Challenges for the Global Trading System
1. This weekend, APEC Leaders will issue a call for an early conclusion of the Doha Round. The two Chairman's texts on agriculture and NAMA (industrial goods) provide a good basis for final negotiation. The positions are not so far apart now. The proposed reduction in export and domestic subsidy of agriculture will benefit developing countries and add significantly to global welfare.
2. However, despite the best efforts of Director-General Pascal Lamy who had a productive meeting with ministers yesterday, the prospects are not good. Without the developed countries taking a strong lead, which means overcoming the objections of powerful domestic lobbies, the Round cannot close. The leadership of the US in particular is critical. Developing countries must also respond constructively. If we fail in the coming months to reach agreement, there will be a delay of at least a few years. Worse, once the pressure is off, protectionist sentiments in many countries will become stronger again.
3. We cannot assume that economic liberalisation is an inevitable trend because of globalisation. It has certainly benefited Asia. With the end of the Cold War, an additional three billion people have entered the global marketplace, eager for a better life. Asian middle classes are growing by the tens of millions every year. With unprecedented urbanisation, the demand for a whole range of goods and services has shot up explosively. This has raised global GDP and kept commodity prices high.
4. The costs and benefits of globalisation are not evenly spread. Some countries benefit more than others. Many experts predict that the centre of gravity of the world economy will move to Asia some time in the next few decades because of its huge population. While Asians may rejoice at this prospect, those living on other continents must view such a future differently, a few with the gravest concern. History has not ended. Big shifts of the kind we are now seeing are almost always accompanied by political conflicts of one kind or another.
5. The biggest challenge to the global trading system is political. Without trust in the fairness of the international system, there will once again be a scramble by the big countries for natural resources and markets, which frequently in the past led to wars. Already there is keen competition for energy by countries like China and India because of justifiable concerns that international supplies will be disrupted at critical moments. Recently, when China announced its intention to establish sovereign investment funds, alarm bells rang in the US, Europe and Japan. Action leads to reaction. When national insecurities feed on each other, conflicts can quickly escalate if there is no larger framework of cooperation and dispute resolution that is recognised to be impartial.
6. For all its faults, the WTO has a good reputation. When panels of the WTO adjudicate, the judgements carry not only legal weight but moral weight as well. For this reason, it is crucial for Doha not to fail. FTAs are not a substitute for the WTO. They are, at best, second best. Even after the Doha Round has been concluded, there will be new issues for the WTO to address like investment rules, competition rules and treatment of intellectual property. Strengthening the international system is a prerequisite for peaceful development in the 21st century. In the last century, for lack of an international system, the rise of new powers led to two world wars and a great depression. If we repeat the same mistakes in the coming years, the future will be bleak, and problems like climate change will never be effectively addressed until it is too late. Indeed calls by developed economies to reduce carbon emissions are viewed with cynicism by many developing countries as measures which would slow down their progress.
7. We need leadership and political will among the major countries to maintain the international system including the global trading system. For this reason, it is necessary for the G8 to be enlarged to include China, India and Brazil - sooner rather than later - so that we do not work at cross purposes. International organizations established at the end of the Second World War like the UN, the IMF and the World Bank also need reform to reflect a very different global reality. Either we change to avert crises or we wait for crises to force change on us.
. . . . .