Speech at High-Level Symposium “Strengthening Multilateralism And Multilateral Trading System In The Age Of Globalization”

Delivered at Conference Room 5, UNHQ

1. Asia-Pacific is globally integrated as it embraced globalization backed by multilateralism early.

The benefits are self-evident as export growth grew by 13% annually from 1990 to 2008, powering sustained GDP growth by nearly 6%. Trade and investment liberalization, supported by production networks have nurtured global value chains (GVCs) based trade.

The global financial crisis of 2008 revealed risks associated with overdependence on external demand. Despite higher volatility, the region pursued growth and export dynamism that rose by 6.0% and 2.2% on average post crisis. Impetus was provided by structural transformation and innovation - all backed by renewed efforts to foster regional integration.

Outward oriented strategies helped Asia-Pacific enhance its manufacturing base. Today, manufacturing exports constitutes 60% of developing Asia-Pacific’s total exports, supported by medium-to-hi tech exports whose share grew to almost 57%. Concurrently, the service sector contribution to GDP and to exports grew to 59% and 22%, respectively.

Asia is now a dominant exporter of information technologies of which the share in global exports rose from 25% in 1997 to 61% in 2015. Liberalization of the WTO Information Technologies Agreement (ITA), signed in 1996, has allowed economies to exploit GVCs and produce high-quality technology products. These factors were instrumental in developing digital infrastructure at a lower costs and set the stage for IR 4.0.

Globalization, backed by multilateralism, brought convergence between the early industrialized countries and Asia-Pacific. In 1990, the real GDP per capita of North America was almost 8 times that of the Asia-Pacific region. By 2016, this income gap had fallen to 4 times regional aggregate. For middle-income countries, the gap in GDP per capita fell from 9 to 3 and from 20 to 9.5 times for low-income Asia-Pacific countries. ESCAP’s 2018 Inequality study reveals a decline in inequality between countries as the region’s Gini coefficient fell from 76.9 in 1995 to 49.2 in 2015 - supported by a rise in the gross national income of highly populated countries. Inequalities within countries have however deepened, as trade-led growth was not accompanied by complementary policies to share benefits equitably.

2. The WTO-based Multilateral Trade System (MTS) primary functions face challenges

The rules-setting changed from being captured by the few, to suffering from horizontal decision making. The negotiations and enforcement mechanism (i.e. dispute settlement) has become defunct. Ironically, due to the 2008 crisis, only the monitoring mechanism improved.

In the wake of this and facing competitiveness-seeking pressure of production and trade under GVCs, Asia-Pacific opted to fast track market access through bilateral or plurilateral free trade agreements (FTA). Today, the region’s preferential trade regime constitutes 66% of all enforced FTAs notified to the WTO. Gains in market access were not that impressive and came at the cost of undermining the principle of the MTS: nondiscrimination. Creeping FTAs started to introduce stricter trade rules and rules in new areas. While this undermined the rules-setting function of the WTO even further, it offered a possible direction for reform of the MTS to make it fit for modern production and trade.

Today trade liberalization, achieved over six decades of MTS and other efforts, risks being undone by increasing tariffs and nationalistic protectionist policies such as voluntary export restraints, orderly marketing arrangements, quotas and other instruments to manage trade.

3. Leadership of Asia and Pacific on Multilateral trading system (MTS), to ensure its fit for the 21st century globalization is critical

In an environment where advocates of globalization and trade liberalization are on the defensive or retracting from the mantra advocated to the developing world is neither a fair nor an easy task. Going forward, there is need to

  1. Focus on strengthening rules-setting by complementing those developed under FTAs and in particular in plurilateral or sectoral agreements which proved successful under WTO, such as Information Technologies Agreement and Trade Facilitation Agreements.
  2. Stick to and defend the WTO’s principles, while demanding enhanced compliance and functionality of the dispute settlement mechanism.
  3. Defy unilateral retaliatory actions by fostering alliances with more ardent WTO members to seek trade justice for global public welfare.

Going forward, we should opt for an open plurilateral and sectoral approach. Asia-pacific economies were part of the MTS from the very start of GATT (7 out of 23 founding parties were from Asia). Today, 38 members of ESCAP are WTO members, and another 5 are negotiating accession.

Asia-Pacific economies have shown the way in this regard by:

  1. Signing off on CPTPP – Comprehensive and Progressive Trans-Pacific Partnership – a grouping of 11 Asia and Pacific members –that subscribed to FTA addressing 21st century rules and giving appropriate treatment to developing countries.
  2. Continued deliberation of RCEP – Regional Comprehensive Economic Partnership - a 16-member mega deal.
  3. Signing off on the ESCAP led Framework Agreement on facilitation of cross-border paperless trade in Asia and the Pacific which will help cross-border paperless trade solutions to achieve higher levels of trade facilitation and compliance.
  4. Other initiatives which encompass more than trade and investment such as Asia wide regional economic and integration and the Belt and Road Initiative are driving connectivity and integration (ICT superhighway, Dry ports, energy) and have potential to deepen market integration process.

To conclude, our message at ESCAP is that the right way to safeguard multilateralism and the WTO is not to maintain status quo. There is a need to reform the multilateral rules by making them more inclusive, open, transparent and adaptable.

The first best solution remains the multilateral trading system, with a functional WTO and dispute resolution system at its core. WTO+ rules negotiated in mega-regional trade agreements like the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), or Regional Economic Comprehensive Partnership (RCEP), can provide the ideas and emerging consensus needed to revitalize the multilateral trading system.

Asia must act responsibly and firmly in defense of multilateralism. Not only on trade matters but other cross-boundary global areas, including climate, capital flows, and labour laws and flows. Asia-Pacific leaders need to conclude more decisively their outstanding differences and foster solidarity.