PRESS/15
EMBARGO:NOTFORPUBLICATIONBEFORE
1300 HOURS GMT THURSDAY 22JUNE 199522June1995
MEMBERS OFTHE WTO MULTILATERAL TRADING SYSTEM
MUST RESPECT ITAND USE ITPROPERLY -
SAYS DIRECTOR-GENERAL RUGGIERO
Global security depends onatrulyglobal trading system.
Themultilateral trading system faces many challenges anditisvitalthatthenewly-created
World Trade Organization continues toreceive theactive commitment ofthose governments which
didsomuch tobring itintobeing, saidMrRenato Ruggiero, Director-General oftheWTO, today
(22June) attheHerbert Quandt Foundation inBonn, Germany.
Speaking onthetheme "Trade Liberalization andtheRuleofLawinanInterdependent World",
MrRuggiero highlighted some ofthesignificant quantitative andqualitative benefits oftheUruguay
Round results, butstressed thatthefullandeffective implementation oftheagreements wasthefirst
testofthecommitments ofthemember governments. Hepointed totwoimmediate andcrucial priorities
confronting themembers: theircommitments tothenewrules andprocedures, especially those for
settling disputes, since theyarethelegalunderpinning ofthewhole multilateral trading system; and
thefinancial services negotiations where failure could leadtoaweakening oftheprinciple ofnon-
discrimination -thekeystone ofthewhole system.
"Theburden isonthemembers ofthesystem touseitproperly andtorespect it,"heemphasized.
"What isatstake isfirstandforemost thecredibility ofthecommitments theythemselves haveentered
into."
Turning tothemore far-reaching perspective oftrade liberalization, MrRuggiero pointed to
thechallenge ofmaking theWTO atrulyglobal organization bybringing intothesystem newmembers,
including China andRussia. "This willbetherealtestofourcommitment toopentrade," hesaid.
"Thealternative ofkeeping these countries outside theglobal market andoutside themultilateral rules
isunthinkable inanyrational viewofthefuture. Itwould make theworld amuch more dangerous
place."
ThefulltextofMrRuggiero 'saddress isattached.
95-1680 MORE PRESS/15
Page2/3
TheChoice forOpenness:
Trade Liberalization andtheRule ofLaw
inanInterdependent World
Address by
Renato Ruggiero
Director-General, World Trade Organization
tothe
Herbert Quandt Foundation
Bonn
Thursday, June22,1995
Firstofallletmethank theHerbert Quandt Foundation andmygood friend Horst Teltschik
forinviting metotakepartinthismost interesting discussion.
Iwould liketostartbyenlarging, withyourpermission, thescope ofmyremarks beyond the
points setoutintheprogramme. Mybasic theme isthenecessity ofmaintaining andextending open
markets intheincreasingly integrated global economy oftoday. Itisanecessity which isatonce
economic andpolitical, anditisthekeytomost ofourhopes foraprosperous andstable future.
Germany hasaparticular rôletoplayininsuring thatthisnecessity isrecognized andacted on.Within
Europe, Germany hasconsistently beenaforce forintegration andtheremoval ofbarriers, andithas
helped significantly tokeepEurope looking outbeyond itsborders inaspirit ofengagement withthe
world. Thisforce isnowmore thaneverneeded.
Themultilateral system which istheguarantee ofanopen trading environment faces many
challenges, anditisvitalthatthenewly-created WTO continue toreceive theactive commitment of
those trading countries -likeGermany -which didsomuch tobring itintobeing.
Theessential back-drop towhatIwanttosayistheglobal market. Thisisnotsome economist 's
abstraction butareality thatweliveinevery day.Youareliving theglobal economy fromtheminute
youarewoken upbyyourJapanese-brand radio alarm made inMalaysia. OnwithyourItalian suit
made from Australian wool anddrink acupofColombian coffee while watching American news on
television; thengetintoyour German car(assembled inSlovakia) tocome toyour office ina
multinational firmwhose headquarters were designed byaChinese architect. There, your office
equipment comes fromKorea, Taiwan, theUnited States, Europe -orsometimes allofthesecombined
intheonemachine. Youmight havelunch inaMexican restaurant runbyMoroccans, andgoback
foratele-conference meeting thatlinks uphalf-a-dozen national telecommunication systems.
Idon'tthink Ineedtotakeyouallthewaybackthrough theFinnish sauna toyourJapanese
futon bed.Thepointisclear. Anditbecomes clearer every day,asinterdependence between economies
increases.
Much trade nolonger fitsthetextbook model, inwhich goods areproduced byonecountry
andthentransported tothebuying country. Many firms make components inonecountry andassemble
finished wares inanother. UNCTAD hascalculated thatone-third ofalltrade consists ofintra-firm
MOREPRESS/15
Page4
transactions. Moreover, thebestwayforfirms toenterforeign markets isoftentosetupshopinthem.
Inmany service industries itishardtoselltolocals anyother way.
Theintegration which isthedriving forceoftheglobal economy takesmany forms -integration
ofcompanies, ofproducts, ofservices andproduction processes -butitsmostprofoundly important
aspect istheintegration ofdeveloping countries intotheeconomic mainstream .
Developing countries asagroup haveincreased theirshare ofworld trade enormously inrecent
years. They nowaccount foranestimated 25percentofworld trade, compared with19percenttwo
decades agoand21percentonedecade ago.Akeyfeature hasbeentheincreasing share ofdeveloping
countries inworld tradeinmanufactured products; itwas20percentin1993, double theleveladecade
ago.
Attheindividual country level, themostdynamic 15trading nations overtheperiod 1980-93
weredeveloping countries. Export andimport expansion hasgonehandinhandwithfaster economic
expansion. Among developing regions, economic growth hasbeenconsistently higher inAsia, where
realGDP growth hasaveraged more than8percentoverthelastthree years.
Over time, dynamic exporters arealsodynamic importers. Forexample, whereas in1980
China ranked 29thand21st, respectively, onthelistsoftheworld 'sleading merchandise exporters
andimporters, lastyearitwasthe11thlargest exporter andthe11thlargest importer.
Thefullparticipation ofdeveloping countries inthemultilateral trading system isessential
fortheirowneconomic growth andforthatoftheindustrial nations aswell. Thefactthatin1994,
Hong Kong, China, Singapore, Korea, Mexico, Malaysia, Thailand, Brazil andIndonesia wereamong
the25largest world exporters, andthatthese countries alsojoined thelistoftheworld 'stop25
importers, points outthestakes ofallcountries inthisprocess. World export-led growth willcome
above allfrom theemerging markets ofthefast-growing developing countries.
Thefactoftheglobal market confronts governments withanhistoric choice: torespond by
opening theireconomies andaccepting thechallenge ofinternational competition, or,assome people
appear towant, toretreat intonational orregional protectionism. Forme,and,Iamconfident, for
German industry too,thecorrect choice isclear: tooptforopenness andliberal trade régimes.
Short andlong-term prospects forpractically everything thatoursocieties value depend on
maintaining sustainable economic growth. Oneofthetrulyreliable means ofstimulating growth without
theriskofundesirable inflationary side-effects isincreasing trade. Thisiswhat theWorld Trade
Organization isallabout: ensuring better competitive conditions fortrade. Wemustremind ourselves
thatopentrade isnotanendinitselfbutameans toanend: creating anenvironment thatwillpermit
amore efficient allocation ofresources, more rapid growth, andrising standards ofliving.
Recent international experience confirms thattrade hasconsistently beentheleading edgeof
theworld economy, moderating theglobal slowdown after1989, andnowboosting recovery. For
example, world trade expanded strongly in1994 -thevolume ofworld merchandise exports grew by
9percent-growing more thantwice asfastasin1993. Thepaceofglobal output growth wasalso
stronger -3.5percent-butremained wellbelow thegrowth oftrade. Higher tradegrowth thanoutput
growth isareflection ofthecontinuing integration ofnational economies. Countries arerelying more
andmore onexternal markets assources ofeconomic growth; thedomestic market isnolonger
sufficient.
MOREPRESS/15
Page5
Trade promotes growth through many channels: developing increased specialization; allowing
therealization ofcomparative advantage; increasing thediffusion ofinternational knowledge; and
encouraging increased efficiency inthedomestic economy asaresult ofinternational competition.
Trade openness drives growth bothdirectly, through itsimpact onresource allocation andefficiency,
andindirectly, byraising thereturns toinvestment. Thetrade liberalizing rules andcommitments
embodied intheWTO bring anewdynamism, through improved trading opportunities. They also
bring anewstability, through reinforcing theruleoflawininternational trade.
Allcountries intheworld, inparticular major exporters likeGermany -theworld 'ssecond
largest trading nation -gainmuch more from anopenandstable trading system thanaclosed one.
Astable international environment iscrucial toeconomic growth. Trade andinvestment depend very
much onclearmultilateral rulesthathelpensure thebusiness community afairenvironment fordoing
business.
Butthereisachallenge forgovernments toreflect upon. Competition intheemerging global
marketplace isbound tobeintense. Newentrants willchallenge established enterprises. More emphasis
willbeplaced onR&D, product innovation andcostcontrol, inturnboosting growth prospects.
Successfulenterpriseswillexpandemploymentandcareerdevelopmentopportunitiesfortheiremployees.
Butthere maywellbeenterprises without thecapacity toadapt. Their continued existence, already
precarious inthehome market, mayprove untenable inthelong-run inthefaceofexpanded competition
from abroad. These enterprises mayturntotheirgovernments forimport relief, subsidies orother
forms ofassistance.
Theresulting policy dilemma canbesimply stated: todelay adjustment, andperhaps reap
political benefits intheshort-run, ortofacilitate adjustment. Todelay adjustment opens thedoorto
protectionism,firstathome,thenabroad,progressivelychokingoffthepossibilityformutuallybeneficial
trade.
Tomake trade theengine ofglobal growth inthecoming decade, allsides must co-operate
inmaintaining themore openandsecure markets thatarethehard-won result oftheUruguay Round.
Thechallenge ofadjustment must beresponded towithpolicies aimed atfacilitating itrather than
preventing it.Andpriority should begiven tosustaining themomentum oftheworld economy over
thelongtermbycontinuing theprocess ofeconomic andtrade liberalization.
Onecaseinpoint istheEC-Japan agreement, orasitiscalled "consensus", onmotor vehicle
trade which istoexpire attheendof1999. Theexpressed aimofthisagreement wastofacilitate
structural adjustment ofECmanufacturers. Themultilateral commitments undertaken intheUruguay
Round, inparticular inthesafeguards area, inthepursuit offreertrade intheglobal economy, will
require opening uptointernational competition. There should benoillusion thatEurope cansealoff
thisimportant sector forever. Allrestrictions should gobytheendof1999. Under theWTO Safeguard
Agreement allgrey-area measures havetobephased outbythatdate.
Weshouldnotdeceiveourselves,however,-theexistingpressuresforprotectionismindeveloped
countries mayintensify asthetradebarrier reductions agreed intheUruguay Round areimplemented.
Insomecountries, therearestillvoices calling forprotectionism, aspartofageneralized attempt
tohidefromanewandchallenging world. Withhighlevels ofunemployment, appeals tokeepcheaper
foreign products offthesupermarket shelves andmake thetaxpayer helpexporters compete maysound
likeaseductively easywayout.Infact,theyareatrap. Resisting adjustment willimpoverish our
societies, rather thanlaythegrounds forcreation ofwell-paid newjobs. What isreally needed to
MOREPRESS/15
Page6
makehighlivingstandardsavailablebroadlythroughoutsocietyissteady,non-inflationaryrealeconomic
growth. Thatwillcome fromimproving productivity andcompeting openly foralarger share ofthe
global marketplace.
Protectionism isinsidious; itisaconstant threat totrade liberalization. Those infavour of
protectionism ascribe thewest'ssocial illstoopentradewithdeveloping, low-wage economies. Hence
theclamour forprotectionism grows louder when unemployment ishighandthepressures ofeconomic
adjustment aremost pronounced. Weneedconstant vigilance tocombat it.
Much oftheargument forprotectionism simply equates tointerest-group politics: itcomes
fromwell-organized groups thatfearthelossofanentrenched andoften privileged position andwant
protection, whatever theconsumer orthenational interest. Alltoooften intrade politics, producers
count more thanconsumers. Thebenefits ofatraderestriction areusually concentrated onarelatively
small, well-organized, andwell-informed group ofproducers, while itscostsareusually spread thinly
overalarge anddiffuse group ofconsumers. Asaresult, thebeneficiaries ofatrade restriction are
usually much more effective politically thanitsvictims.
Protectionist views alsofeedonmisinformation concerning theeffect oftrade liberalization
onemployment. Thefactspoint theother way. IntheG7countries, close to23million jobsare
supported bymerchandise exports, andmany more byexports ofservices, forwhich reliable figures
arenotavailable. InGermany, France, ItalyandtheUnited Kingdom, export-dependent jobsare
estimated ataround 7million. Governments maytrytopreserve some jobsinuncompetitive industries
byusing trade barriers, buttheywilldosoatthecostofjobsintheefficient export sectors. Studies
alsoindicate thattheannual costofprotecting ajobbyimport barriers istypically anywhere from
three toeight times theannual wage ofthatjob.
Intheend,itmust beseriously doubted whether efforts toprotect uncompetitive industries
andtheirjobscansucceed more thantemporarily. Experience suggests thatprotected industries fail
toadapt quickly enough andtheycome more andmore torelyoncostly protection. Alternatively,
countries should accept thattrade liberalization canstimulate inefficient industries tobecome more
competitive, andalsocreate jobsinmore efficient export industries.
Open trade helps tocreate jobs. Trade creates jobsintheexport sector and,viatheincome
gains, throughout theeconomy asawhole. Andjobsintheexport sector paymore onaverage than
jobsintheinefficient import-competing sector (17percentmore intheUnited States, according to
recent estimates), since onaverage theyarehigher-skill jobs.
Protection alsocosts jobsinunprotected industries, although wenever seethese joblosses
directly reported. Itisafallacy tobelieve thattheonlyeffects ofprotection arethevisible effects -
jobsapparently saved inprotected industries. Thejobslostinother industries arejustasreal.
Protection increases costs, reduces sales (because ittaxes consumers) andleads tofewer jobsin
unprotected industries.
More fundamentally, ifcountries limit their economic relations withworld exporters and
importers, theyarelimiting theirpossibilities togrow.
Trade isvitalforallcountries. Forexample, in1994, European Union merchandise exports
reached US$1,503 billion andimports US$1,525 billion. Around 42percentofthese exports went
tocountries outside theEU,andmore than40percentofthese imports came fromcountries outside
theEU. Over the1991-93 period, intra-EU exports declined by5percent, while exports toLatin
MOREPRESS/15
Page7
America, North America, Central andEastern Europe, andAsiarosebybetween 9and23percent.
There isthusnoroom fordoubt thattheemerging markets areveryimportant totheEuropean Union.
ForGermany, aswellasfortheEuropean Union andallcountries intheworld, bothexports
andimports areasource ofeconomic growth. Trade isnotazerosumgame.
Ithasindeed beenknown foralongtimethatprotection given tosome industries actually taxes
exporters. Butitisnotjustexporters thatpay. Wealldo.Protection means everyone losesincome.
Protection reduces ourincome because oflostopportunities. Thislossisinvisible; itdoesnotappear
inthenational accounts, andthatisoneofthereasons whyprotectionist arguments canbeseductive.
There arealsosome broader considerations thatargue decisively against denial oftheglobal
market. More andmoredeveloping countries andeconomies intransition haveopened theireconomies
orareintheprocess ofimplementing autonomous tradeliberalization measures. These countries have
realized thatopening theirtrade régimes wasintheirowninterest, andarenowwilling toparticipate
inaninternational market economy. Weshould facilitate andencourage theirfullparticipation inthe
multilateral trading system. Ifweclose ourmarkets totheirproducts, theriskisthattheprogress
painfully achieved sofarcanbeeroded. Thepolitical stability ofthese countries canalsobeputat
riskifwedonotletthem reapthebenefits ofincreased trade. Andeconomic growth iscrucial to
assisting theconsolidation ofstable political andeconomic structures oftheeconomies intransition,
including some ofGermany 'snearneighbours.
So,economic andpolitical considerations bothcombine toprove thattheonlyrational choice
istomaintain andincrease theopenness ofoureconomies. Thisisnotonlytheenlightened option -
itistheoption ofenlightened self-interest.
Thecaseforopenness intradeis,Ithinkunanswerable. Butletmebeveryclear: thisopenness
cannot mean theabsence ofrulesanddisciplines intrade. Onthecontrary, itneeds afirmframework
ofinternationally-accepted rulesanddisciplines inorder tosurvive; without suchaframework, openness
would degenerate intoanarchy. Open trade must betrade within theruleoflaw.
ThisiswhytheWTO andthesystem ofmultilateral trade rules itembodies andadministers
issovitally important totheworld. Thissystem istheonlybodyofagreed traderuleswhose coverage
approaches theglobal -andthemore economies become global, themore theyneedglobal rules. The
outstanding achievement oftheUruguay Round istohavesetup,intheWTO, theframework for
ensuring thattraderulesandtheireffectiveness cankeeppacewiththeevolution oftheworld economy.
Itisalready apparent thatafundamental shiftisoccurring intradepolicy fromthequantitative
tothequalitative. Astheefforts ofGATT negotiations overfiftyyears toreduce tariffs haveborne
fruit, andindustrial countries 'tariffs havedropped from anaverage ofover40percenttounder
4percent, other obstacles totrade havebecome more prominent.
Theneedtodevelop rules oninternational investment andcompetition policy forexample,
becomes more apparent themore business enlarges itsscope beyond national orregional frontiers.
Thesame point applies toimproving themultilateral harmonization, orthemutual recognition, of
standards. These areissues where themultilateral system needs tomake progress ifitistostayrelevant.
They areclearcandidates fordiscussion inthepreparation fortheWTO 'sfirstMinisterial Meeting,
which willbeheldinSingapore inDecember nextyear.
MOREPRESS/15
Page8
Before concluding myremarks, however, Iwanttofocus ontheimmediate priorities thatthe
WTO faces. Thewaytheyarehandled willhaveaprofound influence ontheshaping ofthenew
multilateral system andonitsfitness tomeetthechallenges oftheglobal economy.
Beyond thepurely economic gains from theUruguay Round Agreements, effective
implementationofthecommitmentstonewrulesandprocedures-especiallythoseondisputesettlement-
iscrucial. They arethelegalunderpinning ofthewhole system. Thisisthelightinwhich present
andfuture tradedisputes should beseen. Onedispute inparticular isholding theheadlines atpresent,
thatbetween theUnited States andJapan. Idonotwanttocomment specifically onthiscase, other
thantonotethatbothsideshavebrought ittotheWTO andhavesaidthattheywillrespect itsrulings.
More generally, Iwould liketomake thepoint thatitwould beamistake toseetheexistence
ofdisputes, evenofdifficult ones, asafailure ofthesystem. Disputes, unfortunately, haveoccurred
inthepastandwilloccur inthefuture -intrade asinother areas oflife. Thisisprecisely whywe
needadispute settlement mechanism, andwhyithasbeenstrengthened intheUruguay Round. The
burden isonthemembers ofthesystem touseitproperly andrespect it;whatisatstake isfirstand
foremost thecredibility ofthecommitments theythemselves haveentered into.
There isalsounfinished business tocomplete, suchasnegotiations toliberalize market access
inanumber ofservices sectors. Themosturgent isfinancial services, where thenegotiations aredue
tofinish injustoveraweek, on30June. Iwanttoemphasize howimportant itistogetagoodresult
inthese negotiations.
Foronething,itisthefirstimportanttestofthenewsystemandthecommitmentsofitsmembers
tomaking itwork. Failure inthefinancial services negotiations would surely damage theWTO 's
prospects -inmyjudgement thisriskpresents amore serious threat tothesystem thanbilateral disputes
do.Foronething itcould leadtoaweakening ofthegeneralized most-favoured-nation principle -
theprinciple ofnon-discrimination, inother words -which hasbeenthekeystone oftheGATT system
asitisoftheWTO.
Anyreversion tobilateral ordiscriminatory approaches inasector which issoimportant for
thefuture economic health ofbothindustrial anddeveloping countries, would sendallthewrong signals
togovernments andinvestors alike. Furthermore, afailure infinancial services negotiations would
castadeepshadow overthenegotiations onbasic telecommunications, which areduetobeconcluded
nextyear.
Itisinno-one 'sinterest toletthese negotiations fail,andcertainly notinGermany 's,or
Europe 's.Inrecent weeks Ihavemetwithgovernments inmany ofthecountries involved, fromAsia
totheUnited States, andurged themtoshow theflexibility andthebreadth ofvision necessary toachieve
asuccessful result. Iamrepeating thiscalltoday, knowing thatinGermany itwillnotfallondeaf
ears.
Inconclusion, letmeputtheliberalizing imperative initsbroader perspective. Thisperspective
mustbeadynamic one,notastatic one,forthemultilateral system isstillfarfromcomplete. Ihave
mentioned sectors which arestillwholly orpartly outside it-buttherearealsocertain countries which
arenotyetwithin thesystem. Andaslongasthemultilateral system isnotcomplete -inother words
untiltheWorld Trade Organization really istheWorld Trade Organization -thentheglobal market
isnotcomplete. Thechallenge istobring intothesystem the25applicant countries -including giants
suchasChina andRussia -andthenreach outtothesimilar number ofpotential candidates beyond
them.
MOREPRESS/15
Page9
Thiswillbetherealtestofourcommitment toopentrade. Itmeans bringing these countries
under therulesanddisciplines ofthemultilateral system -with allitsbenefits andobligations -asthe
guarantee thattheirmarkets willopenupandstayopen. Thiscould create anunprecedented prospect
ofgrowth -butcertainly alsosome major challenges ofadjustment. Wemust beprepared tomeet
these challenges, because theenlargement oftheWTO system isbothessential andunavoidable. The
alternative ofkeeping these countries andtheirhugepopulations outside theglobal market andoutside
themultilateral rulesisunthinkable inanyrational viewofthefuture. Itwould make theworld amuch
more dangerous place.
IfChina orRussia, forexample, remained outside themainstream ofeconomic growth and
multilateral rules, itwould bealmost inevitable thattheywould feelforced tousetheirweight toextend
their influence unilaterally. Theimplications ofthiscould beconsiderable, andtheywould not
necessarily gotowards creating amore stable world.
These questions gofarbeyond thespecifics oftrade oreconomic policy. Intheworld ofthe
21stcentury, access tothesources ofgrowth willbeafundamental political issuewhich willdetermine
thekindofworld itis.InAsiarecently, arespected statesman toldmethatEuropean concerns about
employment, serious though theyundoubtedly are,relate essentially toquestions oftechnological change
andthedistribution ofresources; keeping European markets open, ontheother hand, could inthe
longrunbeachoice ofpeace orwar.
Here inGermany, Iamreminded thatattheendoftheSecond World War, weEuropeans
werealsofaced withanhistoric choice: tofollow theoldbalance-of-power scenario again, ortobuild
anewfoundation forsecurity andpeace through theintegration ofmarkets. Beginning byopening
ourborders togoods, thengradually toservices, capital andlabour, wehavecreated thegrowing sense
ofEuropean solidarity which wasattheheartofthevision ofmenlikeAdenauer, DeGasperi, Monnet
andSchuman. From abasisinfreetrade, wenowhaveaEuropean Union which isasecure andstable
partnership.
Ontheglobal scale, theproblems areclearly more varied andmore difficult thanEurope 's.
Butthelogic thatwemustfollow tobuild amore peaceful andsecure world hastofollow thesame
path. Itwillnotbeeasy, butitisworth theeffort.
END