Keynote Address by Minister of State for Foreign Affairs and Trade & Industry, Mr Raymond Lim, at the Singapore Symposium on Trade Policy Challenges in East Asia, 20 Feb 03

Ladies and Gentlemen,

It is a pleasure to be with you this morning. I would like to thank Professor Pang Eng Fong for this invitation and to the organisers for putting together this symposium.

Trade and Development

Benjamin Franklin once said, "No nation was ever ruined by trade", and research clearly shows that when trade grows, income follows. A World Bank study of developing countries showed that the income per person in those which opened themselves to global competition in the 1990s grew more than 5% a year, while income in non-globalised poor countries grew just 1%.

Singapore's experience is a testimony of this. We were forced to plug into the global economy early in our development. When we separated from the Federation, we lost our hinterland; we had no choice but to swiftly shift to an export-driven industrialisation policy, slashing trade barriers and actively seeking foreign investment. This change in orientation brought us an average growth rate of 10% from 1965 to 1979.

Trade, especially free and open trade, helped us to overcome the limitations of domestic markets, provided new economic opportunities for us to exploit international markets, created competitive pressures for the domestic economy to reform and adapt and allowed access to new technology and know-how. A key factor has been our own tariff-free regime. Today, over 99% of imports entered Singapore duty free. This is instrumental in keeping costs down and our exports competitive. If we had maintained high tariffs, our manufacturers would have to pay more for intermediate goods per dollar of manufactured output, and our exports then become uncompetitive.

The World Bank has estimated that abolishing all trade barriers could boost global income by US$2.8 trillion and lift 320 million people out of poverty by 2015. The elimination of all tariff and non-tariff barriers could result in gains for developing countries of an estimated US$182 billion in the services sector, US$162 billion in the manufacturing sector and US$32 billion in the agricultural sector. The structure of manufacturing has changed - today it is a globalised value chain, and trade in manufactured goods make up the bulk of trade revenue. Studies have shown that tariffs on intermediates account for 14.4% of manufacturing costs in developing countries, versus 9% in developed countries. It makes dollar sense for developing countries to cut tariffs, trim their production costs and compete well in the global economy.

Trade liberalisation is and should be a priority for developing countries in their development path. I believe there is no disagreement here. Knowing this is one thing, but doing it is another. We all have to juggle different policy objectives and domestic constraints. However, countries have to summon up the necessary political will to keep trade liberalisation on the agenda.

So how do we all go about doing this? Our priority is to ensure the success of the Doha Development Agenda.

The WTO and the Doha Development Agenda

The launch of the Doha Development Agenda or the DDA in short at the WTO in November 2001 came at a critical time in the aftermath of the 9-11 trauma and against a background of a depressed global outlook. It was a resounding response in favour of globalization and liberalization. Trade ministers chose an open, global trading system instead of a world divided by protectionism. The DDA ushered in a new milestone of world trade integration.

Two years have lapsed. After an initial recovery, the global economy appeared to have lost steam. Economic growth continues to look sluggish and employment figures are climbing.

To make things worse, the threats to international security have not lessened after 9-11. The recent bombings in Bali (Indonesia), Zamboanga (the Philippines) and hostage taking by rebels in Moscow (Russia) kept tourists and businessmen alike away from travelling. Now, the possibility of war with Iraq adds to the uncertainty of the business climate and many companies are holding back their investment plans in anticipation of a worse case scenario.

There are thus many external and internal forces to reckon with. Countries would be pressured to look inward and address domestic political problems, than to stay on course with the DDA. We have to resist these pressures. Our economies need a collective boost to investment and consumption. We have to galvanise one another to continue moving forward, and send a strong and positive message to the business community and the world at large. We did this in Doha in November 2001 and we can and must do it again now as the stakes are equally, if not higher.

The Doha Development Agenda has much to offer. It is a comprehensive and balanced agenda that seeks to increase market access for agricultural goods, industrial goods and services. It tackles tariffs and other barriers faced by exporters such as domestic support and export subsidies for agriculture. It also addresses rules that govern measures such as anti-dumping duties, safeguard actions, intellectual property, access to medicine, the environment, regional trade agreements and the structure of the WTO's dispute settlement mechanism. There is also a mandate to discuss new issues such as the relationship between trade and investment, competition, transparency in government procurement and trade facilitation.

More importantly, for developing countries, the Doha round offers a unique opportunity to advance development in concrete terms. The Doha mandate expressly includes the consideration of special and differential treatment, technical assistance and capacity building for developing countries. Negotiating proposals on the table incorporate these elements. But developing countries should not rely on just special and differential treatment. In the DDA, they have the opportunity to secure improved market access for their own products and they have the chance to shape rules for the future that would allow them to boost development and compete better on the global economic stage. The successful conclusion of the DDA can deliver an outcome in which the net gain is more than the sum of individual parts.

Cancun Ministerial Conference

This leads me to an important event on the calendar this year - the Cancun Ministerial Conference in September. What is the significance of Cancun? The negotiations in the Doha round have to be completed by January 2005. Cancun is thus an important staging post. It is an occasion for Ministers to take stock and to provide directions and ensure that the momentum in the negotiation process is kept up.

It is imperative that Cancun succeeds, otherwise it will be a major setback for the whole Doha Development Agenda, and adds further gloom to global economic prospects, particularly for developing and least-developed countries.

But how are we doing so far? Quite a substantial amount of work has been done already. WTO members have been putting forward their positions but work has progressed at an uneven pace.

In particular, there has been some slippage of deadlines. The most immediate of this is on TRIPS and public health. We need to allow vital medicines to reach poor countries that cannot manufacture these medicines themselves; at the same time we need to safeguard the basis of a research and development based pharmaceutical industry. We need a solution and we need one quickly. For many developing countries, this is a matter of life and death. This is both a trade and humanitarian issue, and emotions are stoked. Already, NGOs like Oxfam have accused developed countries of acting in bad faith. Fortunately, certain countries, responding to the gravity of the situation, have pledged not to challenge any WTO member that exports medicines to treat infectious epidemics, produced under compulsory licences, to a country in need. Another welcomed announcement is President Bush's Emergency Plan for Aids Relief totalling U$15 billion over 5 years to help fight HIV/Aids in Africa and Caribbean.

However, while these moves have helped to diffuse the urgency of the issue, they are not enough. A multilateral solution still needs to be quickly found otherwise cynicism will set in again. Trust needs to be rebuilt urgently. It is thus heartening that at the informal meeting of key trade and agriculture Ministers in Tokyo last weekend, there is a renewed commitment to solve this impasse.

There are other deadlines ahead to meet. The critical ones are those in March and May 2003 to agree on the modalities in market access. If we are to give meaning and substance to the DDA, we have to show real progress in market access. In fact, market access issues will be the primary yard-stick by which the success of the DDA will eventually be judged. We need a significant outcome in all three pillars of market access- namely agriculture, industrial goods and services.

Amongst these, the key is agriculture. It is an area of central importance to both developed and developing countries but it has a special significance for developing countries. For many developing countries, market access in agriculture is the touchstone of good faith. In the last round of negotiations, the Uruguay Round, agriculture was a long stumbling block and, in the end, it had to be dealt with separately from other products. The result was that average tariff on agriculture goods remains at 62% while average industrial tariffs world-wide have tumbled from 20% in 1995 to 4% in 2000. Many developing countries, not surprisingly, felt short-changed.

Thus, significant movement in agriculture is needed in the Doha round. Only when the modalities for agricultural negotiations are settled, will everyone be serious. I am, of course, aware that agriculture is a particularly sensitive area for some countries and they face tremendous domestic pressures. However, the credibility of the DDA and the WTO stands in scrutiny here. We cannot afford to fail in agriculture. Difficult as it is, we need to summon up the political will to look beyond partisan interests and at the global welfare gains than can accrue to all.

Only when the WTO delivers on agriculture, only then, will developing countries look seriously at services and industrial goods and the so-called new issues that developed countries are interested in, specifically, investment, competition policy, transparency in government procurement and trade facilitation.

We have a comprehensive set of proposals on draft modalities in agriculture on the table. In Tokyo, we took the first small step towards consensus building. There was a good discussion over the proposal by Stuart Harbinson, chairman of the WTO agriculture negotiations. Some countries criticized his proposal on draft modalities as being too ambitiousl while others felt it did not go far enough. This is to be expected as no one will want to concede at this stage and there will be hard negotiations until the very end. But what was important was that in Tokyo, Ministers agreed that Harbinson's text would serve as the catalyst to move discussions forward. Harbinson will now work out a second draft of the modalities paper for further discussion by early March. This is significant as it means there is now a starting point or framework of sorts for discussions.

As underlined by the Tokyo Informal Ministerial Meeting, the road to Cancun would not be smooth. There are many potholes to maneuver around. This is to be expected. But let's not lose heart. Instead, let's press ahead at full steam but with realistic expectations and let's be flexible not dogmatic. Only then, can we work towards a good outcome for all at Cancun.

Conclusion

To sum up, the WTO and the multilateral trading system is the best way forward for Singapore and for East Asia. We need to ensure that global trade is based on a rule-based multilateral trading system where goods and services can flow freely with minimum impediment. We thus need to work in concert with each other and our WTO partners to progress on the DDA, and aim for a successful meeting at Cancun.

To do this, we need to keep up the momentum. Each of the deadlines represents a marker on the scale of our confidence in the round. Whether we meet these deadlines and how the deadlines are met will chart the direction for the Cancun meeting, and indeed the rest of the round. With such a full plate of issues from now till then, it is a very real concern that the agenda at Cancun could be overloaded. We cannot afford to delay issues that can be decided now, and push everything to Cancun. There must be good faith and a sense of urgency. If Cancun is overloaded, we risk serious setback to the DDA and de-railing the momentum. No one stands to gain from such an outcome. It is thus critical that Cancun succeed.

Thank you. I wish you a fruitful day of discussions.