Lamy Urges Governments To Fight Protectionism

by Mary Swire, Tax-News.com, Hong Kong

25 February 2009

WTO Director-General Pascal Lamy speaking at a conference in Seoul, Republic of Korea, on 23 February 2009, urged governments to clean banks’ balance sheets, signal that individual stimulus packages are closely knitted together into a global joint effort, demonstrate that leaders of major economies can work together in full co-ordination and trust, show that the world trade environment is not deteriorating and that isolationist pressures are contained.

On the subject of how external trade has contributed to Korea's economic success, Lamy said:

"Only 50 years ago Korea was among the world's poorest countries, with a GDP per capita less than that of Senegal and Bolivia. Lacking vast quantities of useful arable land and an abundance of natural resources, the South Korean government embarked on a programme of trade-driven growth as a means of development and poverty alleviation. The results have been little short of amazing. Over the last 50 years, South Korea has risen from an impoverished and struggling nation to become the world's largest builder of ships, the fifth largest producer of automobiles and the sixth largest producer of steel."

"In all but four of the last 20 years, South Korea's exports have increased by 10 per cent or more. Today South Korea is the 11th largest exporter in the world and the 13th largest importer. Korea's international success has not been limited to trade in goods. The services sector, which employs 63% of the workforce, has posted notable export success as well. Needless to say, trade has been a profoundly important contributor to South Korea's economic expansion."

Mr Lamy went on to discuss the indispensable role of the multilateral trading system:

"Korea's economic boom has its roots in a highly educated, productive and innovative workforce and proper government policies. But the country's international commercial success has also been underpinned by a global trading system which has gradually opened markets inside a system of internationally agreed rules. These rules have provided South Korean exporters and importers with a transparent and predictable framework within which to trade."

"Even in difficult times, the global trading system overseen by the World Trade Organization provided Korea with an insurance policy that foreign markets would remain open to its exports."

"In 1998, the Asian financial crisis shook South Korea and much of the rest of the Pacific Rim. GDP contracted by nearly 7%. But that same year exports grew by 15% and by nearly 20% in 1999 and again in 2000. The result was that South Korea pulled itself out of the recession and was posting good growth of 10% only one year after its deepest recession in memory."

On the fight against protectionism in the midst the worst economic recession since World War II:

"Confidence is key in time of crisis. But where will the confidence come from?"

"It should come from the belief that the financial system has been cleaned up and is back to work. This requires focusing on cleaning banks’ balance sheets. This is a matter of urgency even if resisted by banks' shareholders. Until and unless this happens, there is no turning point in sight."

"It should come from the belief that a serious attempt is being made at filling the hole of international regulations of finance in order to avoid future accidents of this type."

"It should come from the belief that individual stimulus packages are closely knitted together into a global joint effort."

"It should come from the belief that the weakest and the poorest in our countries and continents are taken care of in policy responses."

"It should come from the belief that leaders of major economies can work together in full coordination and trust to agree on common solutions."

"The confidence should finally come from the belief that the world trade environment is not deteriorating, that isolationist pressures are contained."

"Global leaders have the collective responsibility to provide confidence to the people, not only their own people, but the people of the world."

"It is encouraging that world leaders have seen the potential risks ahead. The G20 Leaders Summit in Washington last November underscored the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. Leaders of economies representing 90 per centt of the world's GDP – including President Lee - agreed to refrain from raising new barriers to investment or trade, or from imposing new export restrictions over the next 12 months. They also called for a rapid conclusion of the WTO Doha Round."

"The same calls were echoed by seven major industrial economies during their meeting in Rome two weeks ago."

"The next G20 Summit in London will be a test of the capacity of major economies to work together, hand in hand, in searching for solutions to pull the world economy out of a deeper recession. It will be a test of political will: of their ability to transform political will into action. It will also be a test of whether current global mechanisms are capable of dealing with global challenges."

"Korea knows how important keeping trade open is to growth and economic development. Seoul is therefore a good place to discuss what the international community can do when faced with isolationist tendencies."

"The first response is to complete the WTO Doha Round negotiations as quickly as possible. The Doha Round is the best insurance policy against protectionist moves. Tariffs applied on trade today could double if they were raised to existing bound ceilings. With what is currently on the table in the Doha Round, tariff ceilings in the WTO would be halved. The same is true for rich country agriculture subsidies whose ceilings would be reduced between 70% – 80% cent with the current deal on the table. The Doha Round negotiation is a long and difficult journey. We are not there yet, but we are not far from the final destination. The last mile is understandably a difficult one, but it deserves our utmost efforts."

"Secondly, governments should resist the temptation to raise trade barriers, which today appear with many “faces”. Sometimes it means raising tariffs, applying non-tariff barriers, abusing trade remedies such as anti-dumping, doling out subsidy packages or imposing “buy local” conditions. Rejecting these moves is not a question of ideology. Rejecting isolationist pressures is today a matter of self-interest. Does anyone believe that they can protect themselves without the others doing the same? Beggar-thy-neighbour policies bear the risk of prompting retaliation by other countries and driving down the overall level of trade - thus destroying output and jobs around the world."

"The WTO, with its trade policy reviews, can play a useful role in helping WTO members resist isolationist pressures through peer-review. This is why we have set up a specific monitoring mechanism to track, review and discuss trade policy developments during the crisis."

"Thirdly, we must ensure the availability and affordability of import and export finance. Trade has decreased as a result of a drop in demand, but it is also the result of lack of trade finance. At a meeting with providers of trade finance hosted by the WTO last November, the shortfall in credit for trade was estimated at USD25bn. The response initially focused on providing guarantees for trade credit."

"Thus, the World Bank’s IFC announced a tripling of the ceiling of its trade finance guarantees. Regional Development Banks, including the Asian Development Bank, also stepped in. However, three months later the problem persists and a lack of liquidity remains."

"The WTO is working with the World Bank and with the IMF to try and create a liquidity pool to address this constraint. I hope that countries that have the capacity to do so can contribute to this initiative which should be set up without delay."

"Finally, the international community should not forget their aid pledges in favour of the poorest countries, especially now that the crisis is also hitting them hard. Korea has been a generous contributor to Aid for Trade and I am confident it will continue to do so in the coming years."

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