Introduction

It is a great pleasure for me to address you. I know that the work of the United Nations Industrial Development Organisation (UNIDO) has moved substantially into the trade arena and is increasingly touching areas of importance to the World Trade Organization. The WTO is going through a difficult period. But its difficulties raise important issues, notably with respect to development. I want today to talk about the current state of the WTO’s Doha Development Agenda negotiations. I especially want to relate that process to the need for trade-related capacity building assistance in the developing countries, an issue that I know is of direct concern to you all.

Cancun assessment

Let me start by making a few comments about the WTO Ministerial Conference in Mexico. It is the best place to begin because if we do not understand and learn the right lessons from the failure in Cancun much of the current effort on trade-related technical assistance and capacity building may be in vain.

The experience was certainly a setback for all those who see the multilateral trading system as one of the principal vehicles for global growth and development. It was not, however, a tragedy. Cool heads, some political vision and responsibility and a little patience could see the experience turned to advantage. Indeed, it may well provide the springboard to a better deal in the Doha Round – albeit a delayed one

I do not intend to indulge in the blame game. In any event, most of the participants were probably culpable to a degree – and so, in part, was the system of negotiating rules and traditions within which they worked. Moreover, the major constituencies outside the system were hardly innocent. The extent to which activists and otherwise responsible NGOs – and even some delegates – revelled in the collapse of the talks was abhorrent and utterly misplaced.

The job of the World Trade Organization is to create open and predictable markets for companies – we did not hear too much about that amongst the posturing and finger pointing. But that is precisely why I welcome the interest of UNIDO – along with other institutions with a practical leaning like the International Trade Centre, the International Customs Organization and so on. The work you do, for example, in assisting countries to cope with and meet standards and conformity requirements is very valuable. It is directly related to WTO rules and has a crucial impact on whether developing country firms can exploit export opportunities negotiated through that institution. For, as you know only too well, what may seem an attractive market opportunity for a producer in a poor nation can too easily be undermined by onerous, sometimes, abusive, technical requirements in the health, safety, environmental and quality fields.

The underlying notion of the Doha Development Agenda is a thoroughly worthy one. While I do not accept that developing countries have been victims of previous trade rounds in the GATT, there is clearly an imbalance in the opportunities that are available to companies in poor nations in comparison to those available to firms in the industrialized world. The WTO cannot, alone, correct that imbalance. It can, however, provide some counterweights. That was supposed to be the point of the Doha Agenda.

So why was it put in such question before and during Cancun? In retrospect, it may seem ironic that one set of counterweights was supposed to have been supplied by the so-called Singapore issues – the very issues on which the conference floundered and finally collapsed. The proposals for WTO agreements on investment, competition policy, trade facilitation and transparency in government procurement were all put forward by developed WTO members, notably the European Union. On the right terms, each could hold an interest for companies in the developed world. However, in each of these four areas of possible new WTO disciplines it is the potential development gains that stand out most. Attractive investment conditions are a pre-condition for development. Consumers in developing countries need the protection of well-run competition regimes. The reform of costly and bureaucratic customs procedures can only help entrepreneurial private enterprise in poor countries. Outlawing the abuse through corruption of public procurement practices can only benefit taxpayers and businesses.

The development logic of the Singapore issues was, therefore, clear. And it was apparent that some developing countries supported the inclusion of some, if not all, of these topics on the negotiating agenda. Others opposed them. Essentially they have two problems. The first is whether enforceable disciplines in the WTO – and therefore the prospect of dispute settlement proceedings with a failure to implement – is the appropriate multilateral vehicle. The second is whether they have the institutional – and in some respects the political – capacity to take on new disciplines. For many, the answer appears to be “no”. However much good sense reform in these areas may make, they will go about reform in their own way, on their own terms and in their own timeframe.

That may be a misjudgement on their part. If the WTO can provide a service to reforming governments it is precisely in giving them the legal framework and the multilateral support of their peers in following through when the going gets tough. However, it is only right that the developing country members of the WTO make their own judgements. It is on them that the weight of implementation would fall – it must be their decision to proceed with negotiations – and accept new obligations – or not.

The refusal by many of them to do so in Cancun may have been a tactical decision or one based on a coherent assessment of the merits of proceeding on each of the four dossiers. I do not know. What is clear is that for many developing countries there was simply not enough else of value on the table to draw them towards a compromise on the Singapore issues. For some, that would have required solid provisions on special and differential treatment, for others it would have been a more forthcoming response to the cotton initiative and for many it was all about agriculture.

The future for the Doha Development Agenda remains, today, as dependent on a worthwhile deal on agriculture as ever. I believe we can rescue the trade round. After all, the Uruguay Round struggled through crises every bit as bad. Indeed, I am confident that, perhaps with an extra two years to conclude, the final package can bring great benefit to all participants. However, the prize continues to depend on major commitments to agricultural reform, principally among the industrial countries.

The EU’s package of CAP reforms, adopted this summer, represents a welcome move towards de-linking government support to farmers from levels of production. It was a good start. But to be attractive to competitive agricultural exporting countries around the world the reforms will have to bite deeper. There needs to be the prospect that the markets and commodity prices that are currently overwhelmed by EU farm spending will be impacted solidly – that trade will be based on the competitive advantages of farmers not on the spending power of governments. This is not going to happen quickly. But the member states of the EU should be put on notice that further agricultural reform is inevitable and must be pursued energetically, even if there is a political cost.

In the same manner, the United States must do a better job of inspiring confidence that the major commitments to additional support programmes in the 2002 Farm Bill will be wound back. There was no such confidence in Cancun – especially given the response of Washington to the proposals of West and Central African countries on cotton.

Other industrial countries will have work to do on agriculture: notably Japan. Even some of the competitive farm traders themselves have practices that will need to be disciplined. In short, everything needs to be on the table for an ambitious, worthwhile deal on agriculture.

The same can be said of the negotiating dossier covering market access on non-agricultural market access. And the services sector should also be subjected to far more intense negotiations than we have seen to date. These three dossiers alone – agriculture, industrial market access and services – are capable of generating a development-friendly outcome to the Doha Round of far greater magnitude than the entirety of the rest of the agenda.

Development dimension of the Doha Round

However, negotiations are negotiations: they engage two sides in a mutual exchange of concessions. It is in this context that we should consider the development aspect of the Doha agenda. In retrospect it was probably unwise of the round’s proponents to sell it on the basis of an apparently lopsided negotiating plan. Intentionally or not, the impression was given that this would be the round when industrial countries gave and developing countries received.

I can understand why this was done. It is a myth that in past trade rounds developing countries were ignored, or were simply losers. My own experience tells me that that was not the case, even if negotiated outcomes can always be better for each and every participant. But it was a view that became prevalent in the late 1990s, especially as activist groups sought to tear down the old Bretton Woods institutions and the image of multilateralism fell into disrepute. Hence, there was a perceived need to repackage trade negotiations as vehicles for imposing equity in international commerce and economic development. The WTO was seen as a powerful body; almost by definition, therefore, it was seen as the answer to many problems of economic development which, in fact, lay way beyond its sphere of influence.

“The importance of trade negotiations has sometimes been oversold”, said UNCTAD Secretary General Rubens Ricupero, last week. I can agree with that. I can also agree that the trading system alone does not resolve the economic challenges of the developing world. When it works well, it creates opportunities for trade and investment and it seeks to guarantee those opportunities through its rules.

Taking advantage of those opportunities is quite another thing. I doubt that there is another international institution where that reality would be more easily recognized than in this one, UNIDO. But let me come back to the supply side arguments. For there are other reasons why the worthy goal of creating equity – as distinct from opportunity – in world trade through WTO negotiations will always prove elusive.

For one, almost every minister in Cancun has a parliament, a government, and a whole range of stakeholders to report back to. Economists will tell you that the act of making concessions to liberalize trade and investment is a prize in itself. Any politician will tell you that returning home having given away concessions without receiving anything in return is electoral suicide. It should not be that way, but it is. And Cancun demonstrated that reality in a painful manner. The big industrial-country players made clear they are not about to make commitments to open up further on agriculture and industrial market access without a significant contribution from the more advanced developing nations. If participants had other ideas, they were disabused of them.

So the delusions were swept away in Cancun. Yet it was encouraging that, in response, developing countries showed themselves able to organize and negotiate effectively. In particular, the emergence of a powerful group of countries around China, Brazil, India and South Africa was remarkable. By carving out a large negotiating space in the World Trade Organization these countries were saying: “we are here, we are significant, we represent most of humanity, you cannot ignore us”. They stated clearly what they wanted on agriculture, as had the EU and US. I believe they were prepared to negotiate. This is a different kind of dynamic for the WTO. It is perhaps a more hopeful pointer for the future than has been recognised – even if the group itself may have limited areas of mutual interests. Other large groups also made themselves felt and will no doubt prepare to take a positive role as negotiations restart in what, I trust, will be the not too distant future.

A final point about the development perspective of the Doha Round. I think there is a need to get back to what the WTO exists for. Certainly it is a negotiating platform through which members can secure opportunities to trade and invest. Certainly it is a body of rules which support national commitments to market opening and which are enforceable through a very effective dispute settlement system.

But, beyond all that, it is intended as a support for governments and countries seeking to reform and to integrate into the global economy. Look at the countries that have recently acceded or are in the process of negotiating entry. China, Russia and Cambodia, to name just three: each is making use of WTO disciplines to underpin the difficult process of radical economic reform. The WTO acts as a crutch for governments seeking to take good, but tough, decisions.

That is the point of WTO membership. It should work poorly as a means of avoiding commitment to reform. Its benefits are few if governments fail to take up the challenges it presents. Its value is in supporting the kind of domestic change that helps developing economies take advantage of market opportunities. In other words, if government see the objective of the Doha Round as the avoidance of any new commitments in the WTO then they should not be surprised if the new market opportunities it will generate prove impossible to exploit.

Capacity building

Of course, I fully accept that domestic reform is often hard with or without the World Trade Organizaion. That is why we are all placing so much emphasis on technical assistance and capacity building. And when I talk about capacity building I do so in the broadest sense of the term. I mean it to address institution building and supply side capacity too.

The WTO itself and many individual members are pumping very large sums into the training of trade negotiators. I think that was necessary. Clearly all World Trade Organization members must have the capacity to take part effectively in the day-to-day work of the institution and to make their voices heard in negotiations like the Doha Round.

But if we are anxious for developing countries to reap real benefit from WTO membership, training negotiators is really just the tip of the iceberg. Simply coping with the routine demands of membership is a significant burden. I was struck by some of the information presented to your Consultative Group on Trade Capacity Building. This deals largely with the challenge for developing countries in meeting conformity requirements in their export markets as well as meeting the obligations contained in the WTO agreements on TBT (Technical Barriers to Trade) and SPS (Sanitary and Phytosanitary Measures).

Thus, in 1990 there were already some 100,000 technical regulations and standards in place around the world. Further, between 1990 and 1999 the annual rate of new regulations and standards being notified to the WTO, under the SPS agreement, doubled. Every one of those new measures means a new cost for an exporter somewhere. Since SPS measures naturally impact food and commodity trade, it is more than likely to be an exporter in a developing country. And conformity requirements are expensive. UNIDO/OECD estimates put their cost at an additional 2 to 10 per cent of overall production costs in the product lines concerned.

I will not continue quoting your own work at you. The real point is that this is just one aspect of the everyday demands of WTO membership. There are many others: they are all valuable in themselves but the burden on scarce or poorly performing administrative capacity is undeniable.

Many least-developed countries are, of course, exempt from meeting World Trade Organization obligations in some areas. Some small economies may never have the capacity to meet all obligations. But, of course, exemption is a trap. Many of the world’s poorest countries are trying very hard to find the means of entering the global economy. They want to harness the development potential of trade-led growth. Yet they will be handicapped in that for as long as they are unable to come close to meeting WTO obligations.

It looks like – and is – a vicious circle. And it is one reason why I am sceptical of the wisdom of over-concentration on special and differential treatment in the Doha negotiations. For those countries that want to remain islands of poverty-ridden self-sufficiency, avoiding WTO disciplines makes sense. But I doubt we could count many such countries.

For the rest, living up to the global trade rules is a difficult, burdensome, but inevitable, condition for any nation seeking a path out of poverty. It is therefore self-evident that broad-based trade-related capacity building is an absolute priority and an absolute responsibility for the rest of the international community. It is not an optional extra that can be the object of vague political statements and hazy best-endeavours undertakings. Any poor nation prepared to take the measures necessary to meet WTO obligations and to succeed in the global economy has the right to the very best support that we can provide. Further, I would argue that any new rule-based commitments to emerge from the Doha Round should have capacity building provisions attached upfront.

Initiatives like the Integrated Framework, and the work of individual agencies in the field are encouraging but inadequate. And, I have to say, there is more than a suspicion that too much of this so-called support is being expended in advice precisely on how to avoid WTO commitments, not on how to embrace them and capitalize on them.

But good work is being done. And I am glad that UNIDO is seeking more of a role. The expertise in this institution is special and of huge potential value. That is why I was delighted to see the Memorandum of Understanding signed, in Cancun by Carlos Magarinõs and Dr. Supachai Panitchpakdi of the World Trade Organization. It may have been the most constructive result of the entire ministerial session!

Role of private sector in policy formation and negotiations

One of the reasons that UNIDO’s involvement is exciting is that it begins to get us closer to dealing with one large hole in technical assistance work related to trade – the productive private sector in developing countries.

Now, I could not honestly say that all major companies in the industrial world are as switched on to the WTO as they might. Indeed, the notion that multinational firms drive the WTO agenda is largely a figment of the imagination of anti-globalisation activists. It may be that business has a significant influence in the US; in Europe firms struggle to be heard amid the clamour of many other constituencies. That is probably as it should be.

However, one sometimes has the impression that WTO policy positions in some developing countries are elaborated through inputs from just about every constituency bar the one the WTO is actually supposed to help. I am exaggerating perhaps. Nevertheless, the structures of policy formation in the trade field, in any country, have need of a coherent and informed voice from industry. Yet there is almost nothing being done to ensure that is the case.

My impression is that private firms in many developing countries are often afraid of the WTO. After all, it may generate competition in otherwise captive domestic markets. That is understandable, and precisely reflects attitudes among protected sectors in the developed world. Others simply do not understand the opportunities provided by the WTO and have no time or possibility to get engaged.

At the same time, one sees plentiful examples of astute and dynamic entrepreneurship in poor countries. It is such entrepreneurship that, if unleashed, can raise nations out of poverty. Look at China! And it is that kind of business that needs to be informed and perceptive about WTO issues. It needs to be involved in the development of national positions for trade negotiations. And it needs to be the target of whatever supply-side support the international community can offer.

How many developing country firms know enough to take a position on key issues in the WTO? Take a few examples of essential infrastructure needs of export-oriented firms. For a start, any firm needs competitive, efficient and diverse financial services. Firms need banking services, insurance, capital markets. Their provision may not automatically be associated with the WTO. Yet commitments made under the WTO services agreement (GATS) can act, precisely, to suck in modern, competitive financial services providers.

What about the business costs of poorly regulated under-invested, expensive telecommunications. Again, GATS commitments can make the crucial difference and have done so in many developing countries.

Take the tangled web of procedures and costs at the border – for exports or imports. These can put domestic manufacturers out of world markets. Yet WTO agreements like those on customs valuation and import licensing are designed to free up the movement of goods and make the conditions of entry into markets fair and predictable. So too are bound tariff schedules. And what about the potential agreement on trade facilitation in the Doha Round? How many developing country firms even know of the possibility of such an agreement? I think they would jump at the idea.

There are many such examples. Yet World Trade Organization agreements and commitments tend to be the concerns only of exporting companies looking at conditions in other markets. The reality is that domestic firms seeking to enhance their own international competitiveness can harness these rules and commitments. Governments should start looking at WTO obligations not as concessions to the outside world but as an essential means of boosting a productive and competitive domestic private sector.

That will mean activating the private sector, finding the right interface with government and ensuring the dialogue is properly informed. It is a big job, yet one in which we need to engage if the developing countries are truly to reap the rewards of WTO membership. I think it is a cause which should attract also the interest of major firms in the industrial countries. Those firms have much to offer in terms of understanding the global marketplace, of figuring out their interests in the WTO and of interacting with governments.

There is a case for bringing industry from the North into closer contact with nascent firms in the South. There would certainly be no shortage of mutual interest. Tomorrow’s markets are very much dependent on the success of indigenous firms in poor countries. If such companies do not prosper then the increasing demand on which the global economy depends will be stunted.

Conclusion

Ladies and Gentlemen, I have come a long way from Cancun. The meeting was an unwelcome disappointment; it was not a disaster. The WTO can still succeed in making a big success of the Doha Round – even if it takes  little longer to conclude. More important than deadlines, I believe there is a basis for each and every country present in this room to secure benefit in a final deal. But negotiations have to be approached in a positive manner – there is no victory in failure, for anyone.

I believe UNIDO can make a positive contribution to the cause of development through trade. I wish you well in doing so.

This is the text of a speech first delivered by Peter Sutherland to the United Nations Industrial Development Organisation (UNIDO) in Vienna