The WTO and the "wired" global economy

by Renato Ruggiero, Director-General of the World Trade Organization

Ours is the age of information. In other times, coal, oil and steel were the raw materials of economic expansion. While these commodities are still important, there can be no doubt that a nation’s competitiveness is increasingly measured by its ability to deliver information. Today, digital technologies and communication networks are erasing the once impregnable barriers of time and space. This technological conquest will have far-reaching economic effects.

Transaction costs for consumers and businesses will fall rapidly as many steps between buyer and seller — distribution, sales, retailing — are compressed. Transaction times will fall even faster. Most significant of all is that the creation of new businesses with a global reach will be easier than ever before. This increased competition will not only lead to new job opportunities, but will offer immense benefits to consumers who will see greater choices and lower prices.

This diffusion of technology is, of course, not a new process. What is new is the way an expanding network of computers, telephones, and fax machines is accelerating the process, and widening its scope. This information-driven economy differs from the traditional economy of land, labour and capital in fundamental ways. It is not bound to any one region or country. It is mobile. And it can be developed anywhere.

In this "wired" global economy, the WTO plays a vital role. There is a clear and indivisible relationship between the dynamic of technological progress and the dynamic of liberalization, a clear link between deeper economic and technological integration and the global rules needed to manage our interdependence — rules which only the WTO’s multilateral trading system can provide.

Three of the WTO’s major achievements during the last twelve months alone show how this link continues to be reinforced. In February 1997, 69 WTO member governments reached an agreement to liberalize international trade in basic telecommunication services. Nearly 93% of the total domestic and international revenue of some USD 600 billion generated in this sector annually is accounted for by these governments, well over half of whom represent developing countries or economies in transition. Following fast on the heels of this, in March 1997 some 43 WTO member governments agreed to start the complete elimination of tariffs on a wide range of information technology products. International trade in these products currently amounts to almost USD 600 billion annually. The vast bulk of the tariff elimination exercise will have been completed by the year 2000.

Taken together, these two agreements have enabled WTO members to move even closer towards bringing the technological trade of the next century inside a rules-based system.

This is the unique contribution of the WTO to a more predictable economic evolution. It is also a critical feature of the WTO’s third major achievement of 1997 when 70 WTO member governments reached a multilateral agreement in December to open their financial services sectors. The agreement covers more than 95% of trade in banking, insurance, securities and financial information. Like basic telecommunications, the financial services sector is large and an essential part of the infrastructure of any modern economy. In industrial countries alone, over USD 1 trillion is earned annually in this sector. This amounts to some 5% of the GDP of the countries concerned, and accounts for around 3 to 4% of total employment in the Organization for Economic Co-operation and Development (OECD) countries. Another indication of the sheer size of the sector is that world banking assets amount to more than USD 40 trillion, thereby exceeding total world income.

The agreement came at a critical time. With Asia in the grips of a financial crisis, the WTO member governments showed courage and commitment to pursue the policies of liberalization which are essential to economic stability, growth and development. The agreement in no way compromises the ability of WTO members to pursue sound macroeconomic and regulatory policies. On the contrary, commitments to liberalize require the adoption of such policies and help tie in a broader process of reform.

But while recognizing the great potential for borderless trade in an information-driven global economy, we must not forget the many areas of international trade where borders are all too real — like agriculture, textiles, or industrial goods — and the many countries which depend on more open trade in these sectors for their economic well-being. Unless we can move forward in a way which addresses long-established concerns as well as new ones, we risk a fragmentation of the global economy, and a further widening of the gap between countries "plugged-in" to globalization and those left on the margin.