Remarks by Hong Kong Member Elsie Leung
Singapore Member Jannie Tay
Dallas Member Karyl Innis
Hong Kong Member Paula DeLisle
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WITHIN AND OUTSIDE BORDERS:
THE IMPACT OF THE WTO
REMARKS BY
THE HONORABLE BARBARA HACKMAN FRANKLIN
FORMER U.S. SECRETARY OF COMMERCE and
PRESIDENT AND CEO,
BARBARA FRANKLIN ENTERPRISES
(as prepared for delivery)
Beijing, China -- July 3, 2002
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It is a great pleasure to be with you. I hope this seminar, sponsored by two important groups of women, the All-China Women’s Federation and the International Women’s Forum, is the first of many joint endeavors toward the building of a fruitful relationship.
I always enjoy talking about our subject this morning: "The Impact of the WTO." The reason is simple: I am a free trader and a firm believer that the expansion of trade and economic growth go hand in hand. The WTO is the only international organization committed to the objective of expanding trade and providing rules for trading countries to live by. The WTO is worthy of our support.
Background – How the WTO Came into Being
First, a bit of background. Commercial activity is as old as civilization itself. It began as barter, advanced to using money to buy things, and then to the world of today where orders are placed and paid for electronically all around the globe.
There was one period -- during the first half of the 20th century -- when tariff protections were in force in a variety of countries. Trade suffered. So did economic growth, causing the Great Depression. That was also one of the causes of the military aggression that ensued, culminating in World War II. After the war, the nations of the world reacted. They wanted to create economic stability, prosperity, and peace. They understood that trade barriers had helped to create the earlier unsettling world conditions. So in 1948 they created a provisional agreement – not a permanent structure -- on tariffs and trade rules, the General Agreement on Tariffs and Trade (GATT). There were at the time fewer than 50 countries in the world. Twenty-three of them were signatories to the GATT agreement and were called "contracting parties."
The founders were far sighted. The provisional GATT created the set of rules that governed international trade for the next 47 years. The original document established several principles that continue to be applied today.
The first was the most-favored-nation principle. It states that any advantage given by a contracting party to a product of another country must be extended to a like product from any other contracting party. What that means in practical terms is this: if country A lowered its tariff on certain machinery to country B, it must lower its tariff on the same machinery to every other country which was a contracting party to the GATT. Fairness was the aim.
A second rule aimed at fairness was national treatment. This stated that countries treat equally imports and domestic goods.
A third principle was the open and fair application of any trade barriers. Tariffs were at that time the most common and visible trade barrier. Through negotiation, a maximum level for tariffs was agreed to by all countries. Tariffs were not to be increased by any of the parties above that level. Tariffs could be lower, but not higher.
Finally, the GATT also included a forum and process for resolving trade disputes among countries.
One of the GATT’s key objectives was to lower tariffs, and the contracting parties met periodically do this. The early negotiating rounds dealt with tariffs but expanded into the so-called non-tariff barriers, such as subsidies, standards, and customs rules. The last round, the Uruguay Round, lasted from 1986 to 1994, and was the most far-reaching set of global negotiations ever held. In addition to reducing barriers to trade in goods, for the first time it covered trade in services and intellectual property rights and agreed to future negotiations on agriculture. Agriculture has for years been a difficult area because of the considerable trade-distorting subsidies that many countries give to their farmers. They are often small farmers who collectively have great political clout, so change is not easy.
Also on the Uruguay Round agenda was reform of the GATT process which had become unwieldy as more countries had joined. Out of this discussion came the World Trade Organization (WTO), replacing the GATT. At long last in full recognition of the key role of trade in our interconnected global economy, the WTO was created as a permanent structure, not a provisional one like GATT was. It would have "members" and not "contracting parties". The WTO went into effect on January 1, 1995. It covers about 95% of world trade, has today 144 member countries with 28 more in the queue to join.
The WTO’s top official is the Director-General, currently Mike Moore of New Zealand. There are about 500 staff members and a budget of about $80 million. Countries contribute according to their share of world trade.
How the WTO Works
The highest-level body in the WTO is the Ministerial Conference, composed of the trade minister from each member country. Its job is to assess current progress and plan agendas for the future. It must meet at least every two years. Since the WTO came into being, there have been four Ministerial Conferences, the most recent was held in Doha, Qatar, last November.
Day-to-day activities of the WTO are overseen by the General Council, which consists of a representative from each country. They meet once a month in Geneva. The General Council meets in two unique capacities, both as a result of the Uruguay Round. One is the Trade Policy Review Mechanism (TPRM). This activity monitors the national trade policies of member countries. The four countries with the largest share of world trade are reviewed every 2 years, the next 16 are reviewed every 4 years, and the others every 6 years. Least-developed countries are reviewed less frequently. The objective is to provide public information about a country’s policies – whether they are market opening or market restrictive. The intention is to bring peer pressure on countries to push for more market opening.
The second unique aspect of the General Council’s work is as the Dispute Settlement Body (DSB). In the old GATT process, a country could block the outcome of a dispute panel and simply ignore the result. The Uruguay Round greatly strengthened this process, making its steps clearer, more automatic and faster. The first step in the process is consultation between the governments involved. If no solution results, the aggrieved country can ask for a dispute panel. The panel hears the case and reports its decision back to the Dispute Settlement Body. If that body upholds the complaint, a binding report is issued and then the offending country is expected to change its trade-distorting practice or negotiate an agreeable solution. The next step is implementation. If all else fails, the next step is retaliation. The hope is that disputes are settled before one country decides that the only way to recoup the damage it has suffered is to retaliate against the other country.
More disputes are being settled now through the process. Since WTO came into being a total of 239 cases have been registered, resulting in 53 adopted rulings and 57 reported settlements so far. That is far more than were registered and settled in all the years of the GATT.
Governance Issues for the WTO
There are some challenges ahead for the WTO.
First, the WTO is run by consensus. No formal votes are taken. It is not easy to run a large organization by consensus. However, I have looked at other multilateral organizations, such as the UN and the IMF, and can find no better model. Therefore, it is in the interest of all countries to make the WTO work as effectively as possible.
Another dilemma arises in the dispute settlement process. What happens when a major trading country refuses to abide by the outcome of a dispute settlement panel? In that case, retaliation can be the next remedy. But retaliation does not always work either. For example, the EU has put up with $128 million in retaliatory trade sanctions since July 1999, rather than change its prohibition against US beef produced with hormones. The WTO walks a fine line between enforcing the rules of the international trading system and intruding on a country’s sovereignty. But, we should remember that no international organization could take away any country’s sovereignty because membership is by choice, not by fiat.
Finally, WTO must also deal with the fears of some that they will be left behind and that trade is creating a world of "haves" and "have-nots". These fears are very real, as we have seen in the anti-globalization protests around the world, notably at the Seattle WTO Ministerial in 1999. The good news is that things are happening. The developed countries are joining forces to help the less developed countries become part of the world economic community. The latest example occurred last week in Canada, when the G-8 summit issued a communiqué promising assistance.
China welcomed into the WTO
China’s acceded to WTO membership in December 2001. China’s entry, as the fastest growing large economy in the world, is most welcome. We appreciate the extensive promises China has made to increase market access and lower barriers to trade. We admire the courage and the vision of China’s leadership in making these commitments.
Now the challenge for China is to make good on these accession agreement commitments. I know about the diligent efforts underway to bring laws and regulations into compliance and the work of the State Council to educate people all over the country.
It is not easy to do some of these things for the first time. We in the U.S. will continue to do whatever we can to help. There is technical assistance. There are numerous efforts at "capacity building". For example, teams of lawyers, at China’s request, are coming to assist with the crafting of regulations and the installing of a commercial code. There are various other efforts, by the US Government and private sector groups, such as the US-China Business Council and the National Committee on US-China Relations – I am a director of both -- to be of assistance. China’s progress in the transition will receive more scrutiny in the WTO and elsewhere than any other such agreement ever has. This may seem unfair to our Chinese friends, but remember that this happens because of China’s size, importance, and potential.
On the Chinese side, I’m sure there are those who feel threatened by the WTO accession and concerned about the increasing competition for domestic companies. But joining WTO will help to solidify China’s reform efforts, and China can now participate in setting the rules of the game. After the accession agreement has been fulfilled and the transition is completed, China’s economy will be stronger. Its businesses will be more competitive and its citizens will be more prosperous. There will surely be more opportunities for women. China will be more fully recognized as the emerging responsible power that I believe China wants to be.
The US Economy
We in the US are proud of our heritage – our free market economy and our democracy, which reinforce each other. We have the largest open market in the world. We believe freer trade gives US consumers more choices and US businesses more opportunities. US consumers buy a lot of products from other countries – more than $100 billion worth from China last year alone. Our businesses want freer trade to enhance exports and investment opportunities. All of this boosts economic growth.
Having stated the US commitment to freer trade, I must admit that we are not perfect. Recently, the US has been criticized and WTO dispute panels called for because of the decision to raise tariffs on steel products for 3 years. This was the result of the sagging economy and pressure from steel companies, which need to remedy their competitive problems. They have that opportunity, but just last week, President Bush told them that if they didn’t work to fix their problems, the tariffs would be lifted.
I do not believe this steel decision is a harbinger of things to come or that the US is backtracking on its basic philosophy of freeing up trade.
Nor do I believe that the recently enacted farm bill, which provides some supports, should be viewed as a change in philosophy. This, too, came about because of the sagging US economy and the concerns of farmers. Despite this new law, US subsidies to agriculture are still the lowest in the world.
I also want to address the recent corporate scandals – Enron, Arthur Andersen, and World Com. I believe that most U.S. companies, their managements, their boards of directors and their auditors are honest. I do not believe that accounting irregularities are widespread. However, these events – together with the 9-11 terrorist attack – have damaged confidence. They have pointed out that there are things about our system of governance that must be corrected. I believe they will be. Last Wednesday evening at the Economic Club of New York, Securities and Exchange Commission (SEC) Chairman Harvey Pitt was the featured speaker. It was I who had invited him a couple months ago, having no way of knowing that on this particular day WorldCom’s accounting irregularity would be exposed. Chairman Pitt made a very forceful speech. He announced that the SEC had filed a fraud suit against World Com, and he enumerated a variety of initiatives his agency had or will undertake to rebuild trust in our system. He said corporate leaders who misuse the shareholders and the public’s trust should be punished. President Bush has made similar strong comments, the most recent in his radio address on Saturday, and so have Congressional and business leaders.
My message is this: Changes in U.S. governance will be made swiftly. Confidence will recover and so will our capital markets. I also believe the US economy is quite sound. Strong first quarter GDP growth of 6.1% will not be repeated in the second quarter, but growth is estimated to be about 2.5%. So it is clear that our economy is growing again. The U.S. government is working hard to ensure that another 9-11 attack will not occur and we Americans are our usual ebullient, entrepreneurial selves, though less innocent and a bit wiser.
The Doha Agenda
Now, we look ahead in the trade arena. The Doha Ministerial last November took place at a crucial time. Economic growth was weakening, especially in the U.S., E.U., and Japan. The 9-11 terrorist attack was still fresh. Had there not been an agreement about a new round of negotiations, it would have further dampened confidence and global growth and may have weakened the coalition battling against terrorism. In other words, a repeat of what happened in Seattle in 1999 would have carried great risks.
Fortunately, the Doha Ministerial was successful and a new round to lower trade barriers was launched. Three major documents were produced. The first was an agreement to negotiate. It calls for negotiations in the areas of agriculture, services, and industrial goods. Also included are newer issues, such as investment and competition (antitrust) policy. The negotiating on the newer issues will wait until after the next Ministerial meeting to be held in Mexico in the fall of 2003.
The other two declarations were major successes for developing countries. Under a new declaration regarding the current WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), developing countries will be able to interpret and implement this agreement according to their needs to protect the public health. That gives them a flexibility they feel they need and did not have before.
The other document – about "implementation" – contains almost 50 actions to assist developing country members. This is ensures that no country is left behind.
Another important point is that countries agreed that the Doha negotiations would be an all or nothing proposition. That means that significant progress has to be made on all key issues or nothing will happen. Negotiations are to be completed by January 1, 2005.
So let us watch the progress and hope for a successful conclusion to the Round. It will give a boost to the global economy.
Conclusion
Over the past few centuries, trade and economic growth have gone hand in hand, with trade expansion leading the way. And, as we have also noted, when trade is depressed, so is economic growth. Depressed economic growth can spawn unrest, which, in turn, can have dire consequences.
I believe most nations of the world desire both prosperity and peace. In order to achieve these twin objectives, we must expand global trade. There is no other choice. There are no other options. But we must do so while addressing the concerns of those who fear being left behind. We are all inextricably linked. World economies are more integrated than ever before. The WTO is the one international organization committed to the expansion of trade and the establishment of rules for its members to live by. It would be my hope that one day in this century every country on the planet would attain WTO membership and that all would be committed to furthering prosperity and peace. It is also my hope that the leadership of women will play a key role in bringing this about.
I will close with a quote from Benjamin Franklin. He is a hero of mine and one of the founders of the United States. He was an inventor, a businessman, a diplomat and a wise person. And, of course, he and I have the same name. His quote is carved into the cornice near the top of the Department of Commerce building in Washington. "Trade, he said, "never ruined any nation." Thank you.
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