PRESS/80
23October 1997
"SERVICES INABORDERLESS ECONOMY"
Attached isaspeech given byRenato Ruggiero, WTO Director-General, today
(23October)tothe2ndDEBIS(Daimler-BenzInterservicesAG)ServicesConference"Services
fortheWorking World inthe21stCentury" inBerlin.
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Itisexhilarating tobeinthiscity. Berlin isundergoing aprocess ofhistorical transformation
which ispropelling ittowards thepolitical andcultural centre ofGermany -aunited Germany within
aunited Europe. Theskyline isdominated byscaffolding andcranes, physical manifestations ofthe
birthofanewcapital andanewcentury. Sothisisanexciting place andanexciting time, andIam
verygrateful fortheinvitation tojoinyouhere.
Thistransformation ofGermany isofcourse occurring against thebackdrop ofamuch wider
transformation intheworld economy. Today Iwanttotalkabout howthiseconomic transformation
isbeing driven bytheincreasingly borderless flowofservices -andtheknowledge, information and
ideas embodied intheseservices. Howtechnology ismaking thisborderless economy possible -even
inevitable. Andhownewinternational economic institutions, rule-based liketheWTO, arebecoming
central tomanaging aworld where economic systems, cultures andpeoples havenever beenmore
interconnected andinterdependent.
II
What wearewitnessing today istherealization ofMarshall McLuhan 'sprediction inthe1960s
that"electronic interdependence would create theworld intheimage ofaglobal village". Thousands
ofmiles offibreopticcables nowjoinoceans andcontinents together, asdothemillions ofsound waves
andelectromagnetic signals thatcrisscross theatmosphere above ourplanet. Twenty-four hours-a-day
thisglobal network carries theworld 'sbusiness contracts, currency transactions, medical information,
andeducational resources, instantaneously across timezones, borders andcultures.
Thisinterconnected economy isinfluencing more thanproductivity growth. Itismaking
knowledge amore important production factor thanlabour, rawmaterials, orcapital. Itisshaping
anewandmore equitable relationship between thedeveloped andthedeveloping world. Andperhaps
mostdramatically, itiscreating theclosest thingyettoasingle, borderless global economy -aneconomy
which willhaveprofound implications forthewaynational systems operate inthefuture.
Already weseethetrend towards freerglobal trade intraditional goods sectors -withalmost
sixtypercentofworld tradescheduled tobetarifffreeearlyinthenextcentury. Butisintheservices
sector where thepotential forglobal freetrade isbyfarthegreatest. Rapid advances indigital and
communications technologies arecreating thepossibility ofborderless electronic tradeinkeyservices
sectors -erasing many ofthelimitations oftimeandspace. Justdown theroad-within afewyears -
wecanseetheprospect oftelecommunications, evenacross theAtlantic, becoming almost afree
commodity. Thecostofcomputing power hasfallen dramatically since 1960, bringing itwithin the
reach ofmillions ofordinary people. 50million personal computers weresoldin1995, ascompared
with35million cars. TheInternet isthemost powerful symbol ofthese developments: ithasbeen
steadily doubling insizeevery yearsince itwasinvented aquarter ofacentury agoandwillclearly
become aglobal market initsownright.
Justastheglobalization oftradeandinvestment haschanged thewaygoods andrawmaterials
areproducedthroughouttheworld,theadventofaborderless,electroniceconomypromisestotransform
theservices sector -asector which nowaccounts formore than70percentofGDP inmany OECD
countries and50percentinsome developing countries. Itwasoncethought thatmostservices were
difficult -orevenimpossible -totrade because "exporting" required apresence inforeign markets.
Now, thanks tothemicro-chip andfibreoptics, anyservice which canbedigitized andtransmitted
electronically canbeproduced anddelivered almost anywhere intheworld inamatter ofseconds.
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III
Letmetakeamomenttounderlinefourbroadcharacteristicsofthisemergingborderlessservices
economy:
- thefirstisitsincreasing indifference togeography, distance andtime. Transaction costs for
consumers andbusinesses willfallrapidly asmany steps thatintervene between buyer and
seller -distribution, sales, retailing -arecompressed. Perhaps themostsignificant result of
thedevelopment ofelectronic commerce willbethefalling barriers andcoststomarket entry.
Starting anewbusiness willbemuch easier -allowing afargreater number ofsuppliers to
enter amarket. Small andmedium-sized enterprises -aswell aslarge multinational
corporations -willnowbefullparticipants intheglobal marketplace. Businesses indeveloping
countries cannowovercome many oftheobstacles ofinfrastructure, capital, andtransportation
which limited theireconomic potential inthepast. Andintheend,consumers alloverthe
world willbenefit from thisgrowing global competition.
- second, services industries -especially financial services, telecommunications andtransport -
arecreating thereality ofaglobal infrastructure fortheworld economy; aninfrastructure which
isgreatly facilitating theadjustment ofoldindustries andthedevelopment ofnewones. A
goodexample istheemergence ofatrulyglobal financial system -theresult oftechnological
advances andmarket liberalization -which willallow many developing countries tocontinue
theirgrowth trajectory, andtofurther narrow thegapwiththedeveloped world.
- third, andperhaps most important, theglobal services economy willbeaknowledge-based
economy -anditsmostprecious resource willbeinformation andideas. Unlike theclassical
factors ofproduction -land, labour andcapital -information andknowledge arenotbound
toanyregion orcountry butarealmost infinitely mobile andinfinitely capable ofexpansion.
Thisknowledge-driveneconomyisnotreplacingothereconomicactivities-factoriesandfarming
arenotgoing todisappear, software isnotgoing tosubstitute forthefoodweeatorthecars
wedrive. Buttechnology ischanging thewayweproduce things -sometimes inquitedramatic
ways. Take theexample oftheGerman automobile industry which hasalmost completely
reinvented itselfoverthelastseveral years byintroducing advanced information technologies,
robotics orcomputer-aided design intotheproduction process -tothepoint where automobile
production often seems closer toaservices or"ideas-based" industry than traditional
manufacturing.
- these changes leadtoafourth characteristic: theborderless technology 'spotential toequalize
relations between countries andregions, because ofitscapacity toopenthewaytofreeand
equal access toinformation andknowledge forevery country, every region intheworld. The
gapbetween therichest andthepoorest countries isstillunacceptably wide, buttheeconomic
andtechnological means toclose thegaparealready inplace -andIbelieve thatmany
developing countries willbeabletoleap-frog phases ofindustrial development which inthe
North havetaken decades toaccomplish.
Thisfreemarket ofinformation andknowledge willhavesocial andpolitical ramifications
thatgofarbeyond economics. Doctors areutilizing tele-medicine toadminister off-site diagnoses to
patients inneed. Students across theworld arediscovering vaststores ofinformation viatheWorld
Wide Web.
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IntheWTO wearealsobuilding electronic bridges toawider world -using theInternet and
ournewInformation Technologies ForDevelopment Project todeliver, withthecollaboration ofthe
World Bank, technical assistance, trade data, training, andinteractive policy support totheleast-
developed countries which most needtobeintegrated intotheglobal economy.
These arenotpredictions forsome far-off future -suchchanges arealready underway now,
today. Already wearewitnessing asignificant shiftineconomic power towards theSouth -ashift
thatwillhaveasdramatic animpact onworld politics asthecollapse oftheBerlin Wall. Andthisshift
willbebeneficial todeveloped anddeveloping countries alike. TheWorld Bankprojects thatdeveloping
countries willgrow by5to6percentayearbetween nowand2020. Thismeans thatthedeveloping
countries willalmost double theirshare ofworld output, from around 16percentin1992, to30per
centin2020. What these numbers demonstrate, among other things, istheaccelerating paceof
development. Thefirstindustrialized country, theU.K., took58years todouble itspercapita living
standards; theU.S.took47years; Germany, 43years; andJapan 34years. Butfrom 1966, Korea
tookjust11years; Chile 10years; andChina 9.Andthesedistances continue toshrink. Tendeveloping
countries, accounting foralmost athirdoftheworld 'spopulation -orover1.5billion people -more
thandoubled theiraverage percapita income levels between 1980 and1995.
IV
TherôleoftheWTO isessential totheincreasingly borderless, interconnected world. What
theWTO -liketheGATT before it-provides isaforceforincreased liberalization within aframework
ofinternational law,based onconsensus, withanenforcement capacity, sothatthese economic and
technological changes canunfold inabalanced, equitable andconstructive way. From thisperspective,
oneofmost important contributions oftheUruguay Round tothecurrent economic order -andone
ofthemostsignificant changes toworld traderulessincetheinception ofGATT in1948 -wastobring
services trade liberalization within themultilateral system.
There havebeenthree major negotiations since theendoftheUruguay Round inwhatwecall
theinfrastructuralservices-financialservices,telecommunicationsandtransport.Letmetakeamoment
tooutline thestateofplayinfinancial services -thekeypriority fortheWTO inthecoming weeks.
Theobjective ofthefinancial services negotiations istoachieve realimprovements inaccess
tomarkets. Essentially, thismeans therightforforeign investors tooperate onequal competitive terms
withnational companies innational markets. Italsomeans theremoval ofunnecessary restrictions
onthecross-border supply offinancial services -restrictions which will, inanyevent, become
increasingly anomalous inaworld ofborderless, electronic commerce. Anditmeans protecting equity
rights already achieved inthese markets.
Negotiations onthissubject under theGeneral Agreement onTrade andServices (GATS) have
achequered history. Bothin1993, andattheendofresumed negotiations intheSummer of1995,
thelevelofcommitments negotiated wasthought bytheUnited States insufficient tojustify opening
theirownhugemarket toallWTO Members onanmost-favoured-nation basis.
Fortunately, Ibelieve thatanagreement isnowathand. Ninety-five countries havealready
made provisional market access commitments onfinancial services inthetwoprevious negotiations,
andinthenegotiations which areduetoendon12December weshall seeimprovements ornew
commitments made bysomething like40countries. Thenumber andthequality ofthecommitments
negotiated areessential forapositive outcome. Butitisequally essential thatwefirmly anchor the
financial services sector ingeneral inthemultilateral system ofrulesandprocedures. Wecannot afford
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continuing doubt about thecommitment ofthemajor powers tomultilateralism inthisfundamental
services sectors.
Many askabout thepossible effects oftherecent turbulence infinancial markets inAsiaon
theWTO negotiations toliberalize financial services. Partly thesereports spring fromconfusion about
thedistinction between liberalization ofmarket access -which isouraim-andderegulation -which
isnot.Theyarequitedifferent, andtheGATS explicitly recognizes notonlytherightofallgovernments
toregulate financial markets buttheirabsolute freedom totakewhatever prudential measures thatare
necessary tosafeguard theintegrity ofthose markets. Macro economic policy andmonetary controls
arenotbeing negotiated under theumbrella oftheWTO. Iamgreatly encouraged bytheinsistence
ofallparticipants inthenegotiations thatrecent events inthemarkets havenotshaken either theirbelief
inliberalization orthecommitment tothisnegotiation.
Iamalsogreatly encouraged because oftheimportant successes which theWTO hasalready
achieved thisyear. Wehavedemonstrated thatwecannegotiate andsuccessfully conclude apath-
breaking agreement tofreeglobal telecommunications services -asubject which hadbeenthought
politically unripe andtechnically toodemanding tobenegotiated effectively intheUruguay Round.
On15February ofthisyear69countries, accounting forover90percentofglobal telecommunications
revenue, committing themselves tocompetition inmarkets which haduntilrecently beenregarded as
natural monopolies -where itmade nosense toenvisage competition, letalone foreign competition.
Inthissame yearwehave alsoreached anagreement toeliminate tariffs oninformation
technology products. Together withbasic telecommunications, thisaddsuptoavolume oftrade
equivalent tothatinagriculture, carsandtextiles combined. These agreements symbolize therapid
advance oftheinformation-based economy, which isblurring thedistinction between services and
manufacturing sectors.
Onelastword onafinalelement oftheglobal infrastructure Ireferred toabove -transport
services. Imention them asareason forlooking forward, notbecause these aretriumphs toreport.
Negotiations onmaritime transport which ended intheSummer of1995 wereunsuccessful; indeed
neither theEuropean Union northeUnited States haveaccepted anymarket access commitments in
thissector. Theairtransport industry isalsosomething ofanexception, because mostaviation services
were excluded from thecoverage oftheagreement -which mayhelptoaccount forthefactthatit
cancostmore toflyfrom Berlin toGeneva thanfrom Berlin toNewYork.
V
Nodoubt weareliving through adeepandrapid transition towards averydifferent world.
Nodoubt there areserious short-term andstructural problems affecting thecurrent world economy:
suchproblems mustbedealtwithdecisively andwithaspirit ofcooperation bynational governments
andbyinternational institutions. There aresomany signs ofuncertainty andapprehension inboth
advanced anddeveloping countries revolving around unemployment.
However, theworld inwhich weliveisnotstatic, buthighly dynamic intheextent andpace
ofchange. Weareallofusaboard afast-moving train-yetthere isaworrying tendency inmany
countries tolookbacknostalgically ontheoldeconomy weareleaving behind, withitsmany problems
ofadjustment andtransition, while ignoring theneweconomic landscape wearerapidly entering into.
Thisisamistake. Itisamistake toignore thatfactthatworld trade -suchapowerful engine
ofeconomic growth -isontrack todoubling within onedecade. Thatworld output andresources
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areprojected todouble within twenty years. Andthattherateofgrowth ofdeveloping countries will
likely bedouble ofthatofdeveloped countries wellintothenextcentury. Moreover, asthesedeveloping
countries riseeconomically, theirdemand foradvanced country products isalsorising -ademand
which willbecome more andmore astimulus togrowth andjobcreation intheindustrialized world
aswell.
Asamatter offact,theemployment situation isnotthesame inevery advanced country. In
theUnited States, forinstance, theadvent ofnewtechnologies iscreating more jobs-andmore highly
paidjobs-thanitisdestroying; inother words, behind thedownsizing thereisanevenmore powerful
process ofupsizing taking place.
Itisalsofascinating toseethatthepolitical faultline thatranthrough twocenturies ofworld
politics issuddenly disappearing. Today, therealdebate isnotbetween Right andLeftpolitics, but
rightandwrong policies -apoint eloquently made byBritish Prime Minister Tony Blair when he
observed thatoursis"ageneration thatclaims education, skills andtechnology astheinstruments of
economic prosperity andpersonal fulfilment, notoldbattles between stateandmarket".
Wecannotunderestimatetherealityofourinterdependenceandtheinevitabilityofglobalization.
TradewillcontinuetogrowasashareofnationalGDPasoureconomiesbecomeincreasinglyintertwined
-from anaverage of7percentin1950, to22percenttoday, toanestimated 50percentby2020.
There isanartificial, evensurreal, quality tothecurrent debate overglobalization -ayearning
forapastwhich cannot berecreated andastubborn refusal toembrace afuture which offers somany
people somuch hope forabetter life. Thetruth isthattoday -because oftheenormous advances
ofnewtechnologies andtradeliberalization -wehavethechance ofoffering toevery nation, including
least-developed countries, thepossibility ofequal access toeducation andinformation, thuscreating
theconditions forasociety based onequality ofopportunity. Never before have wehadsuch
opportunities, inacontext where themarket, inallitsdifferent forms, dominates theevolution ofthe
global economy. Never before hasageneration hadsomany economic andtechnological opportunities
tocreate abetter world. Ifweliveuptothischallenge wewillenjoy afullshare oftheseunprecedented
opportunities.
Thisiswhyweneedtodevelop anewmessage ofconfidence forourpublics: amessage about
theextraordinary opportunities -andnotjusttherisks-which ourpresent ageofglobal transformation
offers. Isthese anyrational alternative tothisongoing process ofglobal change? Should westop
technological progress -somehow haltthedevelopment offaster airplanes andcomputers, orarrest
theworldwide spread oftelevisions, faxes, andcellular telephones? Should weconsider closing our
borders toexports fromdeveloping countries while keeping theirborders openforourexports? Should
weseektoslowdown orevenstoptheindustrialization ofbillions ofpeople, andatthesame time
maintain ourowngrowth andsecurity unaltered? Even ifwestoptheirproducts, canwealsostop
theirmigration towards ourcountries?
Theonlyrational answer isno.
Wedonotwanttoconjure upadivided world, which would notbecharacterized byrules-based
international cooperation, butbypower-based anarchy. Protectionism would betheresult, andwe
know thatprotectionism -evenifitwere possible inourever-more interconnected world -leads to
economic andpolitical nationalism. Instead ofinventing thefuture, where liberalization ofservices
andtheirprogress willhaveacrucial rôle,wewould riskareturn tothepast,withitsconflicts and
itstragedies. What weneedisjustwisdom andcourage.
END