EMBARGO: NOT FOR PUBLICATION
BEFORE 20.00 GMT MONDAY
29SEPTEMBER 1997
PRESS/77
25September 1997
CHARTING THE TRADE ROUTES OFTHE FUTURE:
TOWARDS ABORDERLESS ECONOMY
Attached isthefulltextoftheaddress which willbedelivered onMonday 29September 1997,
totheInternational Industrial Conference (IIC) inSanFrancisco byMr.Renato Ruggiero, Director-
General oftheWorld Trade Organization.
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I
Before Christopher Columbus 'stimetheoceans divided theworld. Now theyunite us.
Thousands ofmiles offibreopticcables weave oceans andcontinents together, asdomillions ofsound
waves andelectromagnetic signals crisscrossing theatmosphere above ourplanet. Twenty-four hours-a-
daythisglobalnetworkcarriestheworld'sbusinesscontracts,currencytransactions,medicalinformation,
andeducational resources, instantaneously across timezones, borders andcultures. Thenewtrade
routes ofthe1990s arelaserflashes andsatellite beams. Thecargo isnotsilkorspices, buttechnology,
information, andideas.
Thisinterconnectedeconomyistransformingtheworldinmorefundamentalwaysthanisimplied
bytheglobalization ofgoods andinvestment alone. Aninformation technology revolution -whose
rootsarehereinthelaboratories ofSilicon Valley -hasgreatly increased theflowofinformation across
theplanet, making knowledge amoreimportant production factor thanlabour, capital, orrawmaterials.
Itsinfluencewillshapemorethanproductivitygrowth-itwillshapeanewrelationshipbetweenadvanced
anddeveloping economies, anewcompact between governments andcitizens, andnewtiesamong
people thattranscend cultures, classes, andnationalities.
Noonecanpredict withcertainty where these deepstructural changes willleadus.What is
clear isthatthisnewinformation-based economy, freeofmany ofthelimitations ofdistance, time
andresources, hasthepotential toaddanewdimension toeconomic integration -a"borderless"
dimension thatcould dramatically accelerate thegrowth anddevelopment dynamic inmuch oftheworld.
What isalsoclearisthatmany ofouroldpolicy toolswillnolonger apply inthisborderless economy -
sothatnewinstruments ofinternational economic cooperation which transcend borders, liketheWTO,
willbecome allthemore important. Itisbecause weareentering anewworld andanewkindof
economy -withgreat benefits aswellasrisks-thatweare"Inventing theFuture".
II
Broadly speaking, theworld economy haspassed through twophases ofdevelopment inthe
lastfiftyyears, andisnowentering athird, eachofwhich ismoving ustowards amore integrated
and-insome sectors -evenborderless global economy:
TheInternational Economy. Thethree postwar decades canperhaps bestbedefined asan
international phase intheworld economy -bythatImean, aneraofgrowing trade among asetof
interlinked butstillpredominantly national economies. In1950 thevastbulkofeconomic activity
stilltookplace within theborders ofthenation state-infact,theratiooftrade toglobal output was
only7percent. International trade wasmostly limited torawmaterials orfinished products, and
investment wasmainly limited toestablishing foreign affiliates -or"branch-plants" -inotherwise
protected national economies.
TheGlobalized Economy. Beginning inthe1970s andaccelerating inthe1980s, theworld
economy entered asecond phase ofdevelopment -what isnowtypically referred toasaphase of
"globalization". Rapid advances ininformation technologies andcommunications, together withthe
systematic reduction ofglobal trade barriers, haveallowed global firms tobreak uptheproduction
process andtolocate itsvarious components indifferent markets around theworld. Thesurge inforeign
investment flows represents themost unique feature oftheglobalization phase. Trade isnolonger
thesoleoreventhemain vehicle fordelivering products andservices across borders; investment has
become anevenmore powerful force forintegration, astransnational corporations extend theirglobal
reach byestablishing adirect presence inforeign markets. Thecumulative assets offoreign investment
havetrebled since 1987 -tooverUS$3trillion -while theannual saleswhich these assets generate
haveovertaken thevalue ofworld trade.
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Buttradeisalsogrowingasmoreandmorecrossbordertransactionstakeplacewithincompanies
ortheiraffiliates, andasmore andmore tradeencompasses allphases oftheproduction process -from
components andservices, todesign andengineering. Intrafirm tradewithin transnational corporations
orrelated partners nowaccounts forabout two-thirds ofworld trade. Andtrade asashare ofglobal
output hasmore thantripled since 1950-from7toover22percent. Businesses nowtrade toinvest
andinvest totrade-tothepoint where bothactivities areincreasingly partofasingle strategy todeliver
products across borders.
TheBorderless Economy. Now, asweapproach theendofthe1990s, there aresigns that
anewdimension isbeing added totheintegration process -onewhere digital technologies and
communications networks arecreating thepossibility ofanincreasingly borderless economy inkey
sectors. Over thelastdecade orso,thecostoftelecommunications andcomputing hasfallen
dramatically, justasspeed andcapacity haverisen. Atransatlantic telephone callnowcosts justone
andahalfpercentofwhat itcostsixty years ago. AndtheWorld Bank predicts thatby2010 the
costwillhave fallen byanother two-thirds -toabout 3cents aminute -making transatlantic
telecommunicationsalmostafreecommodity.Thecostofcomputingpowerhasalsofallendramatically-
by100percentsince 1960. Asingle transistor, which soldforUS$70inthemid-1960s, cannow
bebought forlessthanamillionth ofacent. Thishasinturnmade computing power accessible to
millions ofordinary people. In1995some 50million personal computers weresoldworldwide against
35million cars.
Thisincreasingly borderless, information-based economy isperhaps bestsymbolized bythe
Internet. Atonceglobal andlocal, acommunications toolandaknowledge resource, theInternet has
beensteadily doubling insizeeachyearsince itscreation aquarter ofacentury ago.Already some
55million people worldwide haveconnections totheInternet; by2000thisnumber could grow to550
million, approaching 10percentoftheworld 'spopulation. NoristheInternet theonlychannel
available. Other technologies likecomputerized financial markets, E-mail, telephone banking, and
electronic datainterchange areallmoving ustowards amore borderless, information-driven economy.
Justastheglobalization oftrade andinvestment haschanged thefaceofmanufacturing since
the1980s, theadvent ofaborderless economy could transform services or"ideas-based" industries
inequally dramatic ways -industries thatalready account formore than70percentofGDP inmany
OECD countries, andupto50percentinsome developing countries. Itwasonceassumed thatmost
services were inherently non-tradable since the"product" waspeople -either theirbrawn ortheir
brainpower -andexporting required aphysical presence inforeign markets. Formany services, this
conventional wisdom hasbeenturned onitsheadwiththeinvention ofthemicro-chip.
Now anyservice which canbedigitized andtransmitted electronically canbeproduced and
delivered almost anywhere intheworld inamatter ofseconds. Hundreds ofthousands ofconsumers
arealready "electronic shopping" forbooks, on-line newspapers, videos andevencarswhile sitting
athome infrontoftheircomputers. Butthemorerevolutionary impact willbeonintra-firm orbusiness-
to-business trade. Computer software, medical information, educational programmes, dataprocessing,
legalandarchitectural services -alloftheseindustries could become partofanincreasingly borderless
andcompetitive environment, where every country, every business operates ina"virtual" world market.
III
Ijustwanttomention several keyfeatures thatwilldefine thisnewborderless economy: One
isitsincreasing indifference togeography, timeandborders. Trade usedtobeshaped bytherealities
ofgeography asoneelement inanation 'scomparative advantage. Now, inimportant sectors, trade
willbeshaped bytheabsence ofgeography. Thistechnological conquest oftimeandspace willhave
far-reaching economic effects. Transaction costs forconsumers andbusinesses willfallrapidly as
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many steps thatintervene between buyer andseller -distribution, sales, retailing -arecompressed.
Transaction times willfallevenfaster, adding awhole newdimension to"just-in-time" production
processes. Perhaps most significant ofallwillbethefalling barriers andcosts tomarket entry -or
starting anewbusiness- allowing afargreater number ofsuppliers toenter amarket. Notonlywill
consumers benefit fromthisincreased competition, butsmall andmedium-sized enterprises -aswell
aslarge multinational corporations -willnowbefullparticipants intheglobal marketplace.
Borders willbetheother potential casualty ofelectronic trade. Theelectronic exchange of
software, services orinformation takes place intheclosest thing yettoasingle, world market -one
defined, notbyproducts, paperflows andborder checks, butbyelectronic bytes andlaser beams.
Several years agoRobert Reich asked thequestion "Who isUs?" inanageofglobal integration. In
other words, willeconomic nationality matter anymore inaworld where thewebofglobal value added
can'tbeunravelled?
Reich 'squestion isevenmore relevant inadigital economy, onewhich operates incyberspace
andhasnophysical reality, letalone nationality. What, forexample, isthenationality ofasoftware
package upgraded inDelhi foracorporation inSeattle anddownloaded overtheInternet inBeijing?
More andmore ofthese kinds ofquestions willarise inthetimeahead, posing significant policy
challenges fornational governments -from therelevance ofrules oforigin, totheenforcement of
regulationsandstandards,tothecollectionoftaxesfromretailersandconsumersoperatingincyberspace.
Asecond feature isthatinformation isincreasingly thecritical resource andamain driver
oftheintegration process. Information isnowkeytotheglobal economy. Justassurging trade and
investment firstfuelled globalization inthe1980s, nowitisaccess to-andcompetition for-technology
which isshaping theborderless economy. Thisdiffusion oftechnology isofcourse notanewprocess -
thestoryofhuman progress down theagesisinlargepartthestoryofthedevelopment andwidespread
application oftechnology. What'snewisthewayanexpanding network ofcomputers, telephones,
andfaxmachines isaccelerating theprocess, andwidening itsscope. Thisinformation-driven economy
differs fromthetraditional economy ofland, labour, andcapital infundamental ways. Itisnotbound
toanyoneregion orcountry. Itismobile. Anditcanbedeveloped anywhere -erasing many ofthe
distinctions thatdefined economic potential inthepast.
Thisknowledge-driveneconomyisnotreplacingothereconomicactivities-factoriesandfarming
arenotgoing todisappear, software isnotgoing tosubstitute forthefoodweeatorthecarswedrive.
Buttechnology ischanging thewayweproduce things -sometimes inquitedramatic ways. Takeeven
themosttraditional ofeconomic activities, farming, which hasbeenwithussince thedawn oftime.
Mechanization, biotechnology, transportation, andinformation technologies areutterly transforming
agricultural production anddistribution tothepoint where modern agriculture issometimes closer to
aservice industry thanitistotraditional farming. Andmuch thesame transformation isunderway
inmining, forestry, transportation, andother industries.
Oneresult isablurring ofmany oftheolddistinctions between manufacturing andservices,
products andprocesses, so-called "high-tech" economies andmore traditional industrial orresource
economies. Themostimportant result, however, ismore growth andmore jobs. IntheUnited States,
forinstance, high-tech jobsaccounted for20to25percentofthegrowth inrealwages andincomes
in1996. Ontheoutput side,high-tech 'scontribution toGDP totalled US$420billion in1996, up
15percentfrom 1995.
Thisleads toathirdcharacteristic: theborderless economy 'spotential toequalize relations
between countries andregions. BillGates haspredicted acoming eraof"friction freecapitalism" -
theideathatfreeandequal access toinformation willmove uscloser thaneverbefore toaperfect
market. Iwould addthatitalsohasthepotential tointroduce anewdimension toequality of
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opportunity. Attheleveloftheindividual, olddivisions between capitalists andworkers areblurring
asmore andmore ordinary people increasingly ownthenew"means ofproduction" -thatis,the
education, skills andknow-how needed torunanadvanced, information-driven economy. Andatthe
global level, olddivisions between North andSouth arebeing superseded bynewdistinctions -between
those countries embracing technology andglobalization, andthose thatremain behind; or,asJean-
Francois Rischard oftheWorld Bank suggests, between "fastandslowcountries, learning andstatic
countries, plugged-in andleftoutcountries, 100percentreliable countries andthose thatarenot".
Anincreasingly "wired" global economy hasthepotential tofurther reduce thegapbetween
those regions andcountries which, inthepast,hadaccess totechnology andinformation, andthemany
others which didn't.Access totelecommunications isexpanding rapidly -toonebillion, oralmost
afifthofhumanity, bytheturnofthecentury -creating therealpossibility ofa"telephone inevery
village". Thedozen orsoglobal satellite schemes nowunder construction willvirtually eliminate
bandwidth constraints andreduce connections costs toafewdollars perstation inadecade. Many
developing countries willbeableto"leap frog" entire stages ofdevelopment intothenewest generation
ofwireless telephony -avoiding thehuge costs involved inbuilding anolder, copper-wire based
infrastructure. Today more than80percentoftheworld 'spopulation can'tmake atelephone call;
soontheywillhaveaccess, notjusttoleading-edge communications, buttotheeducational programmes,
medical services, andtechnical information which flows through these networks.
These arenotpredictions forsome far-off future -suchchanges arealready underway now,
today. Already wearewitnessing asignificant shiftineconomic power towards theSouth andthe
East-ashiftthatwillhaveasdramatic animpact onworld politics asthecollapse oftheBerlin Wall.
TheWorld Bank projects thatdeveloping countries willgrow by5to6percentayearbetween now
and2020. Thismeans thatthedeveloping countries willalmost double theirshare ofworld output,
from around 16percentin1992, to30percentin2020. What these numbers demonstrate, among
other things, istheaccelerating paceofdevelopment. Alevelofindustrialization thattook150years
toaccomplish inGreat Britain, or100years inUnited States, hasbeenachieved bytheAsian tigers
inlessthanageneration -themostrapid development process ineconomic history. These distances
continuetoshrink.Tendevelopingcountries,accountingforalmost30percentoftheworld'spopulation
-orover1.5billion people -more thandoubled theiraverage percapita income levels between 1980
and1995! With thespread ofinformation technologies thisprocess ofindustrialization ispoised to
accelerate andbroaden evenmore.
Thisremarkable record ofeconomic andtechnological progress ishaving arealimpact on
theeveryday livesofpeople. TheUNDP reminds usthatpoverty hasbeenreduced more inthelast
fiftyyears thaninthelast500. Since 1960, child death rateshavebeenalmost halved. Malnutrition
rates havedeclined byalmost onethird. Bytheendofthecentury, adult illiteracy willhavebeen
reduced bynearly three-fifths andabout 4to5billion people willhaveaccess tobasic education and
health care. Even more remarkable, theUNDP talksabout thepotential foreradicating global poverty
intheearly partofthenextcentury -autopian notion evenafewdecades ago,butarealpossibility
today.
IV
TheWTO will-andmust-playaleading roleinthisinterconnected world. There isaclear
andindivisible relationship between thedynamic oftechnological progress inourtime, andthedynamic
ofliberalization intheworld economy -theWTO 'sfuture agenda iskeytokeeping thistrend ontrack.
There isalsoaclearlinkbetween deeper economic andtechnological integration, andtheglobal rules
needtomanage ourinterdependence -rules which onlythemultilateral trading system canprovide.
ThisConference Programme identifies several areaswhere economic change presents newopportunities
butalsonewchallenges. Letmeoutline some oftheways inwhich theWTO system ischarting the
pathahead:
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Managing theTechnology Frontier. Firstthereistheprogress thathasbeenmade inliberalizing
newsectors oftheworld economy -helping towiden anddeepen theflowoftechnology andinformation
around theworld. Thisyearalone wehavereached agreements toliberalize global telecommunications
services andinformation technology products, thetrade coverage ofwhich istheequivalent ofglobal
trade inagriculture, autos andtextiles combined. Taken together, wehaveineffect concluded anew
Round byanother name. Butmore important, wehavetaken animportant steptowards bringing the
technological trade ofthenextcentury inside arules-based system, withanenforcement capacity.
Thisistheunique contribution oftheWTO toamore predictable economic evolution.
Butthe"technology frontier" isadvancing continuously -inturngenerating newpressures
forthetrading system tokeeppace. Inarecent speech, President Clinton hascalled forthenegotiation
ofafreetradezoneontheInternet. Thisrepresents animportant stepinourefforts todebate thetrade
agenda forthe21stcentury -andtoexpand upon theglobal trend towards freetrade ininformation.
Nevertheless, justbecause theInternet offers abright andbeneficial newfrontier where business can
bedoneacross aseamless global webofelectronic connections, weshould notthink thatgovernments
havenolegitimate concerns andresponsibilities inrelation toit.Governments cannot simply abdicate
inthisarea. Among themost important policy issues facing governments inrelation toelectronic
commerce areprivacy questions, theprotection ofintellectual policy, taxpolicy, andregulation for
public policy reasons. Butacareful linewillhavetobedrawn between legitimate intervention and
distortions motivated byprotectionism. Theimplications ofelectronic commerce forgovernmental
responsibilities inthese areas willthenneedtobeconsidered carefully.
IntheWTO, ourimmediate priority thisyearisasuccessful conclusion inDecember tothe
global financial services negotiations. Financial liberalization andthecreation ofastrong andstable
global financial system arereally twosidesofthesame coin. Liberalization invites investment, which
means greater access tocapital, toknow-how, andtoaninteractive global financial network.
Commitments toliberalize financial services under theGATS willnotinanywaycompromise the
ability ofWTO members topursue sound macroeconomic andregulatory policies. Onthecontrary,
commitments toliberalize require theadoption ofsound macroeconomic andregulatory policies -the
sinequanonofahealthy financial sector. Clearly wecan'tdoeverything atonce. Andmany countries
areonlybeginningtheirprocessofdomesticreform.Buttradeliberalization,withforwardcommitments,
evenifincertain casesthesecommitments willbephased in,canhelptieinabroader process ofreform,
andgivethatprocess acredibility thatisessential tosuccess andstability.
There isanother point tobearinmind aswebegin todefine aliberalizing agenda forthenext
century. While recognizing thegreatpotential forborderless trade, wemustnotforget themany areas
ofinternational trade where borders arealltooreal-likeagriculture, textiles, orindustrial goods -
andthemany countries which depend onmoreopentradeinthesesectors fortheireconomic well-being.
Unless wecanmove forward inawaywhich addresses long-established concerns aswellasnewones,
developing countries aswellasdeveloped, weriskafragmentation oftheglobal economy, andafurther
widening thegapbetween countries "plugged-in" toglobalization andthose leftonthemargins.
Integrating Emerging Markets -Opportunities andChallenges. Thesecond keyelement in
theWTO 'sagenda isexpanding themembership. Theborderless economy isnotjustdeepening our
relations -itisbroadening them aswell. With intensifying tiestofast-emerging countries inAsia,
LatinAmericaandnowAfricacomeenormousopportunities,butalsoenormouschallengesofintegration,
adjustment, andstability. Your conference document rightly argues thatthefuture growth ofChina,
India, orMercosur willhinge on"maintaining economic andpolitical stability andcontinuing thereform
process". Allofthese countries facemajor challenges ofeconomic andsocial adjustment. China 's
modernizationalonewillrequireimportsofequipmentandtechnologyofaboutUS$100billionannually,
andinfrastructureexpendituresduringthelatterhalfofthisdecadecouldamounttoaboutUS$250billion.
ForChina andfortheother 27applicants, WTO accession isakeyelement inthedomestic reform
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process -providing security ofaccess toworld markets, binding dispute settlement, andaseatatthe
tableaswecontinue writing thetrade rules ofthe21stcentury.
Helping Those ontheMargins oftheGlobal Economy. There isanother important dimension
touniversality. Theneedtoensure thateveryone isincluded inthenewinformation-driven economy -
notonlytoprevent thepoorest frombecoming more marginalized, butalsotohelpallofustobenefit
from theopportunities which technological andeconomic integration presents. Today 'sshiftfrom
industrial production toknowledge production requires newer -andfarmore sophisticated -skills than
lastcentury 'smigration from thefarm totheshop floor. Sogovernments alsoneedtofindnew
approachestothedevelopmentchallengewhichextendbeyondinvestmentsinindustryandinfrastructure,
toinvestments inpeople.
Nextmonth theWTO isholding aHighLevel Meeting withUNCTAD, theITC,andthemajor
multilateral financial institutions todevelop anewintegrated approach totheproblem ofmarginalization
oftheleast-developed countries. Oneobjective -which theWTO iswellonthewaytorealizing -
istousenewtechnologies much more extensively toextend thereach andeffectiveness oftechnical
assistance andinformation. Thebroader objective istointegrate ourpolicies andharness ourefforts -
linking technical assistance withcapacity building andmarket access todesign amutually reinforcing
strategy fordevelopment.
V
There isawindow ofopportunity, asweapproach the50thanniversary ofthemultilateral
system, tobeascreative inbuilding thisincreasingly borderless, global economy asourforefathers
wereahalfacentury agoinbuilding thepostwar international system. "Inventing thefuture" really
demands nothing less. Itwould bewrong toundervalue themany competitive andstructural problems
ofthepresent world economy: Theyneedtobeaddressed inacooperative waybynational governments
andbyinternational institutions.
Butitwouldbeequallywrongtoignorethat,ifpresenttrendscontinue,wehavetherealpotential
todouble world trade within adecade -andtodouble theworld 'soutput andresources within two,
withthegrowth rateofdeveloping countries double thatofadvanced countries. Wehavethepotential
tocreate equality ofaccess toeducation andinformation -especially forthedeveloping world -which
willinturncreate equality ofopportunity. Andbehind allthis,wehavethepotential toovercome
thebarriers, notjustofgeography, butalsoofpolitics, wealth andknowledge thatfortoolonghave
separated ourdifferent worlds. Never before hastherebeensuchacoincidence ofmajor opportunities,
where themarket economy, inallitsvariations, dominates theprogress oftheentire global economy.
Never before hasageneration heldgreater power tocreate abetter world.
Butwithgreat power toshape thefuture, alsocomes great responsibility. Welackaclear
messageaboutthegreatopportunitiesofourchangingtime-whileourprevailingmessageistoonarrowly
focused onthechallenges. Wehavetoreverse thistrend. IhopethattheHigh-Level celebration of
the50thanniversary ofthemultilateral trading system inGeneva nextMaywillgiveusthisopportunity.
Thealternative toallofthisisaworld divided. Notinternational cooperation based onrules, but
international anarchy based onpower. Notinventing thefuture, butreturning tothepast, withits
conflicts, itsdivisions, anditstragedies. Thepathwechoose willdepend onourvision, butalsoour
wisdom inthetimeahead.
Ourmoment inhistory isnotunlike themoment seized byColumbus halfamillennium ago.
Justastheconquest oftheoceans inthe17thcentury began aperiod ofrapid development inEurope
andtheNewWorld, Ibelieve ourlatest conquest ofgeography could launch anequally dynamic period
ofdevelopment fortheworld. Buttodiscover thisnewworld, wewillhavetofindnewwaystoharness
ourcollective energies -asvisionary andasadventurous asthose intrepid explorers whoopened up
thetrade routes ofthepast.
END