecific
information anddataupon request.
28. Therelations oftheWTO withtheIMFandtheWorld Bank havebeendeveloped under the
twoAgreements between theorganizations, asmentioned indocument WT/GC/W/68. During the
year, cooperation ontechnical assistance withtheIMF, World Bank andother international agencies,
including, notably, UNCTAD andtheInternational Trade Centre hasalsobeenreinforced. Inaddition,
non-governmental organizations havebeenbrought more closely intocontact withWTO activities,
including issues relating totradeandtheenvironment andtotheprogramme ofaction forleastdeveloped
countries.
29. Ministers atSingapore focused some attention upontheissueofregionalism. They noted that
WTO Members wereparticipating increasingly inregional agreements, andthatsuchagreements could
promote liberalization andfuller integration intotheinternational trading system. Atthesame time,
theyreaffirmed theprimacy ofthemultilateral trading system andrenewed theircommitment toensure
thatregional tradeagreements werecomplementary toandconsistent withthatsystem. TheCommittee
onRegional Trade Agreements hascontinued itswork, bothinrelation totheexamination ofregional
trade agreements andconsideration ofsystemic issues. TheCommittee iscurrently examining fifteen
agreements, andisscheduled toexamine thirty-four others. Achecklist ofsystemic issues hasbeen
prepared bytheSecretariat, anddiscussions arecontinuing onthebestwayinwhich toproceed in
examining these issues.
30. Ministers alsonoted atSingapore thattheywould work tobring newapplicants expeditiously
intotheWTO, andcalled onapplicant countries tocontribute totheaccession process byaccepting
theWTO rules andoffering meaningful market access commitments. Twocountries, Mongolia and
Panama, became newMembers oftheWTO in1997; 31further applications areextant. Many of
theapplicants arecurrently undergoing afundamental transition intheireconomies, heightening both
thebenefits tobederived fromWTO membership, aswellasthechallenges thatmustbemetinorder
tomeetthesubstantive prerequisites ofmembership.