Protectionism cannot be 'smart',
Lamy*
Even "smart" isolationism would be a recipe for a global slump,
said WTO Director-General Pascal Lamy, because protectionist
measures taken by one government would be replicated by others,
creating a domino effect of dire consequences. He stressed the need
both to resist protectionism and to conclude the Doha Round
negotiations.
Excerpts from his speech:
The place of trade in the economic crisis
Trade has become another casualty of the global economic crisis.
The slump in demand and the difficulties to access trade finance
have led to a significant contraction of world trade. According to
current estimates, world trade will contract by some 3 per cent in
2009. Just as trade tends to grow faster than output in good times,
it typically contracts faster in times of recession.
This means that one of the most powerful engines of global growth
is hampering efforts to lift people out of poverty. And this is
affecting both developed and developing countries. It is affecting
the 12 million jobs in the US which are dependent on exports. It is
affecting the 6.2 million jobs in France which are dependent on
trade. Not to mention the 100 million or so jobs in China which are
turned to export markets.
It is important to reflect on this as we think of devising
responses to the current crisis and as we hear talk about
"protecting domestic jobs". The reality is that today a huge
proportion of domestic jobs are reliant on access to export markets
and without trade, these jobs risk disappearing.
This is why we hear many voices against isolationist measures. Is
it credible to imagine that one country can protect its domestic
market without others doing the same?
Let's imagine for a second that the US decides to close its
automobile market to imports, let's say Chinese, Japanese and
European automobiles, worth US$ 80 billion. It is highly probable
that the Chinese, Japanese and Europeans would decide to close
their markets to American planes, cranes and chemicals, all this
worth US$ 120 billion.
The domino effect that such moves could cause would be
devastating. And this is why isolationism, even "smart"
isolationism as some are advocating, is a recipe for global slump.
And this is why resisting protectionism and avoiding an aggravation
of the current crisis is an imperative today.
The reality is that protectionist measures by individual countries
are unlikely to help in the recovery efforts. Instead, what is
necessary is to coordinate the domestic stimulus packages, to
cooperate in addressing global challenges and to think of using the
least harmful trade policy instruments.
This is where activating the WTO's mechanism of trade policy
review is essential. It provides WTO members with a forum for
dialogue on how best to use their trade policies to help the
recovery, while allowing a thorough scrutiny of trade-distorting
measures.
This is why I disagree with those who say that the current
economic crisis requires a shift in the WTO's priorities - that we
need to concentrate on fighting protectionism and that therefore we
should de-emphasize or even abandon the Doha Round.
In fact, trade and the Doha Round have a place of their own in
global efforts to revive the economy. Open trade flows have a role
in maximising the G20's efforts to stimulate the global economy. At
the same time, the Doha Round is the most effective way to further
constrain protectionist pressures by reducing the gap between bound
commitments and applied policies.
Indeed, if all WTO members raised their currently applied tariffs
to today's WTO ceilings, tariffs worldwide would double. A recent
study estimates that world trade could then shrink by up to 8 per
cent, reducing global welfare by up to US$ 350 billion. Conversely,
with what is currently on the table in the Doha negotiations,
tariff ceilings would be halved and the savings for economic
operators could amount to over US$ 150 billion
annually.
Values of the multilateral trading system
We have recently heard ideas for a Global Economic Charter - an
occasion for the international community to re-build a consensus
over the basic principles and values that would underlie their
economic relations, emulating the founding fathers of the United
Nations Charter of 1945.
The WTO and its predecessor, the GATT, can provide a source of
inspiration in this regard. Let me briefly mention some of the WTO
principles which could help formulate a new global economic
consensus.
First among them is openness through the gradual reduction of
obstacles to trade. This is accompanied by flanking regulations
aimed at ensuring a level playing field and avoiding excesses. A
third element is transparency and monitoring: processes ensuring a
brighter spotlight to foster compliance with the rules and avoid
the eruption of disputes. The fourth element that I would mention
is non-discrimination, which in the WTO is embodied in the
principles of most-favoured nation and national treatment. The
fifth element is fairness, as enshrined in the special and
differential treatment for developing countries. All of this with
the overriding objectives of raising standards of living, ensuring
full employment and achieving sustainable development as described
in the preamble of the Marrakesh Agreement establishing the World
Trade Organization.
Concluding the Doha Round to advance the multilateral
trading system
The principles on which the WTO is premised and its objectives are
as relevant today as they were when they were adopted in 1947. And
the depth and breadth of WTO rules have evolved along with world
economic realities and the changing needs of our members.
The last major overhaul of the world trading system took place in
1995 with the conclusion of the Uruguay Round. Subsequently, the
WTO family forged a consensus to further reform the world trading
rules with the launch of the Doha Round in 2001.
It was agreed under the umbrella of the Doha Round to
substantially cut trade-distorting agriculture subsidies, chief
among them cotton subsidies, to curb fishery subsidies which
contribute to the depletion of the resources of our oceans, to a
greater opening of services trade, to facilitate customs
operations, to open trade in clean technology, to adjust
anti-dumping rules, to offer duty-free and quota-free access to the
exports of the world's poorest countries, and to achieve greater
market access in agriculture and industry, to name a few.
This is the menu which needs to be served at the conclusion of the
negotiations. And the good news is that we are over 80 per cent
there and that with an extra effort we could get to the finish
line.
I have recently read some academics argue that this is an outdated
agenda. That the world has moved on. That fluctuating commodity
prices, cartelisation of oil exports, currency undervaluation,
sovereign wealth funds, financial instability and environmental
insecurity have significant global implications that demand a
global solution that the Doha Round would not offer. They therefore
argue that the Doha Round be scrapped and a new round of Bretton
Woods talks be launched with a more ambitious agenda and wider
organizational coverage to deal with all these challenges.
This seems to me, at best, a classic example of trying to "bite
off more than you can chew"! At worst, it is a disingenuous
appreciation of the politics of trade negotiations, with two-thirds
of its active participants nowadays being developing countries. Is
it fair to tell African cotton producers that they need to wait
until a new agenda is set to address the pressing issue of cotton
subsidies, which contribute to depressing their domestic
prices?
My own sense is that the vast majority of WTO members want to see
the current agenda tackled and concluded as soon as possible. They
want a result on the priorities which were agreed when the Round
was launched and whose results are long overdue.
My own sense is also that WTO members need to start thinking about
the next agenda: about future priorities and challenges, whether in
terms of subjects, negotiating processes or participants. Serious
thought needs to go too into a better distribution of roles among
international organizations and the challenges of coherence.
But I am convinced that the road to the future starts with the
conclusion of the Doha Round. This is now as much a political
imperative as it is an economic necessity.
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