Address to the WTO General Council Plenary Session

Shengman Zhang, Managing Director, World Bank

Cancun, September 10, 2003

Your Excellencies, Ladies and Gentlemen, I am pleased to be in Cancun attending this important gathering. I join others in thanking Minister Derbez and our Mexican hosts as well as Director General Supachai for organizing the meeting.

The World Bank supports your efforts to stimulate trade under the Doha Development Agenda, not only because trade is important for growth, but also because progress in these negotiations is crucial for the world's poor.   The outcome of this meeting -- and those that follow in pursuit of the Doha Development Agenda -- will determine whether the international community, working together, can take collective actions that will stimulate global growth and lift as many as an additional 144 million people above the $2 per day poverty line - nearly half of which live in Africa ¹.

Your work this week can shape a new global marketplace in which the world's poor no longer confront an average tariff level more than twice that of the non-poor. Your work can create a new global marketplace in which poor farmers in poor countries no longer have to accept prices in cotton, sugar, and rice depressed by the subsidized production of relatively well-off farmers in rich countries.  Your work can shape a new global marketplace in which exporters in developing countries no longer confront trade barriers that are many times higher than those affecting firms located in rich countries. Such barriers prevail in the rich countries precisely in those sectors that are vital to developing countries, and their leadership in removing them is crucial. But the barriers to developing country exports are also prevalent (and often even higher) in developing countries themselves, underlining the importance of the South-South dimension (as well as the North-South dimension) of these negotiations. Your work can help shape an environment where the developing countries, which now account for one-third of world trade, take on a full role - enjoying the benefits but also undertaking the obligations inherent in a rules-based trading system. In short, you can take a step closer to a trading system that no longer discriminates against the poor. 

To realize the development promise of the Doha Agenda, three sets of actors have to act in concert. Trade negotiators have to rise above special interests and particular national political constraints and do what is best for their country and for the global community.  Decision-makers in developing countries - in addition to trade ministers - have to meet new challenges by putting in place complementary policies that will enable increased trade to translate into investment and growth. And the international community - donors, the international financial institutions, civil society - have to play a supportive role.  Let me say a word about this three part agenda and then conclude by referring to the role that the Bank intends to play.

Trade Negotiators: Making the World Trading System More Conducive to Development 

Rich countries need to take the lead, but all countries -- rich, middle-income and low-income - need to lower their tariff barriers and other impediments to trade.

Many rich countries continue to jealously guard trade-distorting policies, especially in agriculture. This situation has to change. We cannot allow a small and relatively well off group of people in rich countries prevent us from moving towards a global trading regime that will help a large number of poor people use trade to lift themselves out of poverty. Rich countries account for 2/3 of world trade and are the best equipped to handle the short-term costs associated with trade reforms - they must therefore lead the reform process.

Developing countries have above average tariffs on manufactures and are also more restrictive in services. As South-South trade increases in importance, this protection not only undermines poorer trading partners, but also tends to undercut own productivity growth. East Asian exporters pay 60 percent of their total tariff payments on exports of manufactures to other developing countries.  Two-thirds of this is paid to neighboring East Asian countries.   Developing countries clearly have much to gain from their own liberalization. 

Low-income countries would benefit from non-discriminatory access to every market in products where they have a comparative advantage.  As it stands, low-income countries often have some special preferences to some markets. But these preferences have had only marginal success because they are typically subject to complicated rules of origin and can be withdrawn at the whim of the granting countries. For these reasons, actual utilization rates are far below potential. Low-income countries would also benefit from a new approach to 'special and differential treatment' (S&DT) in the WTO that is grounded on the fundamental premise that any special rules or exemptions from rules should make sense for development. This does not imply that liberalization should be avoided by poor countries. Low-income countries can use WTO negotiations to improve their own domestic productivity by opening their markets in the context of well-designed growth and poverty reduction programs.

Policy makers in developing countries: establishing a sound investment climate

Policy makers in developing countries have an important role in helping their domestic firms to take advantage of new market opportunities. This responsibility extends well beyond trade ministries. Essential ingredients for improving any country's competitiveness include macroeconomic stability, sound governance and control of corruption, security, adequate transport systems, reliable power and telecommunications, and a sound financial system.  And over the long run, education and health are fundamental to sustained productivity increases. In this sense, open trade cannot substitute for a development strategy - rather it must be embedded in a national development strategy.         

The "development community": promoting trade integration as a lever for poverty reduction

As noted in the Doha Ministerial Declaration, assistance to developing countries in implementing institutional changes to promote trade-led development is often critical to the success of trade reforms. Many countries will not be able to take advantage of new opportunities arising out of the Doha Agenda unless the international community helps with technical assistance and capacity building, with policy advice and - importantly - much needed finance to put in place the infrastructure, transport logistics, and trade-related public institutions necessary to take advantage of those opportunities. In recent years, the international donors have expanded their assistance to the poorest countries through such programs as the Integrated Framework.    

Today, as one representative of the development community,  I am pleased to announce on behalf of the World Bank a stepped-up program to assist countries to implement their domestic trade strategies. 

First, we are ramping up to be able to help any country that requests financing or policy advice for trade logistics. Transport costs are often more important than tariffs for poor countries in determining the landed costs of their products-and thus their competitiveness in export markets.  Whether these are costs in getting goods to ports, through customs, or to customers, reducing these costs by 10 percent has the same effect as reducing a tariff by 10 percent.  We can help developing countries realize such tariff-cut equivalents. At present, we serve about one-third of our clients with trade logistics-related assistance and we are building up our capacity to increase that service to as many as half our clients over the next three years. If governments request it of us, we will invest even more. 

Second, some governments will perceive that agreements reached by the WTO membership will give rise to short- or medium term adjustment costs. For example, MFN tariff cuts by a preference granting country may be sufficiently large that they markedly reduce the preferential access of a developing country supplier. Although such losses may well be offset by suppliers gaining new access and exports in different product lines, that may not be true for all countries and may take time to materialize. Similarly, far-reaching agricultural liberalization could raise world food prices, hurting net importing countries whose farmers cannot respond with greater internal production or with new product exports. Tariff cuts could result in reduced government revenue. The costs of implementing changes to international trade rules may be significant. Our initial analysis leads us to believe that while these types of outcomes are likely to be observed in many countries, in only a few countries and sectors are the effects likely to be large - but we stand ready to work with governments that are concerned with the possibility of being confronted with such shocks, and to provide stepped-up assistance where it is necessary to do so.

Moreover, a new Doha Agreement may also place new demands on developing countries.  Governments will have to design trade reform programs that orchestrate the shift of resources from some activities that are not internationally competitive into areas that provide new opportunities. This may entail new budget outlays. In the short-run this may be for income maintenance or worker retraining, or for new public investments to help bring goods to markets in expanding sectors. In the long-run, resources may be needed in education or in public service delivery to improve the country's competitive position over time.  We can help design such a trade reform program and provide budgetary resources to help carry it out.  

In short, we are committed to making new resources available for developing countries to promote their competitiveness and help them manage in a post-Doha world. But we need your help in designing the specifics of what we might do. We invite you to work with us in a concrete program with three objectives: to determine the extent to which countries are adversely affected, to determine what resources are needed, and to determine what are the most effective ways to provide those. In the next six months, we therefore invite interested WTO members and our partner organizations - including  UNCTAD, the IMF, and donors -- to a series of workshops that will undertake this analysis.   We have the resources and capacity to help address trade-related investment needs and adjustment problems, but we need your help to design programs that addresses national needs.

The coming days will undoubtedly be long and arduous.  But as you labor, keep in the back of your mind that the aspirations of millions of poor people all over the world rise --or fall - with the outcomes of your discussions. We wish you well in realizing its development promise. 

1 The data in this speech are drawn from the World Bank's Global Economic Prospects 2004. This year's document, published on the eve of the Cancun Ministerial, aims to analyze the negotiating issues from the perspective of development and poverty reduction.