“WTO and the Global Economy: Maximizing the Benefits and Sustaining Growth” Norman R. Sorensen Chairman, Coalition of Service Industries of the United States Pacific Basin Economic Council Hong Kong, June 13, 2005 It is my great pleasure to participate in this panel to discuss the contributions of global trade liberalization to global growth, and to comment, as requested by the Conference organizers, on the services aspect of world trade negotiations. We believe that the WTO Doha Development Round is our single best opportunity for substantial global liberalization of trade in services, agriculture and goods. But as I will explain, it is an opportunity that may be fast slipping through our fingers. To succeed in services negotiations it is vital to improve public understanding of the importance of services in the global economy. It is regrettable but true that policy makers in many countries think of their economies in terms of agriculture and goods, and unfortunately, make policy decisions that reflect this bias. Until the 1980’s trade in services was considered “invisible”. The scope of the services economy, and of trade in services, was crudely and incompletely measured. There was no set of rules governing services trade, as there was for goods and agriculture. A great contribution of the Uruguay Round was that it created the General Agreement on Trade in Services (GATS), which establishes the essential rules that WTO Member countries should apply to services trade. And services are no longer “invisible”. They now account for the lion’s share of the global economy. In 2002, services comprised 68% of world GDP. In the United States, services account for about 80 percent of private sector employment and GDP. For some economies, like Hong Kong, services comprise more than 90% of GDP. Even in low and middle income countries, the services share rose from 46% in 1990 to 55% of GDP in 2002. Global trade in services has also grown, but not as fast as it could have. While services account now for 68% of the global economy, they account for only 23% of world exports because of prevailing barriers to services trade. By this measure we have only begun to realize the benefits of meaningful services trade liberalization. According to a University of Michigan study, the global welfare gains from reducing services trade barriers by only one third would equal $414 billion! In order for the Doha Round to succeed, therefore, it must produce just as much liberalization for services as it does for agriculture and goods. US industry, and the US Congress, will not accept an outcome that does not produce very substantial gains for services. And, to realize the vast potential for services trade will require much greater effort by governments and their trade negotiators. The Outlook I regret to say that the outlook for success in services is not good. According to the timetable adopted at Doha Members agreed to table offers by March 31, 2003. In fact only 61 had tabled offers by the end of May of this year, more than two years later, leaving another 31 that should be expected to table. More important than the numbers, many of the offers that have been tabled are considered to be of poor quality. In order to encourage countries to improve offers, the WTO Council agreed last August 1 to ask Members that had made offers to revise – that is, improve - their offers by May 31. Members that had not made offers were, once again, admonished to do so. But as of last week, only eleven members had revised their offers. Why has the process of services liberalization been so torturous, so unproductive? There are many reasons, I believe, but they divide into two main categories. The first is that the process itself is so very cumbersome. The request/offer format is badly suited to services. It requires teams of negotiators from each Member country to sit down with each other for days, if not weeks, to plow through the detailed, complex schedules of commitments that GATS uses. Many countries complain that they do not have the resources to do this. Second, and most critical, is that a great many governments do not have the political will to do the hard work necessary to make offers and to negotiate in this format. Nor do they seem to have the will to make the hard decisions to open their economies and challenge the vested interests of incumbent institutions, frequently state controlled. And this in turn is because many governments have not absorbed the lessons of the reform and liberalization movements of the last several decades in which some countries have profoundly changed the course of their economic history by taking, in their own interest, steps to open their economies. Brazil, for example, has succeeded in creating a dynamic telecommunications sector through autonomous liberalization, which it is unfortunately not yet willing to bind in the WTO. Chile has made thorough economic reforms which it has strengthened through a bilateral agreement with the US and which we hope it is ready to commit in the WTO. Hong Kong and Singapore have of course long ago launched their highly successful market-based reforms, which Singapore improved in certain areas such as financial services in its bilateral agreement with the US. China has undertaken to make substantial market based reforms through its accession to the WTO. We hope Russia, Saudi Arabia and Viet Nam will do the same. Recently I visited Delhi, Brasilia, Kuala Lumpur and Beijing to discuss with senior officials the need to make progress in the Round. In each country I was assured that revised offers would be made. In one of those countries which maintains controls on foreign investment and ownership, yet needs to have much more foreign investment in order to meet its own goals for infrastructure development and growth, I was advised by a local academic authority that the government would not be able to continue to “hold the fort” against inevitable market driven changes. The lesson is that liberalization is most profoundly and immediately in the interest of the liberalizing economy. It was to the great credit of the Chinese leadership to press for WTO entry and to undertake the obligations that were required in order to join. They understood what accession would mean for their economy, and their courageous decision has been borne out. A Proposal One way to speed the negotiations is to address the first problem, that is, the complexity of the negotiations, by adopting a formula or model to initially simplify the process. CSI has proposed to Congress, with Administration support, that all WTO members make commitments in all services sectors in the GATS. Those commitments, we believe, should at least include WTO Members’ current levels of liberalization. With this floor as a starting point, negotiators could focus on improving the depth, scope, and quality of commitments in areas of particular concern. The overall goal would be to bring Members' commitments up to the level reflected in the schedules of those countries that have done the most to liberalize their services sectors. We believe this “leveling up” approach will bring a focus to the negotiations that they have, to date, lacked. Of course countries, even advanced ones, might have to derogate from aspects of the formula, but if it held true as a general rule it could be most useful. Conclusion The Doha Round negotiations are the first significant opportunity since the Uruguay Round in 1994 to achieve meaningful trade liberalization for services as well as goods and agriculture. If substantial progress is not made for services we will not be able to consider it a success and support for it will be weakened in the US. There is time to cure the practical problems that have slowed the services negotiations, and there is certainly ample time for governments to give them the support they require. The overwhelming benefits of liberalization for jobs and global growth, particularly in knowledge-based services, demand that governments and the private sector join in making these negotiations a major success.