Address by

USCIB Chairman Dean R. O’Hare
Chairman & CEO, The Chubb Corporation

“The Future of the Global Trading System:  Where to From Here?”

APEC CEO Summit 2001
Shanghai

October 20, 2001

Good afternoon, ladies and gentlemen.  It’s a pleasure to be in this wonderful city of Shanghai to participate in this extraordinary gathering of business and government leaders from around the world, at this pivotal moment in history.

The September 11 terrorist attack on America and its subsequent condemnation by people of good will everywhere sets our work, here, in an important new context.

Consequently, I come to this conference with an even greater commitment to see that the globalization of economies worldwide, and the benefits that globalization brings, are enhanced by greater global cooperation.

When the World Trade Center was built, its architect -- Minoru Yamasaki – described this great achievement as “a monument to world peace.”

That peace, I would add, was built to a large extent by the growth of international trade that has woven this world together, since the end of the Second World War and the subsequent founding of the World Trade Organization’s predecessor -- the General Agreement on Tariffs and Trade.

Although the human and economic loss from the Attack on America is incalculable, it would be an even greater tragedy if the freedom to move people, capital, technology and ideas around the world became a collateral casualty.

We cannot allow the fear of terror and violence to diminish our efforts to expand world trade, and to ensure that as many people as possible benefit from it.  While I recognize that the word “globalization” has become a rallying cry for many who have complaints about the human condition, I certainly see it differently.


Without minimizing the importance of problems related to poverty and environmental degradation, as well as other concerns, the economic forces that have driven globalization are those forces that also offer the greatest hope for improving standards of living throughout the world.

We need to act boldly now to reweave the fabric of global cooperation so necessary to revitalize the global economy. 

As we all know, trade is an integral part of globalization.  Commerce has been a highway for people, ideas, capital and technology to reach distant places for thousands of years.   It has spread to the four corners of the earth an amazing diversity of products, services and technology.

And the growth of services trade, in particular, has been an important part of this phenomenon, which has taken on new dimensions.  It now amounts to $1.5 trillion annually.

The prospects for substantially expanding services trade were greatly enhanced during the Uruguay Round.  After years of preparatory work, services were finally integrated into the framework of the GATT, with the General Agreement on Trade in Services or “GATS.”

The subsequent adoption of the Financial Services Annex to the GATS, in 1997, further expanded the coverage of WTO member commitments to banking, insurance, securities and diversified financial services.

These steps gave full recognition to the important role services play in economic growth and development.

After all, services are the “soft” infrastructure of the global economy that facilitate innovation, improve competitiveness and create jobs.  They promote the structural economic adjustment required to adapt old ways to new technologies and the changing needs of society.

They allow the transfer of know-how and capital to the farthest corners of the earth in ways we could not have imagined even just a decade ago. 

And e-commerce and the explosion of new telecommunications technologies offer the prospect of empowering people, previously out of reach of traditional business structures, to participate in world trade.

But, ladies and gentleman, we can’t simply rely on the accomplishments of the past to set the stage for the future.

Therefore, I believe that it is critical to launch a new round of multilateral trade negotiations at the next WTO Ministerial and those negotiations must have a deadline for completion. 

They should be truly responsive to the needs of both developed and developing countries so that, using business terminology, there is a “value proposition” for all countries who participate, not just a few.
Turning to services, which is the aspect of trade I know best as the head of an insurance company with global interests and as Chairman of the U.S. Coalition of Service Industries, I think it’s clear that liberalization commitments in the General Agreement on Trade in Services and its annexes are especially inadequate.

Although this is unfortunate, it is understandable.

The Uruguay Round of services negotiations was groundbreaking and many countries, at the time, were ill-equipped to deal with the basic concepts involved in the negotiations.  They often didn’t understand what the practical implications of market-opening commitments would be for them.

Lowering tariffs on goods is one thing – we’ve be doing that for decades.  However, trying to determine the impact of liberalization on a weak and poorly regulated local insurance sector is something else.

Now, however, we’ve lived through the Asian Financial Crisis and its economic consequences, and have had an opportunity to further reflect on the impact of financial services liberalization.

Aside from the question of how to treat short-term capital flows, it’s clear that countries that had earlier taken steps to liberalize their financial markets were better able to deal with the crisis.

After all, a broader and deeper financial market usually results in greater spread of risk and less volatility in the sources of capital needed by local firms to grow, innovate and develop.

Consequently, I believe that a new round of multilateral trade negotiations should substantially improve market access commitments for the services sector, so that the WTO will remain relevant to changing economic needs and conditions.

Now, I recognize that services negotiations, along with agriculture, are part of the WTO’s “embedded” program that is already underway in Geneva.

However, I’m afraid that the kind of horse-trading essential to substantially upgrade the market access commitments of the General Agreement on Trade in Services will never take place unless services are part of a broader round of trade negotiations.

I visited with Mike Moore and other WTO officials in Geneva, at the end of June, and several Chubb colleagues were just in Geneva, last week, as part of an industry delegation.  We remain convinced that linkage with a newly launched round is essential for progress in services liberalization.  And we believe that the launching of such a round is possible.

Let me make another point, before I wrap up my remarks.

As one of the largest and most financially sound insurance companies operating throughout the world, it has become clear to us at Chubb that the time has come to include regulatory issues in the WTO services negotiations.

Just as with goods, it does little to gain market access, if local regulators impose rules designed to protect domestic services producers under the cover of legitimate regulatory objectives and, to make matters worse, these rules are often not even transparent.

In financial services, for example, there is included in the GATS financial services annex a provision called the “prudential carveout.”

While designed to protect local financial markets that are temporarily under duress, it leaves broad and virtually unlimited discretion to regulators to take discriminatory action against foreign financial services firms.

In addition, there is no overall requirement that a regulatory regime be the least restrictive needed to achieve its objectives.

There are several problems with this approach.

First, consumers of financial services are denied the benefits of leading-edge products at competitive prices.

Second, this type of regulation tends to be a substitute for regulation of financial solvency, which is the real threat to consumers and the local economy.

And third, foreign firms are essentially denied the right to fairly compete with local firms, because they can’t bring either new products to the market or offer a price advantage.

How could a foreign-made manufactured import compete in a market if it couldn’t differentiate itself on product design, quality or price?  The same is true for financial services.

Let me mention one additional point.

The growth of e-commerce worldwide has opened up the possibility of selling financial services across borders.  This, however, will never be feasible for many financial services unless some way is found to promote mutual recognition of regulatory standards, so that consumers can be adequately protected.
Now, I’m not suggesting that the WTO is the place to develop these kind of complicated, industry-specific standards.  That is the responsibility of other groups such as the Basle Committee, for banking, IOSCO, for the securities industry, and the International Association of Insurance Supervisors.

However, the WTO needs to have a mechanism to ensure that financial services regulations can meet the tests of being necessary and the least restrictive to achieve their objectives.

Otherwise, regulatory non-tariff barriers could greatly diminish the benefits of market access commitments that have been negotiated, as can happen with goods.         

To sum up, I strongly believe that we must overcome the forces of terror and anti-globalization to continue to expand international trade and investment.  The best way to do that is to launch a new round of multilateral negotiations at the next WTO Ministerial.

Those negotiations need to result in substantial new market access commitments for services and should include the development of rules to encourage the use of regulatory “best practices” that will permit product innovation and price competition.

I began my comments with a reference to the tragic Attack on America.  We all know that nothing can be done to bring back the lives of those from so many countries that were lost.

We can, however, recommit ourselves to building a world where everyone has a chance to create a better life for self and family.

Economic security is a fundamental part of that dream, and economic security for the greatest number of people will only result from the open flow around the world of goods, services, ideas and capital.

Thank you.