WorldCity Business Magazine

WorldCity Q&A with Pascal Lamy

by Mary Dempsey

World Trade Organization Director General Pascal Lamy recently took part in a 90-minute Internet chat session on global trade. He received 200 messages from dozens of countries, including the United States, Vietnam, the Canary Islands, China, Peru, Brazil, India and the Philippines. It was his first live online chat and the WTO chief fielded a wide range of questions, although certain subjects surfaced repeatedly: China’s role in global trade, the likely success of currrent negotiations, agricultural subsidies and free-trade agreements. WorldCity has excerpted portions of that electronic exchange, which took place in late February.

The U.S. has threatened to walk out … the E.U. has said that it has offered enough in agriculture and now wants something in return. With developed countries adopting an aggressive posture, do you think that the development agenda of the Doha Round is being diluted?

No. ... Sure, it does take some time for the results to be achieved, especially since most of the development issues are horizontal and are being negotiated as part of the different areas being negotiated.

*If big players talk about walking out, isn’t it a bad sign for the future of the talks? *

Tactics, tactics. Maybe that’s what you would do if you were a clever negotiator.

Do you think [free-trade agreements] will have a harmful effect on the multilateral trading system?

FTAs can hinder, but that is not necessarily the case. Sometimes they can be complementary and supportive of multilateral objectives in the longer term. But FTAs that close off opportunities to third parties and distract the attention of governments from multilateral objectives are unhelpful. We need to ensure that FTAs do not pose as a substitute for a non-discriminatory trading system.

*In a speech in Washington, you seemed to suggest that the U.S. negotiators in the WTO are more shrewd and capable than others. Is the United States pulling the strings in the WTO? *

Indeed, U.S. negotiators are shrewd. But I don’t remember having said that they were more capable than others. We have many very clever negotiators around the table, and many of them now come from developing countries, as opposed to 10 years ago. ... This huge amount of cleverness may be one of the reasons why the negotiations are a bit slow.

Brazil has elections this year. Do you believe that affects the government’s flexibility in making concessions?

I’m convinced of Brazil’s commitment. I don’t expect substantial changes, regardless of the election results.

How do you see world trade from here to 2015?

I see it continuing to grow, but I also see some developing countries, such as China, India and Brazil, taking greater shares.

The WTO has worked hard to shepherd global free trade, yet seems to have a serious worldwide public relations problem.

Your diagnosis is right, doctor! As for the medicine: more transparency, more debate, more engagement with various stakeholders who do not always feel well represented by their government. Today’s chat is part of this endeavor.

We have developed nations with higher environmental and welfare standards than the developing countries. Free trade under these circumstances would encourage the movement of “dirty” industry and practices from the developed to the developing nations. And employment and production is lost in the developed world because its cleaner technologies are uncompetitive.

That may be true in a theoretical model, and sometimes in practice. But the bulk of the empirical literature suggests that industries do not seek out pollution havens. This is related both to the extent of pollution abatement costs in total costs and issues to do with reputation among consumers. As incomes rise in developing countries, they care more about environmental quality. And foreign investment can be an important mechanism for transferring cleaner technologies.

Companies do not seek out pollution havens, they seek low-cost places of production, such as China. What you suggest about the benefits of trade changing the developing countries is true – but only in the long term.

China knows it has to face serious environmental problems, international trade or not. And I would not bet on their waiting very long before they decide on stricter standards.

China is a fast developer What are your thoughts about China and U.S. developing together today?

The E.U. and the U.S. are today’s elephants in world trade, but China, India, Brazil or South Africa will be the elephants of the 21st century. There is no way that a harmonious development of trade and economic relations takes place without close cooperation by all of them – and the rest of the international community. All of them need to tango together!

If asked, can the WTO address currency issues? I’m referring to the U.S.-China strain about the yuan exchange rate and its effects on trade.

Very tricky! There is no real precedent in dispute settlement on this issue, which is more IMF than WTO. So it remains to be tested.

I am an international trade specialist from a Puerto Rican company, a government agency. I would like to know the implications of CAFTA-DR in the technology sector.

Free trade agreements such as the one to which you refer not only tend to increase trade, but also foreign direct investment. FDI is one of the most effective mechanisms for transferring technology among nations. It would be reasonable to expect, therefore, that this agreement will open up new opportunities for the technology sector.

Do you think the WTO is the most appropriate international institution to regulate trade issues related to electronic commerce?

Electronic commerce has flourished in recent years. To the extent that the WTO has had a role in this development, it has been to discourage taxes on electronic transactions. It is not obvious what the role of the WTO would be in this field, other than to underwrite an enabling environment while at the same time acknowledging that some governments will have reasons to control certain kinds of transactions on public policy grounds.

The welfare gap between the developed and lesser developed countries has grown. One of the reasons is “bad regulatory practices” in a number of poorer countries. Is the WTO in a position to promote good regulatory practices and their enforcement?

It is not strictly true that the welfare gap is widening … but this is certainly the case for some, and addressing this reality is one the biggest challenges of our time. I believe that reducing poverty and raising incomes globally is a shared responsibility. As for regulatory practices, the appropriateness of particular standards, and the ability of national authorities to ensure that they are met, depends upon the level of a country’s development. It is not necessarily desirable for all countries to subscribe to the same standards at a given point in time. The issue can simply be affordability. An important role for the WTO is to ensure that standards and associated testing and certification procedures, do not become unwarranted barriers to trade.

Since the elimination of WTO-regulated textile quotas in January 2005, it is rather surprising that countries have gone for arranging independent deals. This happened in the recent China-Europe and U.S.-China textile agreements.

The elimination of quotas on textiles and clothing trade did not herald a new rash of free trade agreements. Many FTAs were already being negotiated among different groups of countries. You refer in particular to agreements between China and the United States and Europe that were designed to moderate the adjustment pressures associated with the trading opportunities created by quota removal. These restrictions on trade are intended to be temporary, and I hope they will be.

You have mentioned the need to rebalance the world to help the developing world. Are you seriously suggesting that trade liberalization to date has not already led to identifiable, quantifiable benefits to the developing world?

No I am not suggesting that trade liberalization has not led to growth. What I have said is that there is perhaps a need to ensure that the benefits from trade liberalization are spread out more horizontally. The membership of the WTO also recognizes that developing countries face a number of constraints that prevent them from fully benefiting from the opportunities that the global trading system provides. We are taking steps to help them. However, these countries, too, will have to take steps to address the problems they face, including the issue of corruption.

Is it possible to conclude some part of the negotiations in December and leave the rest for a later time?

I am afraid not. We have already spent four years on this negotiation. One year to finish it is doable without lowering the level of ambition. And when I was in Washington, I got the clear impression that Congress would probably not extend the negotiation authority it has given to the U.S. administration and which lapses in the spring of next year.

Can you give us your opinion on linking aid and trade?

“Aid for Trade” is a very important initiative, which recognizes that developing- country economies are characterized by institutional constraints such as lack of a social safety net, inadequate infrastructure facilities, governance problems, widespread unemployment that make them more vulnerable to changes. These countries will require a lot of assistance. I have already set up a task force comprising Barbados, Brazil, Canada, China, Colombia, the E.U., Japan, India, Thailand, the U.S., the African Group I hope to very soon organize the first meeting and get things going so this task force can submit recommendations to the general council by July 2006.