The DOHA Agenda and the Developing World

By Economic Minister Counselor Michael W. Michalak
Delivered at Reitaku University
Jan. 21, 2003

Dean Nariai, Ladies and Gentlemen:

Thank you very much for inviting me to speak to you this afternoon. It is an honor to be here on the occasion of tenth anniversary of the establishment of Reitaku University's Faculty of International Economics. This is my first opportunity to visit your University. I know that Reitaku University has a rich history, dating back to its founding in 1935 as Moralogy College.

I understand from your university's website that the meaning of "reitaku" is to spread light and warmth like the sun, and to nurture all things with a fair, unselfish attitude. I cannot think of a more appropriate expression of the mission of an institution of higher learning such as Reitaku University. For truly, by nurturing students and fostering an environment where all can reach their fullest potential through the spread of knowledge, the students of today can grow into the scholars and leaders of tomorrow.

I have spent much of my career in Japan, and have an abiding fondness for the country and a deep respect for the Japanese people. In the course of my assignments in Japan, I have witnessed both the best of times, periods of sustained economic growth and prosperity - as well as times of difficulty and challenge. At present much of the world is facing one of the latter. In many places around the globe, where there was just a few years ago substantial economic growth, one can now find reduced growth, economic stagnation, or even recession.

Today I would like to speak to you about a subject of great importance to us all, and particularly to the developing world: the success of trade negotiations under the Doha Development Agenda, and the special importance of the DDA to the developing world.

At the conclusion of the WTO Ministerial in Doha, Qatar in November 2001, trade ministers from more than 140 countries agreed to launch the Doha Development Agenda. The DDA provides a mandate for negotiations in a number of sectors, including agriculture, services and consumer/industrial products. It also, as the name implies, has a strong focus on the developmental aspects of trade.

Developing countries created a new negotiating dynamic at the ministerial by demanding and playing an important role in shaping its outcome, and developing country trade ministers played vital leadership roles on issues critical to the success of the ministerial. These representatives worked closely with us and other developed countries to find ways forward on many of the most difficult issues. Without their active participation, it is unlikely that the ministerial could have succeeded.

The DDA explicitly recognizes the powerful role that international trade can play in promoting economic growth and alleviating poverty. Active engagement by all members is critical to fulfilling the promise of these negotiations. Thus, if we are to have successful global trade talks, developing countries must play a central role. As UN Secretary-General Annan has said: "The poor are poor not because of too much globalization, but because of too little."

According to the World Bank and the IMF, trade is the single most important channel affecting growth for developing countries. The World Bank estimated that increasing poor countries' access to world export markets could generate and additional $1.5 trillion in income over 10 years and raise their annual GDP rates significantly. Trade liberalization can also support growth oriented economic reforms and aid the transfer of technology and expertise.

All countries stand to gain, however, when they lower their tariffs and open their markets. In the United States, our exports have contributed more than one-quarter of our economic growth in the last decade. From 1970 - 2000, our exports grew more than 10 percent per year, reaching $1.1 trillion. An estimated 12 million American jobs depend directly on exports. Trade liberalization also benefits Japanese consumers since imports stimulate competition, leading to lower prices and a greater range of choices.

This holds true for developing countries as well. In the first five years after the Uruguay Round, developing countries' exports increased by 41%. Strong growth in exports is a catalyst for economic growth. The World Bank's 2001 report "Global Economic Prospects and the Developing Countries" concludes that developing countries that lowered trade barriers over the last 20 years experienced strong economic growth. For developing countries that reduced trade barriers in the 1980s, per capita GDP grew an average of 3.5% per year; for developing countries that reduced trade barriers in the 1990s, GDP rose by an average of 5%.

The United States listens to the concerns of developing countries striving towards free trade. In 2002, we devoted $638 million to help such countries build the capacity to take part in trade negotiations, implement rules and seize opportunities. We have acted in partnership with the InterAmerican Development Bank to integrate trade and finance, and we are urging the World Bank and the IMF to back their rhetoric on trade with resources. Building capacity in developing countries is a foreign policy priority, and the U.S. will continue to lead in this international effort.

We agreed at Doha that the flexibility in the global intellectual property rules could be used to allow poor countries lacking the necessary domestic manufacturing capacity to license medicines compulsorily to deal with HIV/AIDS, tuberculosis, malaria and other epidemics. We have been disappointed that in WTO discussions some members and advocacy organizations have sought to expand the scope of disease beyond that intended at Doha to allow a variety of even middle-income developing countries to override drug patents on a wider range of drugs, including Viagra. This approach could seriously undermine the WTO rules on patents that provide incentives for the development of new pharmaceutical products. For after all, much of the revenue generated by a new product during its period of patent protection is funneled by the manufacturer into R&D, to invest in the next generation of medicines.

We are committed to helping those poor regions and states obtain medicines produced abroad - if they cannot manufacture them locally - as long as other countries with pharmaceutical industries do not carve these special terms into loopholes to circumvent the intellectual property protection that rewards research to develop the medicines of the future. To that end, the U.S. has stated its commitment that we will not challenge any WTO member that exports medicines, produced under compulsory license, to a country in need. We have asked many of our partners, including Japan, to support us in this undertaking.

In the last several months, the U.S. has made bold proposals, in the context of the ongoing negotiations, that would eventually eliminate all tariffs on agricultural and manufactured products and accelerate liberalization in the services sector.

a) Agriculture

The Doha Ministerial statement communicated a clear need for progressive reform in agricultural trade. Specifically, it called for "substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support." In line with this, the U.S. agricultural proposal calls for a two-phase process. The first phase would, over a five-year period, eliminate export subsidies and reduce worldwide and trade-distorting domestic support to substantially lower levels than currently allowed. The second phase would eliminate all tariffs and trade-distorting domestic support. We propose cutting the global average farm tariff from 60% to 15%, and the American average from 12% to 5%.

b) Manufactured Goods

Our manufactured goods proposal also calls for a phased approach. The first phase (2005-2010) would by 2010 eliminate all tariffs of 5% or less; eliminate tariffs on highly-traded goods; and employ a "tariff equalizer" - a formula that cuts all remaining duties to less than 8%. During phase two (2010-2015), all remaining tariffs would be reduced to zero. Manufactured goods was the first sector targeted for trade liberalization by the founders of the GATT in 1947; after more than 50 years' work, about half the world's trade in goods has been freed from tariffs. It's time to finish the job.

c) Services

The U.S. has also made ambitious proposals for market access liberalization in the services sector. These proposals are designed to remove trade barriers in areas such as financial services including insurance, telecommunications, express delivery, energy services, computer services, distribution services and environmental services. Unlike tariff cuts in goods, undertaken in successive GATS/WTO rounds over the past 50 years, trade liberalization in services is relatively new, having been first addressed in 1994 in the Uruguay Round. The Doha Development Agenda builds on this by reaffirming the continuation of services liberalization negotiations.

According to the World Bank, service sector GDP is the fastest-growing component of total GDP in both low and middle-income countries. Moreover, service sector GDP in such countries is growing faster than the world average. The World Bank estimates that under some scenarios, services liberalization can yield income gains for developing countries about 4.5 times greater than the gains for these countries from trade liberalization alone.

As Ambassador Zoellick has stated, "Services promote the interchange of goods, people and ideas. To the extent that the services sector is opened and modernized, countries will receive an economic boost." Expanding access and bringing competition to service markets will promote economic growth, create new job opportunities, increase consumer choices, and raise living standards for workers and their families.

We must all keep foremost in our minds that the Doha Agenda is about promoting and ensuring continued global economic growth. Elimination of tariffs would turn world ports into a giant duty-free shop, with nearly $6 trillion in world trade becoming duty free. The World Bank estimates that removing all barriers to goods trade would expand the global economy by $830 billion by 2015. This represents a 2.5% annual increase in world per capita income, about $136 dollars for every person in the world.

In offering these proposals, our goal is to stimulate economic growth, raise incomes and lower taxes, generate jobs, reduce poverty and cut costs for consumers and businesses around the world. In fact, the U.S. goal for all trade in goods is the same: complete elimination of tariffs. Our proposals highlight the primary goal of the WTO, which is to open access to markets and to spur growth and development.

The U.S. proposals will provide considerable benefit for the world's poor. Let's touch on some evidence that illustrates this point.

Developing country tariffs hurt other developing countries the most. To be truly successful, the Doha negotiations must also open up developing markets to each other. South-South trade in the 1990's grew faster than world trade, and now accounts for more than a third of all developing country exports, or about $650 billion. At the same time, according to a World Bank paper, about 70% of the tariffs paid by developing countries are paid to other developing countries. Those tariffs are on the whole quite high. As the WTO recently reported, high tariffs impart an anti-export bias, hampering a country's ability to grow through exports. The World Bank estimates that developing countries could realize gains of more than $500 billion from duty-free trade. Three-fourths of that gain would come from eliminating tariffs on trade between developing countries themselves. Also according to the World Bank, duty-free trade in goods and services - coupled with other steps to enhance development - could lift 300 million people out of poverty by 2015. That is certainly a goal worth pursuing.

We are not asking developing countries to throw open their doors immediately, and we are not asking them to act without help from us. The fact is that our proposal first provides for WTO members to achieve an overall balance in tariff rates, and only then to move together toward tariff elimination. Along the way, the U.S. and other developed countries are committed to providing technical assistance to developing countries so that they can fully participate in and benefit from the new negotiations under the Doha Development Agenda. Because we are sure that liberalization will benefit all, we are willing to ensure that all members are in a position to benefit from liberalization.

Lowering tariffs is not the only challenge faced by WTO members, of course. Non-tariff barriers, such as burdensome customs procedures and lack of transparency in the promulgation of official rules and regulations, and onerous standards also make it difficult for developing countries to derive the expected benefits from trade. The Doha Development Agenda provides for these and other issues to be addressed. The developed WTO countries must, in the new round, be willing to work with the developing countries to realize the full benefits of the world trading system; developed country efforts to provide technical and capacity-building assistance to developing countries will be central to making the Doha Development Agenda a success.

Moving on to the U.S.-Japan dynamic in the ongoing trade talks, I would like to say at the outset that, whatever differences our two Governments might have with regard to specific proposals or strategies, we should not lose sight of the fact that, on the big picture issues, our countries are in agreement. As major trading nations and early participants in the GATT, we both understand very well the importance of the WTO to continued economic prosperity for ourselves and for the rest of the world. We both want the ongoing round of negotiations to succeed, and to conclude on schedule, in 2005.

That said, the differences between the U.S. and Japan, particularly with regard to agricultural trade liberalization, are real. Minister of Agriculture, Forestry and Fisheries Oshima in early January met U.S. Trade Representative Ambassador Robert B. Zoellick. Ambassador Zoellick called on Minister Oshima to identify areas of common ground on which we could make progress.

Next month the Japanese Government will host a WTO mini-ministerial. The topic of agricultural trade liberalization is expected to figure prominently. We have been disappointed with Japan's agricultural proposal; it is, in our view, a reprise of outdated positions, which would preserve high tariffs, reduce trade-distorting support only slowly, and actually reduce access to Japan's markets for select agricultural products. Japan needs to look forward, not backward, in the Doha negotiations, and should adopt positions that will implement, not undercut, the ambitious goals of the Doha mandate.

Japan risks becoming isolated in the Doha negotiations as a result of its positions on agriculture. We recognize that for both historical and cultural reasons, agriculture is a sensitive sector in Japan. This reality, however, does not relieve Japan of the need to demonstrate leadership. The agricultural sector contributes less than 2% to GDP and less than 1.8% of Japan's population is engaged in farming. This sector should not be allowed to dictate Japan's trade policy, and perhaps the success or failure of the Doha negotiations.

As the world's two largest economies, the United States and Japan must provide the vision and strength to guide the world economy into the 21st century. We believe that our proposals are bold, realistic and fair. If a major economic power such as Japan is unwilling to face up to domestic interests that oppose liberalization, then how can we expect other countries to open their markets? It is up to our partners, such as Japan, to match our commitment to liberalization.

Progress is never easy. For our collective benefit, we will all need to take steps which may cause discomfort, but which in the long-run will benefit our economic health. American industries such as textiles, apparel and footwear will oppose the elimination of U.S. tariffs on such sensitive products. We recognize, however, that the United States, as the world's largest trading nation, must play a leadership role in the new round. We are willing to lay our cards on the table and expose some of our most sensitive sectors to global competitive forces. But we cannot forge a political consensus to do so unless other major trading countries also open their markets.

Japan must not forget that it has been a principal beneficiary of trade liberalization. Broad tariff reductions in industrial goods helped Japan become an exporting powerhouse. How can we possibly justify to developing countries that trade liberalization in agriculture is not possible because it would be too painful? We cannot have our cake and eat it, too. If we hope to benefit from more open markets, then as global leaders we, too, must open our markets, no matter how painful.

Some in Japan have expressed concern that the U.S. is more interested in negotiating bilateral FTAs than we are to making multilateral commitments to liberalize trade. This could not be further from the truth.

As I noted before, the U.S. is making bold and ambitious proposals in all WTO negotiation areas. Our proposals to globalize free trade are a critical part of our competitive liberalization strategy, fitting in with current U.S. bilateral and regional free trade negotiations. In effect, U.S. trade policy is a three-legged stool, with a simultaneous demonstrated commitment to liberalize trade through bilateral FTAs, regional agreements, and the multilateral WTO round.

Our free trade agenda conveys a simple, yet powerful message. We are open to free trade with all regions, and with both developing and developed economies. The reality is we will seek progress where it can be made, with countries that are prepared to negotiate. About half of global goods trade is already duty-free under more than 200 regional or bilateral FTAs. We would like to see progress take place primarily in the WTO, where multilateral trade liberalization can benefit all members. If countries do not support eliminating duties at the WTO, however, then they may be left behind as the rest of the world proceeds with liberalization through regional and bilateral agreement.

Like Japan, which has become active in negotiating FTAs, the U.S., too, values FTAs. These agreements can foster powerful links among commerce, economic reform, development, investment, security and free societies. They can also be used to raise the bar and support our WTO objectives. NAFTA not only almost tripled American trade with Mexico and nearly doubled its trade with Canada, but also made all three members more competitive internationally. NAFTA proved definitively that both developed and developing countries gain from free trade partnerships. It enabled Mexico to recover quickly from its 1994 financial crisis, launched the country on the path of becoming a global economic competitor, and supported its transformation to an open democratic society. In the 100 days after Congress granted the President trade promotion authority, the United States has completed an FTA with Singapore and started FTA talks with the 5 nations of the Central American Economic Community, the 5 countries of the Southern African Customs Union, Morocco and Australia. We have reached agreement on an FTA with Chile. In November, we helped push forward negotiations among 34 democracies for a Free Trade Area of the Americas. We will co-chair this effort, with Brazil, until it is successfully concluded.

All WTO decisions require a consensus among its 144 members. Any one country - for whatever economic or political reason - can stop the Doha agenda in its tracks. We will not passively accept a veto over America's drive to open markets and sacrifice our economic future if the WTO proves too slow. We want to encourage reformers who favor free trade. If others do not want to move forward, the U.S. will move ahead with those who do.

Again, the message here is simple. Those countries that are willing to actively seek a better future are the ones that prosper. And those that cling to insular and outdated economic policies will continue to fall behind. Countries run an increasing risk of being sidelined if they prove unwilling to work with other WTO members toward liberalization.

Our proposals in agriculture, services and manufactured goods contribute to fulfilling our commitment to the American people and to the developing world to grow the global economy, and to fulfilling a moral responsibility to reduce poverty and stimulate economic opportunities around the world. We encourage Japan and our other WTO partners to work with us to create a more prosperous future for all.