Lamy Highlights Importance Of Trade In Building 'New Bretton Woods'

by Mike Godfrey, Tax-News.com, Washington

22 October 2008

Pascal Lamy, Director-General of the World Trade Organisation (WTO), has discussed issues surrounding trade and the current push for greater financial regulation in the wake of the global financial crisis.

Mr Lamy used his speech to the Third Global Policy Network Conference in Beijing to highlight the lessons that could be learnt from sixty years of multilateral trade rounds under the General Agreement on Tariffs and Trade (GATT), and latterly the WTO.

“WTO members have shared a broad consensus that gradual and negotiated trade opening is a win-win game and that it needs to be accompanied by a set of multilateral rules. There is a place to negotiate, monitor and enforce these rules, including a binding Dispute Settlement Mechanism with no precedent in the international system.”

Whilst Mr Lamy welcomed the current enthusiasm for the building of a new Bretton Woods Consensus, he was clear that discussions on such global subjects needed to be as inclusive as possible. He identified four elements that should be taken into account:

• “no global consensus can be built today without the participation of developing countries. The Group of Seven or Eight industrial countries cannot do it alone. It is as much a legitimacy as well as an efficiency issue, given the role of world growth engines played today by emerging economies
• it will be a slow and painful process. Global financial regulation will not be built in one day. The most urgent element is to restore confidence in the financial system. The signal that nations are ready to engage in an honest process of global rule-making would contribute to this
• the definition of global rules will require a dialogue with financial operators, central banks and other supervisory authorities
• finally, regulation is not about corseting financial activity, but rather about ensuring that it takes place in a safer environment, where the risks are kept under control. It is like designing the security features in a high-speed train: engineers must be able to design faster, lighter and smarter trains but they also need to make sure they respect safety standards to ensure they do not crash with hundreds of passengers on board. What we need is a set of safety rules to protect us from world financial crashes.”

Mr Lamy was keen to hold out trade as a large part of the potential solution.

“Trade is not the cause of financial turmoil but good trade policies may be but part of the solution. It allows unused resources linked to the fall in domestic markets to be exported. Trade opening can also be useful, by increasing the efficiency of affected economies, bringing fresh capital inflows — in financial services for example — and by providing new export opportunities. The resort to protectionism is made much more difficult for countries that wish, in a non-cooperative mode, to shield themselves from the exports of crisis-stricken countries.”

”While trade expansion has been a visible part of globalization, and hence the target of globalization anxieties, the current crisis in the financial markets shows that the bursting of the financial bubble may be much more destructive, leaving people without housing, jobs and savings. The WTO could play an even stronger role in bringing about more market access, greater predictability and security in real economy transactions. Strengthening anti-protectionist disciplines at the WTO, and offering more stable access conditions to all countries, including developing countries, will make them less reliant on cyclical developments and help them widen their export base.”

Mr Lamy argued that trade should once again be pushed up the agenda, specifically the saving of the Doha round, and not be forgotten in the scramble to create global financial regulation.

“So, trade is the low-hanging fruit in a complex set of issues requiring collective action now, including finance, the environment and energy. The question arises whether these issues should be tackled one by one or as some sort of “grand bargain”. My sense is that, even if these issues have to be solved one by one, there is a need for world leaders today to look at all these issues as parts of one reality: the need to achieve a better redistribution of powers between developed and developing nations and the assumption by all nations of their corresponding responsibilities to tackle these global challenges. All nations need to make their contribution to a global solution. The Doha Round can be fixed now. Let’s fix it while devising solutions to the rest of the challenges.”

Recommended