Pascal Lamy, World Trade Organization
February 17, 2006
The Institute hosted a special luncheon meeting for Pascal Lamy, Director General of the World Trade Organization (WTO), during his visit to Washington to promote renewed progress in trade negotiations. He addressed the outlook for the Doha Round.
Pascal Lamy has had a very distinguished record of public service in the government of his native France, in a series of multilateral institutions, and in the private sector. Prior to becoming Director General of the WTO last September, he was Commissioner for Trade at the European Commission from 1999 to 2004 and its chief negotiator in the early stages of the Doha process. He had previously served as chief of staff for Jacque Delors while he was president of the European Commission from 1985 to 1994, and from 1994 to 1999 as part of the team that rescued Credit Lyonnais and subsequently as its CEO until the bank's privatization.
It is a pleasure to be back in the United States to share with you some thoughts on the meanders of the Doha Development Agenda (DDA) negotiations. In coming to Washington, I could not help but remember that the multilateral trading system, which has contributed so much to the tremendous expansion of the global economy since its inception in the late 1940s, has its roots here. It was here that the people of the United States gave the US Congress the authority to regulate commerce with foreign nations. It is precisely an ambitious treaty to regulate multilateral trade that brings us here today. It is interesting to note that this same authority is determining the calendar of our negotiations, which will need to conclude by the end of 2006 to allow the US administration to act within the current US fast-track authority.
American trade policymakers' belief that a rules-based, nondiscriminatory multilateral trading system is indispensable for sustainable growth and development, prosperity, peace, and global security has stood the test of time. In the last two decades, growth in world trade has consistently outpaced growth in world production, confirming the interdependence of countries and the growing importance of trade to countries such as China, European countries, Japan, and even the United States. Today the United States accounts for around a quarter of world trade and is a world leader in trade in goods and services. It therefore has a lot at stake in a healthy multilateral trading system. The multilateral trading system could not have achieved these impressive results without American leadership. The system is at its best when America engages and leads. I am encouraged by the commitment of the United States to continue its leadership role at this critical juncture.
Everywhere I go I know I have to make my case and explain to politicians why countries should invest political capital and resources in the multilateral trading system. The World Trade Organization (WTO) has become a scapegoat for many; in industrial countries, it is blamed for the stagnation of wages and the loss of jobs to developing countries, while in developing countries, it is accused of promoting liberalization for the benefit of multinational companies. If either assertion were true, then the WTO would have very good friends in either the developed or the developing world. Yet it appears to not be the case. As we say in trade negotiations, whenever an agreement manages to draw criticism from all countries, it means that it is good. I am certain this applies to the WTO.
The United States has a lot at stake in the WTO. We all do. Our organization provides a clear, transparent, and predictable environment in which trade can flourish. It provides perhaps the most modern system for resolving international disputes. No longer does the law of the jungle prevail in international commercial disputes. For a country such as the United States, with such a huge economic interdependence with the rest of the world, stability is crucial.
Countries have a unique opportunity to adapt the rules that govern the multilateral trading system to the realities of the 21st century. This is a crucial reason why we must bring the DDA to a successful conclusion.
But where are we today? Are we on the verge of a collapse of the multilateral trading system as many academics have written recently? Are we witnessing the end of an era and taking a sharp bend into bilateralism? Are we moving closer to a “cheap round”? Or are we just witnessing the normal positioning that takes place prior to the last lap in the race?
Many of you are perplexed by these questions, and we know they are the subject of many bets. If I had to, I would go for a triple bet:
So, is it "Sweet Dreams" or "Slip Slidin’Away"? The only way we can be sure it is the former is if we collectively "Walk the Line."
Since the beginning of the year, Geneva has again been working full speed ahead. Building on the modest success in Hong Kong, members are discussing with each other again, and for the first time they are testing numbers, comparing notes, exploring hypotheses, and drafting language—in sum, working to narrow the gaps that still exist in many areas and in particular on agriculture and industrial products.
Let me also tell you the widest shared secret in Geneva: All key players know they will have to move. The European Union knows it will have to move on agriculture market access. The United States knows it will have to move on agriculture domestic support. Emerging-market countries like Brazil, India, and South Africa know they will have to move on industrial tariffs and services. The good thing is that all of them have said they will move "in concert." All this makes me believe we could soon see the shape of a final deal.
Let me start with agriculture. Although it accounts for less than 10 percent of world trade, it holds the key to unblocking and revitalizing the negotiations and ensuring substantive progress across the board. Why? Because 70 percent of the world's poor live in rural areas and because when negotiators launched these talks they agreed to frontload development. This is not easy, of course, not least because there are two schools of thought at the WTO on how the agriculture sector should be treated. Some countries believe that the agricultural sector is no different from other sectors of world trade and should be subjected to disciplines applied in these sectors, including the prohibition of subsidies to farmers. Others believe that agriculture is a distinct sector that governments should support for a variety of reasons, including preserving family farming or the environment. The European Union and the United States find themselves in the second category. But even in this second group, civil society and taxpayers are questioning policies that may preserve agriculture protection at the expense of other countries, in particular poor developing countries. Also, public opinion seems to favor support for the preservation of rural life or the environment, or support for small farmers with less comparative advantages, rather than lavish government spending that benefits a handful of large farmers or farming companies. In short, what the public points to—perhaps unknowingly—is a good, nontrade-distorting farm policy.
This issue is at the heart of the discussions that I hear taking place in the United States around the new farm bill. I am certainly not in a position to provide any advice on how the United States should shape the new farm bill. The United States should discuss this issue for its own sake. But it is understandable that US farmers are demanding stability, security, and predictability for their activities and for the government subsidies they receive, which have been subject to a number of WTO disputes lately, including on cotton, the ruling on which has yet to be fully implemented. It is therefore clear that a new farm bill that is WTO watertight and passes the test of WTO consistency will bring the necessary stability for American farmers and ranchers. A stable farm bill that is WTO consistent is surely in the interest of the United States. Given the experience and shrewdness of US negotiators, I would fully expect them to try to trade this against concessions in this or other areas in the WTO.
One example is domestic subsidies, where the United States has already secured in the negotiation that the reduction in trade-distorting subsidies will be bigger for the European Union than for the United States, thus providing for a more level playing field between the two. Agreement was also reached on phasing out all forms of export subsidies by 2013, with a substantial part of such reduction to be made by 2010. On market access, all members reaffirmed the objective of achieving substantial cuts in tariffs with specific protection for fragile developing countries.
We can now build on the elements to achieve an ambitious result in agriculture, but the road ahead is still full of potholes. Members' positions on three key issues still diverge. On market access, the United States, G-20, and the Cairns Group would like to see substantial results. They regard the European Union's offer to reduce tariffs by between 35 and 60 percent as inadequate. They want developed countries to be able to designate only a limited percent of their tariff lines as sensitive products, as opposed to the 8 percent suggested by the European Union. It is clear that the European Union and the G-10 are on the frontline on this issue and that they will have to move. On domestic subsidies, while welcoming the proposal put on the table by the United States in October 2005, many members have noted that its content on the blue box and de minimis support are timid and need to be improved. These members are concerned that the United States may be able to continue using trade-distorting subsidies, such as countercyclical payments—which have already been declared inconsistent with WTO rules in the cotton case—by simply shifting them to a different "box." It is also therefore clear that if the negotiations are to progress, the United States will have to move on domestic support, including on cotton, where a number of African countries have taken the lead. On export competition, the focus is on food aid now that export subsidies are on their way out. The United States has reservations against the European Union's proposal that food aid should be in grant form only on state trading enterprises and on export credits.
With determination and purpose, it should be possible to resolve these differences and pave the way for the conclusion of the DDA negotiations by the end of 2006. Needless to say, a substantial result in agriculture would benefit not only the United States and the European Union but also many other countries, particularly developing countries, which can in turn use their increased export earnings to import goods and services needed in their development process from the United States and other developed countries.
Another key area in these talks is slashing tariffs on industrial products (nonagricultural market access, or NAMA in our jargon), which account for around 90 percent of world merchandise trade. For the first time, we have agreed to reduce industrial tariffs according to a formula applying greater cuts to higher tariffs, which all specialists will tell you is a much more powerful technology to reduce tariffs than averages or request and offer, which were used in previous rounds. We have also agreed that the levels of ambition in the agriculture and NAMA negotiations would be parallel.
Being the world number two exporter, the United States has very high ambitions in NAMA negotiations, including substantially improved market access in large emerging-market countries. It wants increased market access for products in which US exporters have interest, particularly in the 23 leading markets identified by the National Association of Manufacturers.
The United States stands to gain from an ambitious result in NAMA negotiations. While the markets in developed countries have matured to some extent, those in developing countries, such as China, India, and Brazil, are expanding very fast. Take US exports to China, which have grown tremendously since 2000, increasing by 28 percent in 2003 and 22 percent in 2004. Given the relatively high level of tariffs of developing countries, a substantial reduction of their tariffs should enable American companies to increase their exports to these countries.
We now need to agree on numbers for cuts and for the limited exceptions that developing countries would be able to make. Discussions among members to test numbers and run simulations are necessary to find a common landing strip.
As the largest exporter of services in the world, the United States stands to reap enormous benefits if WTO members offer substantial access to their markets. In Hong Kong we opened the way for plurilateral negotiations among members to improve the quality of offers and ensure new market access opportunities for foreign service providers. We also reaffirmed the right of governments to monitor and regulate foreign service providers in order to ensure that they operate in accordance with the policy objectives of a country.
A number of developing countries have conditioned access to their markets on the degree of market opening for their agriculture products and also the improvement by developed countries of their offers under mode 4—the temporary movement of professionals to deliver services abroad. I stress temporary because this issue is often, and mistakenly, mixed with immigration, including in this country.
I am sure that the United States would continue to exercise leadership in the services negotiations and get countries to make significant offers. Commitments under the General Agreement on Trade in Services (GATS) could help countries attract foreign direct investment into certain critical sectors of their economies, including telecommunications, financial services, and tourism.
With respect to the negotiations on rules, to which I know the United States attaches great importance, a detailed work program has already been established. The United States is keen on promoting greater transparency and due process in antidumping investigations. I also know the United States is against tightening the rules in the antidumping agreement too much, believing that changes should not unduly restrict the right of countries to respond to unfair trading practices. While deep political sensitivities surround this issue, I believe that in the medium to long term, it would be in the interest of all countries to accept disciplines that ensure antidumping duties are not abused or unduly imposed. Many countries are increasingly making use of trade remedy instruments, and it is important for the United States to ensure that its market access is not negated through abuse of such instruments. A fact often overlooked is that the United States has become one of the main targets of antidumping duties in markets where it exports. Since the entry into force of the WTO, there have been more than 150 antidumping investigations against US products and more than 80 definitive measures adopted against US exports. It is clear that the United States also has an offensive interest in this area. The United States has also been a leading and effective advocate of tighter disciplines on fisheries subsidies. It is important that this key environmental objective of the round advances over the coming weeks.
Finally, let's not forget that the Doha Round is a development round. I've said that repeatedly, but I've also stressed that the largest gains to developing countries will accrue from the market access negotiations in agriculture, industrial products, and services. At Hong Kong, the United States and other developed countries agreed to grant duty- and quota-free access to less developed countries' products falling under 97 percent of their tariff lines. It is important that we now work on defining the specific products. To further demonstrate their commitment to the development dimension, members also pledged to ensure a solid Aid for Trade package that would assist developing countries to build supply-side capacity, enabling them to better benefit from the multilateral trading system.
Much has to be done if members are to conclude the Doha Round by the end of this year. The workload is formidable but doable, provided all members are ready to apply the necessary political energy. The challenge is both technical and political. It is about leadership, compromises, and countries recognizing their common interest in success and the collective costs of failure. As in other rounds, US leadership is indispensable.
All countries stand to gain from a strengthened multilateral trading system—both developed and developing countries, since trade is not a zero-sum game. The responsibility to make this round a success is a shared responsibility.
It may sound like a lot is requested from the United States in this round. But the United States stands to gain a lot from it, too. The United States is the world's richest economy and the principal architect of the multilateral trading system. It cannot abandon its own creation. Power brings responsibilities but also huge benefits for the US economy. Developing countries are growing rapidly, and their integration into the world economy would create new market opportunities for American companies and create high-paying jobs in the United States, which ensure its continued prosperity. The WTO needs US leadership and active participation to strengthen the multilateral trading system for the benefit of all countries.
This is why, following the conversations I have had in the last two days, most of which have been on Capitol Hill, I am confident that your representatives and negotiators are ready to stay the course.