EMBARGO:NOTFORPUBLICATIONBEFORE
21.30 HRS GMT TODAY, 10SEPTEMBER 1996
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10September 1996
BEYOND BORDERS:
Managing aworld offreetrade anddeep interdependence
Attached isthetextoftheaddress byMr.Renato Ruggiero, Director General ofthe
World Trade Organization, delivered today (10September 1996), totheArgentinian Council
onForeign Relations (Consejo Argentino paralasRelaciones Internacionales) inBuenos Aires.
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"Iwant tobegin bythanking theCouncil onForeign Relations forinviting metospeak on
thechallenges facing theWorld Trade Organization inaglobalizing economy.
"Ithasbeensaidthatmostpolicy makers lookforthefuture inarear-view mirror. Generals
tendtofightthelastwar. Statesmen anddiplomats, tasked withbuilding tomorrow, usually startwith
ablueprint oftheancien regime .Thistemptation tolooktopastisevenstronger intoday'sglobalizing
economy where allthelandmarks seemnewandwhere theground under ourfeetisconstantly shifting.
It'salsofarmore dangerous. Weliveinaworld which isalready launched onapathtowards global
freetrade --itisaprocess which cannot bereversed orrolled backwithout unimaginable coststoour
future growth andourfuture progress. Thechallenge nowistocome togrips withaworld offree
trade anddeeper integration, andtorealize itsimmense benefits. Itisachoice between building a
global architecture which isopen, universal andrules-based, orliving inasystem which isanarchic
inthemost literal sense oftheword. Ifonechapter ofworld economic history ended withthe
technological revolution ofthelastdecades andwiththemammoth liberalizing efforts symbolized by
theUruguay Round, another isabout tobegin. Howitiswritten willdepend onthedecisions wemake
incoming months andyears.
"Toargue thatglobalization isanevolving reality isnottoclaim thatwearenearing thepoint
offreetrade inallsectors orinevery region oftheworld. Clearly thisisfarfrom thecase. Trade
liberalization isincomplete inmany keyareas --substantial tariff peaks remain; negotiations arestill
proceedingincriticalsectorsliketelecommunicationsorfinancialservices;andeventheUruguayRound's
finalresults inagriculture ortextiles orgovernment procurement leave much tobedesired. There 's
plenty ontheliberalization agenda tokeepusoccupied intothenextcentury. Itisalsotruethatnot
allcountries areequally integrated intothemultilateral system Globalization hasgoneconsiderably
further inEurope, intheAmericas andinAsiathaninAfrica. Thisistosaynothing ofmajor economies
likeChina orRussia which haveyettoaccede totheWorld Trade Organization.
"Yet, however imperfect ourprogress, theunderlying trend isunmistakable. Multilaterally,
regionally, unilaterally --allpaths areleading tofreertrade. MFN tariffs inallcountries, developed
anddeveloping alike, areonasharp downward course, while applied tariffs inmany cases arelower
still. Much more thanonethirdofworld trade willbetariff freewhen theUruguay Round isfully
implemented. Most non-tariff border restrictions havealsobeenabandoned; those thathaven 'tare
scheduled tobeeliminated orconverted totariffs according toastrict timetable. Services trade has
already beenbrought intotheambit ofthemultilateral system andinvestment, logically, cannot be
farbehind. Inside theborder, many countries areundergoing equally radical fiscal, monetary, and
structural reforms inaneffort tohone theireconomies toanincreasingly "open" andcompetitive
international environment.
"But themost fundamental transformation ofallisoccurring atthelevel ofawareness.
Telecommunications iscreating aglobal audience. Transport iscreating aglobal village. From Buenos
Aires toBoston toBeijing, ordinary people arewatching MTV, they'rewearing Levis jeans, andthey're
listen toSony Walkmans astheycommute towork. Perhaps inthepresent world wecanstillimagine
some government blocking Levis jeans orMTV attheborder. Butifyoustopgoods andservices
theconsequence would bemassive migration ofpeople andofinvestment. What isgoing onisacitizen 's
revolution onaglobal scale. Andeventhose whodonotlikethedirection globalization istaking us,
havenorealistic plantoputtheGenie backinthebottle. Itisinthisverypersonal sense thatwe
areallfreetraders now.
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"Thesechangesarereflectedinthegrowingvolumesofworldtrade.Tradeflowshavemultiplied
fifteen-fold inthelastfourdecades --reaching $6,000 billion lastyear--while production hasincreased
six-fold. Theworldwide movement offoreign direct investment isevenmore striking. Intheten
years to1996, investment flows worldwide easily quadrupled, fromaround $60billion toalmost $300
billion perannum. Inthese statistics arerevealed thenewdialectic ofglobalization. Thesystematic
reductionoftradebarriersworldwide,combinedwithdramaticdecreasesintransportandcommunications
costs, haspaved thewayfortheemergence ofaglobal system ofproduction, distribution and
consumption --oneinwhich firms areincreasingly freetoassemble inputs from around theworld
andtoservice anequally global marketplace. Thisinturnhasaccelerated themovement ofglobal
investment, asfirms learnthatthebestwaytoachieve comparative advantage inproduction, insourcing,
indistribution, andintechnology istoestablish adirect presence inforeign markets.
"Itisestimated thatproduction byforeign affiliates ofmultinational corporations (MNCs) now
exceeds thevalue ofworld trade ingoods andservices, thatintra-firm trade among MNCs accounts
formore thanone-third ofworld trade, andthatMNC exports tonon-affiliates account foranother
third. Where oncetradewasabout theexchange ofgoods among national firms operating fromnational
markets, today trade isasmuch about themovement ofcomponents, services, andtechnology within
andamong global firms operating inglobal markets. Where onceforeign investment wasseenasa
wayofsubstituting fortrade--awayofjumping overnational barriers --itisnowseenbymany firms
asanecessary precondition. Wearereaching thepoint where trade andinvestment arenowpartof
aseamless webofinternational economic activity.
"One byone,trade andinvestment barriers willcontinue tobeswept away byglobalization,
likeleaves onanautumn day. Buttheforce ofthese winds ofchanges isalready testing ourability
toadapt. Theimmediate challenge istointegrate arapidly ascendent developing world. Noonestands
tobenefit more from globalization thandeveloping countries. Production isnowmobile, capital
footloose, technology diffuse. Developed anddeveloping alike, weareallcompeting forthesame
investments, forthesame markets, forthesame innovative edge. Inthissense, globalization has
erased theoldground rulesofeconomic growth, providing countries, oncerelegated toperpetual "third
world" status, withthetoolstofast-forward theirdevelopment. Unprecedented growth ratesofcertain
industrializing countries inAsiaandLatin America areevidence thatahugeshiftineconomic power
isunderway. Developing countries nowaccount foraquarter ofworld trade compared toless20per
centfiveyears ago. Athirdoftheworld 's25leading exporters andimporters arenowdeveloping
countries, including Argentina. Twenty years ago,industrialized countries imported just5percent
oftheirmanufactured goods fromdeveloping countries; by1990 thisfigure hadrisento15percent,
andby1994, over20percent.
"Already some fearthattheemergence ofkeydeveloping countries willsendshock-waves
through thesystem. Theyworry thatrising exports fromemerging markets willplace growing pressure
onopeneconomies inthedeveloped world --pressure which, insensitive sectors atleast, could generate
economic uncertainty andunrest. Others askhowwewillmanage anincreasing complex trading system
which isgrowing wider justasitisgrowing deeper. Theshort answer isthatallthese problems can
bebetter managed inside theexisting global system thanoutside ofit.Asdeveloping countries become
more deeply integrated intotheglobal economy wehavenochoice buttoinvolve them much more
closely andtransparently ininternational rule-making andinstitution building --toensure thestability
aswellastheevolution ofthesystem. Thisofcourse underscores thecritical needtogetChina, Russia
andallcandidates stilloutside themultilateral system firmly embedded intheWTO. No-one expects
thistobeeasy. Theaccession oflargetransition economies inparticular raises fundamental questions
ofsubstance which cannot beanswered bycompromising theintegrity oftherulesortheinterests of
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existing members. Stillwecannot longmaintain acoherent system ofglobal ruleswhich isperforated
from theoutside. Without amassive economic player likeChina "inside thetent" weriskbeing a
World Trade Organization inname only.
"Another major challenge istochannel constructively thegrowing international competition
forexport markets, forinvestment andincreasingly fortechnology --acompetition which isbeing
played outmost visibly inanexpanding webofregional andsupra-regional trade areas. Thelogic
ofregionalism isthatcertain groups ofcountries canmove further andfaster towards liberalization
thanothers. Butoneofthemain forces driving regionalism forward sorapidly istheracetograb
abigger sliceoftheexport andinvestment pie.Countries enterintofreetradearrangements toincrease
theiraccess tomarkets andinvestment, which inturnencourages others tojointheraceforfearof
being leftbehind. Likefalling dominos, freetrade agreements beget more freetrade agreements.
Already some onehundred bilateral orregional groupings hadbeenidentified bytheWTO lastyear,
andeachmonth wehearofneworexpanded alliances.
"Sofarthishasgenerally beenforthegood. Regional arrangements haveprovided stepping
stones toglobal liberalization, theyhaveserved asimportant crucibles fortrade policy innovation,
andtheycanbeasource ofcreative tension inthesystem asawhole, forcing thepaceofother regional
andmultilateral initiatives. Myconcern isnotsomuch thatregional arrangements willturninward,
butthattheirverymomentumwillleavethemultilateralsystembehind.Ifregionalliberalizationoutstrips
theWTO process, there isadanger thatwewilllackacommon framework ofrules anddisciplines.
Ifoureconomic interests areincreasingly defined regionally andnotglobally, itwillbemore andmore
difficult tofindthecritical mass ofcountries needtosustain themultilateral system. Theriskthen
isofafragmented world --onewhich fosters inter-regional frictions andrivalries, butlacks theglobal
architecture ofrules andprocedures needed tomanage them.
"Thelong-term solution isnottotrytorestrict regional agreements, beyond ensuring thatthey
remain trade-enhancing andadhere toArticle XXIV oftheGATT --thiswould beliketrying toharness
globalization. Thesolution istoensure thatregional andmultilateral liberalization aremutually
reinforcing --thatallpaths eventually leadtotheWTO. Thesolution, inother words, isto
multilateralize regionalism whenever possible. Oneanswer maybefound intheprinciple which some
ofthenewer regional groupings haveenunciate --thecommitment to"open regionalism". What this
means intheory isconvergence --thattheelimination ofbarriers within ablocwillbeimplemented
atmore orlessthesamerateasthelowering ofbarriers tonon-members. What itcould mean inpractice
istrulyrevolutionary --thatincommitting themselves to"openness", regional tradeagreements could
provide thecatalyst forglobal freetrade.
"This leads tothethirdchallenge facing usintheyears ahead --ensuring thatthemultilateral
trade system istrulyuniversal. Wemaybemoving inthedirection offreertrade, buttheprogress
isuneven. Residual barriers anddiscriminatory practises distort trade andinvestment flows, which
caninturncause uncertainty andfriction. Thissituation ismade worse when trade rules don'tkeep
pacewithdeeper economic integration. What mostimpacts ontheshape anddirection ofeconomic
activity today --particularly therulesofcompetition andthemovement ofglobal investment --isnot
somuch thebarriers attheborder, butthedomestic economic structures inside. Herethereisgrowing
room fortrade friction, notbecause ofdifferences overrules, butbecause rules don'texist.
"We'vesuccessfully dealtwiththeissues of1986 intheUruguay Round. Wenowneedto
tackle theissues of1996andbeyond. Butthesenewruleswillnotnecessarily come easily. Foralmost
fiftyyears, multilateral negotiations werefocused almost exclusively ontheremoval ofbarriers atthe
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border according toascore-card which wasfundamentally mercantalist --thetrading ofonetariff
"concession" foranother. Butthenewchallenge willbelesstoregulate relations among national
economies, thantoestablish therules andstructures ofatransnational economy. Itsnotclear that
weyetfullyunderstand howtoberulemakers aswellastariff negotiators. Norisitclear, when
negotiating services orstandards orinvestment, thatweyetknow howtomeasure a"trade concessions"
or"market access" --orwhether theseconcepts stillhavethesamemeaning inatransnational economy.
Thefactisthatinemerging areas likefinancial services ortelecommunications orinvestment there
isagrowing coincidence ofinterest between producers andconsumers, exporters andimporters,
developed anddeveloping. Trade hasalways beenawin-win proposition, butitisallthemore so
inaworld economy where competitiveness andinnovation increasingly hinge onopenness totheflow
oftechnology, know-how andideas.
"Itisagainst thisbackground thatwemustalsobegin tograpple withthereally bigchallenges
facing usasweheadintothenextcentury --jobs, growth, sustainable development, andsoforth.
Thesechallengesincreasinglydemandglobalsolutionssimplybecauseofgrowingglobalinterdependence.
Itisunfortunately truethatwearestillalongwayfrom correcting present imbalances intheworld
economy --justaswearefaraway from correcting imbalances evenwithin thewealthiest countries.
Itisalsotruethatthese imbalances attheglobal andnational levels areabsolutely unacceptable.
"Butletmebeclearabout onething: liberalization remains thesingle mostimportant engine
forgrowth attheworld level. Thisfactisreflected instudies liketherecent Human Development
Report which observes thatwhile 1.5billion oftheworld 'speople arepoorer thaninthepast,over
3billion arebetter offtoday thanatanypoint inhistory. Theoverall trend istowards a"slow but
significant improvement inhuman development inalmost allcountries inrecent decades". Freetrade
cannot beresponsible forthedistribution ofthewealth itgenerates. Thisisthemaintaskofgovernment
atthenational and--because oftheincreasingly global dimensions oftheproblems --attheinternational
level. Ifcountries seekgreater protection from theglobal economy inthename ofseeking greater
socio-economic equality, theywillbethrowing outthebabywiththebathwater. But,bythesame
token, ifwedonotfindsolutions totheproblems ofpoverty intheleastdeveloped countries or
unemployment throughout theworld, thenIamcertain wewillputglobal growth andglobal progress
atgrave risk.
"Theglobal community hasevery reason tofeelproud asweapproach theendofthecentury.
Thewalls between usarefalling down --economically, politically, andideologically --afterabloody
century ofnational conflict. Thevastdeveloping world isbeing lifted upbytrade andtechnology,
erasing oneofthemostunsightly scars leftbythefirstindustrial revolution. Andweareembarked
onadeepprocess ofglobal integration andever-widening economic growth --aprocess thatcarries
withitourbestchance yetofachieving lasting world peace. Thisshould beatime, ontheeveof
theFiftieth anniversary ofthecreation oftheGATT, forustocelebrate ourachievements andtofocus
ontheroadahead.
"Ifsome ofusfeelanxious today, itisperhaps because westilllackaclearideaofwhere this
newroadistaking us.Inonesense wearevictims ofourownsuccess. Thecollapse oftheBerlin
Wallandtheconclusion oftheUruguay Round didnotjustsymbolize theendofalongstruggle, but
alsotheendofacommon purpose. Onthebrink ofachieving thatglobal community ofnations which
seemed soelusive adecade ago,wesuddenly lackaunifying goal. Everest hasbeenclimbed. Gone
aswellisthesense ofideological purpose thatpropelled usforward. Thecleavages ofthelasthalf
century didnotjustreflect aclash ofeconomic orpolitical interests, buttheclash ofideas. In
economics, thestruggle offreemarkets against inward-looking statism. Inpolitics, astruggle ofliberal
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democracy against totalitarianism. Butthistwo-headed dragon hasnowbeenslain. Bigideas cangive
waytotheslowworking outoftechnical details. Grand alliances canbeeclipsed bypetty squabbles
andendless disputes.
"Butourcurrent malaise goesdeeper thanthefeeling ofemptiness thatcomes attheendof
alongvoyage. Through liberalization andtechnological advance, wehaveutterly andirreversibly
changed theeconomic landscape. We'vemade thegreat leapintoglobalization. Butitisaworld for
which wehaveasyetnoclearanswers andfewguideposts --savefortheoldpolicies andinstitutions
ofthepast. Perhaps themajor imbalance isthatthereally bigeconomic, social andenvironmental
problems wefaceattheendofthiscentury aretrulyglobal problems demanding aglobal vision and
global answers. Butgovernments arenational. Andthetendency isoftentolisten onlytolocalconcerns
andpressures, andtoreach forlocalsolutions. Worse, intheabsence ofglobal answers, there isa
danger thatthefuture willcome tobeviewed assomehow beyond ourcontrol. Technology willbe
portrayed, notasatooltohelpusprogress, butasamachine driving usaimlessly onwards.
Globalization willbeseen,notaprocess which isfundamentally liberating, butonewhich isconstraining
anddeterministic.
"Fortunately some oftheglobal answers arealready athand. TheWTO wasthefirstmajor
international institution tobecreated inthepost-Cold War,post-Uruguay Round era.Thisissignificant
because Ibelieve theWTO offers apromise ofthekindofglobal architecture weneedinthecoming
decades. Itgrew outofbottom-up pressure forfreetrade anddeeper integration; itwasnothanded
down fromonhigh--centralized andbureaucratic. TheWTO 'sculture isfirmly rooted inthetradition
ofconsensus-building andcooperation among sovereign countries. Mostimportant, theWTO embodies
rights andobligations thatareenforceable, notthrough thecrude exercise ofeconomic power, but
through theruleoflaw.
"The success ofourneworganization willhinge largely onthework wedointhetimeahead.
Wehavetoconsolidate whatwehaveachieved intheUruguay Round. Weneedtoagree onaworkplan
fortheremainder ofthecentury --aworkplan which hadalready beenenvisaged attheendofthe
Uruguay Round intheso-called build inagenda. Andweneedtobegin tomeetthereally bigeconomic
andgeopolitical challenges presented byaglobalized world. Butmore thanjustaplan, weneeda
guiding idea. Thatideaistherealization ofglobal freetrade --thedemolition ofthelastwalls of
theoldeconomic order. Thegoalofbarrier freetrade wasaccelerated intheUruguay Round by
expanding theso-called zero-for-zero negotiations. Anditisbeing realized regionally inMercosur,
NAFTA, APEC, theEUandthemany other customs unions andfreetradeareas spreading throughout
theworld. Nowisthetimetodraw allofthese disparate threads together. Using thetimetables we
havealready established inthevarious regional agreements, letsmove towards aworld freeofeconomic
borders. ThefirstWTO ministerial meeting inSingapore willbethefirstmajor steptowards answering
these questions. What wecandemonstrate isthattheWTO isfocused clearly onthefuture, thatwe
haveaworking plan, andthattheroadfrom Singapore isabright one.
"Because inSingapore wecannot afford tofail.Intheabsence ofsuccess, thetemptation will
betolooktothe"Good OldDays" --however ill-defined --andtoreturn totheoldmethods andmodels
ofthepast. Arewetalking about thedaysbefore 1914when world tradewasshaped byacat'scradle
ofoverlapping anddiscriminatory bilateral deals? Arewetalking about theGood OldDays ofSmoot-
Hawley withitsprohibitive tariffs andreciprocal trade fixes? Itwasprecisely because ofthese Good
OldDays --andtheeconomic chaos which followed --thatthepost-war community ofnations chose
thepathofprogressivetradeliberalizationundertheumbrellaofanon-discriminatorymultilateralsystem.
Butthebiggest problem withthisprescription isthattheGood OldDaysnolonger exist. Protectionism
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intoday'sworld ofdeepinterdependence isnotarecipe foreasing thepainorshutting outglobalization.
Itisarecipe forgreater painandgreater suffering --aroad, nottosome mythical Good OldDays,
buttoconflict andviolence andwar. Ifliberalization isadifficult enough process tosustain, thecost
ofreturning protection inthisnewglobalized world would beunbearable.
"Theroleofchoice inhistory isdealtwithbyKarlMarx inhisfamous aphorism: "Men make
theirownhistory, buttheydonotmake itjustastheyplease". Marx waspartly correct. Wecannot
stopthefuture. Butnorshould webeswept along before it.Globalization, asIhavealready said,
isanevolving reality. Ourchoice isbetween managing thisreality andtaking advantage ofitsimmense
potential, orattempt toresist theinevitable. Theissue isnothowfastwemove towards further
globalization, butwhether wewant thisprocess tounfold under mutually agreed rules ofthegame
orinthewilderness ofpower politics --power politics which willprobably nolonger bedefined along
national lines--whatever thedimensions ofthatpower maybe--butalong regional orevencontinental
lines. None ofusisbigenough anylonger tomaintain oureconomic security insuchawilderness.
Deeper interdependence means thatallofus--great powers andsmall --haveaninterest inkeeping
thesystem firmly ontrack.
"What isatstake aswecontemplate thefuture ofthemultilateral system ismuch more than
tradeoreconomics. Itinvolves questions ofpolitical andeconomic security. Itisabout howrelations
among countries andamong peoples aretobestructured. Itdetermines whether wefoster international
solidarity ordescend intoaspiral ofglobal friction andconflict. Fifty years ago,inthecrucible of
warandeconomic ruin, statesmen settheirsights onafreecommunity ofnations co-existing ina
borderless world. Attheendofthecentury andtheendofthemillennium theirvision isbecoming
areality. Atthemoment ofvictory, let'snotlosethestrength ofourconvictions."
END