Global growth through enhanced trade Global leadership on trade liberalisation

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1 John W.H.Denton October 2010 Global growth through enhanced trade Global leadership on trade liberalisation Introduction Thank you for the opportunity to speak on the topic of global growth through enhanced trade. It is evident that those of us taking part in this forum want to see trade continue to drive global economic growth in the first half of the 21 st century. If our aim is to be realised, the major powers will need to give a higher priority to multilateral trade reform. One of the major challenges we face is that the World Trade Organisation now comprises more than 150 member nations. With the economic rise of Asia, global economic leadership is undergoing change. The WTO is not immune from this. The G20, is now the principal global institution for economic policy, has a vital leadership role if we are to see a new era of multilateral trade liberalisation. At the same time there is a pressing need for business, and for organisations such as the Commonwealth and the Asia Pacific Economic Cooperation Forum (APEC) to make the case for reform. In considering the issue of how to bring about a renewed commitment to multilateral trade liberalisation, I will briefly consider four issues. First, I will outline the economic importance of global trade and investment. A second issue I would like to mention is the risk that in the absence of trade and investment reform, the danger of protectionism rises. Third, the importance of Foreign Direct Investment and addressing behind the border barriers are now more relevant to multilateral trade negotiations that in the past. Finally, I will offer the view that, in order to be most effective, the global trade agenda must be based on a strategy that extends beyond the conclusion of the Doha round. The importance of global trade and investment I would like to start by touching on the importance of trade and investment. As each of us here are well aware, global growth has been underpinned by trade and investment since the multilateral trading system was established in the late 1940s. In Australia, a recent economic study found that real household incomes have risen by about $3,900 per year since the 1980s, as a result of trade liberalisation. The benefits of trade and investment are also flowing to developing nations. Studies have shown that developing nations that are open to trade and investment achieve substantially higher rates of economic growth. 1

2 It is no coincidence that the world enjoyed its greatest period of economic prosperity while governments were opening up their economies. The foundations of this were laid in the 1940s when the United States, Britain and a small number of other nations agreed to reduce tariffs and other barriers to trade. A core leadership group acted in the interests of future growth. Opening up an economy produces benefits in the form of: increased productivity; lower inflation due to greater competition; and stronger economic growth. Despite awareness of these benefits, trade liberalisation has not been part of the international economic response to the recent global downturn. This stands in contrast to the recession of the early 1990s. It was in the aftermath of a major recession that the Uruguay Round was concluded. And then in 1994, it was ratified by the US Congress and by other legislatures also marked the launch of the Bogor Declaration in support of open markets in APEC. A bold ambition indeed. Again, core groups of leading nations were prepared to make this a global and regional priority. But now, sixteen years later, governments are yet to make a serious attempt to negotiate a conclusion to the Doha round. The issue of differences between leading nations has been identified as a possible road block. We have seen continuing growth in WTO Membership. Concerns have been raised about differences between developing and developed nations. There is a risk that perceived differences receive too much of our focus. What governments and business need to do is to give attention to where there is common ground. We can and must work on the areas of mutual benefit, and continue the project of removing and preventing barriers to investment and trade. The challenge now is to raise the ambition. To raise the upside available from the Doha round. But which nations are bold enough to push for this. The risk of rising protectionism One place to start is in working cooperatively to resist protectionism. History tells us that major economic downturns lead to increased unemployment and this puts pressure on governments to introduce protectionist measures. 2

3 We have had indications that this has occurred over the last two years. The World Trade Organisation which found that in , there were 17 members of the G20 that between them introduced 47 separate trade restricting measures. This is where leadership from amongst G20 nations, and supported by institutions such as the Commonwealth will be vital. We must resist protectionist pressures. A renewed commitment to trade: both at the border and behind the border To arrest a continuing slide towards protectionism, a renewed commitment to trade and investment is required. A conclusion to the Doha round that opens up meaningful new opportunities for business in all industries would stimulate business investment and create new jobs. What would a Doha agreement that creates new commercial opportunities for business look like? It would require an agreement that, in part, builds on the legacy of the initial General Agreements on Tariffs and Trade of the 1940s and 1950s. In other words there is still a lot of work to be done on reducing tariffs and other at the border barriers to trade. Pascal Lamy has pointed out that a Doha agreement would bind countries to lower tariff levels and prevent the risk of slippage. This is incredibly important. Protectionist pressures mean that that the value of nations binding themselves to lower tariffs is greater than it was before. But it will also require an agreement that takes account of modern realities. In relation to services and investment, these issues require the reform of behind the border barriers to trade. Sylvia Ostry from the University of Toronto has written that the new game for international trade expansion is in the area of domestic regulation. I think Sylvia Ostry is right, but this is not to suggest we should stop playing the old game. We need to keep playing the old game and combine it with the new game. Behind the border reforms include rules in relation to finance and investment. They include the mutual recognition of professional qualifications and rules that support the free flow of skilled people. These are challenging areas because they are not viewed as traditional components of trade and investment policy. There is a crucial role for business in making the case for these changes. Our voice needs to be at the forefront, through forums such as this one, and in direct engagement with governments. 3

4 Our message should be that trade liberalisation should be the highest of priorities. But what must be recognised is that trade and investment policy must evolve. There is no better example of this than investment. Investment International investment flows have grown dramatically in recent decades. The World Bank, amongst other institutions, has pointed to investment as the key driver of growth and poverty reduction. In order for nations to enable growth in investment, the focus should be on having: minimal investment restrictions, and where restrictions exist they are transparent and supported by clear and predictable governance processes; allowing foreign businesses the ability to freely realise and distribute profits to shareholders; effective but not onerous regulation, including competition laws; and effective dispute resolution arrangements. Attention to these priorities will pay dividends for nations that pursue them. There is an opportunity to pursue some behind the border reforms in the Doha round negotiations as part of the negotiations over services. However, as we know, investment is not formally part of the Doha round mandate so it cannot be pursued in a comprehensive way. But this does not mean that investment liberalisation has to wait. There is an important role for institutions such as the Commonwealth and the Asia Pacific Economic Cooperation Forum to develop and implement new approaches to investment cooperation. APEC has in fact provided a model through its Investment Facilitation Action Plan. The APEC plan emphasises the importance of governments having in place the best possible protection for investment. This includes the swift and equitable resolution of investment disputes. I have emphasised investment because in discussing trade policy, the role of investment can sometimes be downplayed. Investment provides the foundation for trade. And international investment makes an important contribution to securing trading relationships over the medium to longer term. This is because it opens up access to global networks and to new technology. A greater proportion of trade is made up of inputs and services rather than final products. 4

5 The free flow of investment supports these forms of trade. The APEC priorities extend beyond investment to the goal of greater economic integration. The need for a two part strategy The multilateral trading system has proven over the last sixty years that it provides the best way to facilitate growth in trade. This is largely due to the non-discrimination arrangements which allow all Member nations to share in the benefits of trade reform. If the multilateral system is to continue to provide the basis for growth in trade over the next decade and beyond, then a two part strategy is required. First, governments should renew the mandate of trade ministers to bring the Doha round to a conclusion. But this cannot be an agreement just for the sake of reaching agreement. The world s leading nations will need to be prepared to make concessions. Leadership must be given by the G20. Last year the G20 took over from the G8 as the principal international economic policy institution. While G20 leaders made statements about the importance of concluding the Doha round, these are yet to be translated into concrete action. A key challenge for the G20 is to lead by example, and to make trade reform a central part of the institutions economic agenda. G20 governments should work together to offer the concessions needed to give impetus to the Doha round. This would pave the way for a Doha agreement that opens up meaningful new opportunities for business in all industries. At the same time, the Commonwealth and APEC can play an important role in promoting behind the border reforms. In turn, these reforms will pave the way for the direction of the multilateral system beyond the Doha round. Shortly after the conclusion of the Uruguay round, a series of specialised negotiations were held and concluded. This included an agreement in relation to banking, insurance, securities and financial services. There is no reason why the same path cannot be taken once the Doha round is concluded. In fact, we should be planning to take such a path. 5

6 Conclusion In conclusion, I would like to reinforce the point that if trade and investment liberalisation are to drive growth in the coming decades, then simply concluding the Doha round will not be enough to sustain economic progress. A strategy that makes preparations for multilateral reforms beyond Doha is required. A multilateral commitment to opening up access to markets at the border as well as behind the border would help sustain global trade and global growth. The Commonwealth has the opportunity to take a leading role in developing and advocating such a strategy. Thank you. 6