Doha Round Completion Would Aid Economic Recovery

by Ulrika Lomas, Tax-News.com, Brussels

28 April 2009

"Economies that are more open will be better placed to stage a faster and stronger recovery once the global crisis comes to an end," said Director General of the World Trade Organisation, Pascal Lamy, in a speech delivered to the Peterson Institute for International Economics in Washington D.C. on 24 April 2009. Conclusion of the Doha Round “could complement national stimulus packages that many countries such as the United States have put in place”.

Some further highlights of Mr Lamy's speech:

"We are now confronted with the first global crisis in the history of mankind. A crisis which threatens to erode people's faith in an open international trading system. A virtual freefall in trade and the belief that the more open economies are bearing the brunt of the decline have led some to argue that trade openness has made economies more vulnerable to the crisis."

"Trade has surely not been the cause of the collapse in demand. Trade finance, which oils the wheels of international trade, is drying up and is contributing to its contraction. The fall in aggregate demand is affecting global supply chains, magnifying the contraction in trade. Global production strategies and technological progress saw trade increase above world growth. With the current global contraction, trade is now seeing an exponential decline."

"Some countries have increased tariffs, instituted new non-tariff measures, and initiated more anti-dumping actions. Some of the measures that have been introduced to stimulate economies contain provisions that favour domestic goods and services at the expense of imports. True, most of these measures are allowed under WTO rules. True also that none of them has triggered so far a tit-for-tat chain retaliation. But there is no denying the fact that they have had some trade chilling effect."

"The response to greater volatility is not to turn away from openness. It is to ensure that market opening is accompanied by international rules and by domestic policies that create insurance for workers and business against the Schumpeterian impact of competition, and the now well known volatility of market capitalism."

"By breaking down barriers, trade creates a larger market and enables businesses to operate with increasing returns to scale. This means that even small incremental input leads to large increases in output. These efficiency gains from the international division of labour translate into higher incomes. As a result, many of the economies that have been badly affected by the crisis have been enjoying decades of high economic growth. Take Vietnam, Singapore, China or Chile to name a few. Governments in these countries have built up resources to allow them to manage the worst effects of the current recession."

"Since a global economic crisis of this severity is extremely rare, the contribution of external demand to increasing income will, over time, largely outweigh losses suffered during economic downturns. We also know that this global crisis will eventually end, and when it does, economies that are more open will be better placed to stage a faster and stronger recovery. For countries that depend on trade and have specialized according to comparative advantage, a reversal of openness will impose significant costs on the economy. What is more, setting up new barriers to trade will be seen as protectionism and will risk retaliation from trade partners. Rather than reviving economies, the effect of this will be to worsen the global crisis."

"Cobbling together complementary domestic policies with trade openness helps magnify the benefits from trade while, at the same time, blunting any vulnerability from sudden shifts in external economic conditions. Openness begets efficiency and higher incomes. Flanking domestic policies enlarge those gains and provide greater security when a crisis strikes. The presence of these complementary domestic policies provides a layer of comfort to workers who are then better prepared to face global competition since they know there are social safety nets that will catch them when they fall. Without these measures, open economies are more vulnerable to external shocks. Politicians in those economies also face a more sceptical public who will find it easy to blame trade when the economy is buffeted by powerful economic forces."

"The GATT and the WTO have provided the world with more than sixty years of economic stability. What business — and consumers — want is exactly that: stability and predictability, which have been ensured by the very basic principle of binding tariffs, i.e. by opening markets in a sure, definitive way, and by all the disciplines contained in the many WTO agreements."

"We now need a successful Doha Development Round, to restore confidence in a moment of crisis and to reinforce the stability and predictability of the global trading system. The Doha Round is simply the lowest hanging global stimulus package. It could complement national stimulus packages that many countries such as the United States have put in place. While national expenditure programmes stoke domestic demand, the Doha Round would fuel foreign demand for a country's goods and services through the concerted reduction in trade barriers, boosting the confidence of business and consumers."

"A successful Doha Round would show that even in the midst of a global economic crisis, nations can successfully cooperate to reach global solutions. This would augur well for our ability to find cures for other pressing global problems which require nations to cooperate, such as climate change, where the clock is ticking for Copenhagen. Trade opening is an unfinished business. It is about addressing our most immediate challenges first so that we can build on them for the future. Our challenge remains concluding the Doha Round which would put another brick in our 60 year old global trading system."

"US opinion on trade is in flux, but with strong political leadership it is possible to fashion a multilateral trade deal that the US public will support. It is not less trade that the United States needs, but more and better domestic policies. There has been excess attention on trade and a serious deficit of attention on domestic policies which help translate trade into benefits for the people. This is where the task of reconciling the people with trade must start. We owe the post World War II vision of an open, non-discriminatory international trading system to the United States. Historically, it has played a leadership role in previous rounds of multilateral trade negotiations. The world now needs a committed US to strengthen the multilateral trading system. A US once more willing to make history."

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