INTERNATIONAL. WTO Director General Pascal Lamy, in his keynote address to the WTO Public Forum on Wednesday, said that an important lesson of the Great Depression “is that protectionism and economic isolationism do not work”.

Underlining the importance of the Doha Round to the world economy, he asked civil society to help bring negotiating topics such as agriculture and environment issues to “closure”.

This year the WTO opens its doors to the public against a background of newspaper headlines heralding a potential Great Depression part two. But policy-makers in the United States, who have seen several giant financial institutions sound their alarm bells last week, as well as policy-makers across the globe, are desperately seeking to avoid the series of mis-steps that accentuated the financial crisis of the 1930s.

They are all stressing that lessons from the Great Depression have been learned, and that the many policy mistakes that were associated with it will be avoided. But, Lamy said in his speech, one of the important lessons of the Great Depression, which we must not forget, is that "protectionism” and economic isolationism do not work.
They are policies of the past, which should have no place in our future, he said.

As tempting as it is in moments of crises to give producers comfort that we are shielding them from competition by shutting our borders to imported goods or services, this course of action must not be pursued. In fact, the infamous Smoot-Hawley Tariff Act of the 1930s that raised US tariffs on over 20,000 imported goods to record levels led to nothing but a trade war between nations. In so doing, it ended up impoverishing us all; proving that protectionism, and 'beggar-thy-neighbour' policies, are a dead-end.

In a financial crisis, and at times of economic distress - in particular at a time of soaring world food prices - what impoverished consumers desperately need is to see their purchasing power enhanced and not reduced. What is needed in times of crises is to enable consumers to purchase more for less, Lamy said.

The temptation to shut borders does exactly the opposite. There is no doubt therefore that the current hurricane that has hit financial markets must not dissuade the international community from pursuing greater economic integration and openness. But in order to be both sustainable and fair, this integration has to be based on rules. And the rule-book needs to be updated regularly.

This year's Public Forum is aptly entitled 'Trading into the Future'. Lamy said that the title carries several questions: What kind of an international trading regime do we bequeath to future generations? Do we want a strengthened multilateral trading system, based on rules and regulations, as well as an effective dispute settlement mechanism between members, or do we want a spiral of free-trade agreements?

Those who favour FTAs point to the inefficiency of the multilateral process. They argue that a multilateral trading system that runs a round of negotiations - in this case the Doha Development Agenda - for seven years, without closure, is a failed system.

Lamy said that more credit needs to be given to an international attempt aimed at updating the World Trade Organization's rule-book, an attempt whose coverage would span all of its 153 members.

Isn't the reduction of subsidies that distort trade vital to truly levelling the playing field in international trade relations? While FTAs may have their forte in the reduction of tariffs, subsidy reduction surely is not their area of strength. Thus, said Lamy frankly, the world does not have many alternatives to the WTO, as imperfect as the WTO system may be today.

If any one is in doubt as to the importance of subsidy reduction for the world's poor, we only need to consider to the many subsidy disputes that have been brought to the WTO, such as the cotton case against the US, or the sugar dispute against the European Community. It is such subsidies that have now led the developing world to place agricultural negotiations at the forefront of the Doha Development Agenda.

But if the multilateral trading system is this useful to us all, how then do we take it into the future? Lamy said the answer to that is that we can only make a success of the WTO's future if we are able to make a success of its present. The Doha Development Agenda must be completed to the satisfaction of all its participants if a strengthened WTO is to move forward. In other words, “first things first".

What the world has before it today in the Doha Round of trade negotiations is a package that includes: the reduction of unfair agricultural subsidies; the reduction of tariff walls on industrial and agricultural goods; the reduction of barriers to trade in critical services, such as banking, energy, and environmental services; and beyond that, a myriad of new trade rules in areas such as trade facilitation, anti-dumping or fishery subsidies to name but a few. This, in order to bring the trading system up to speed with new market realities.

But beyond this lies a more fundamental political objective. The Doha Round is about renewing the “affectio societatis”, the vows of the original WTO contract, said Lamy. Its two fundamental principles being: one, that contributions to more open trade be made on the basis of a member's level of development and, two, that members be bound by a set of international obligations.

Despite the setback that Doha negotiations suffered last July, talks have once again been restarted with the aim of completing a deal on the parameters for tariff and subsidy reduction by the end of this year (in WTO jargon, the 'modalities').

There is no doubt that this important milestone must be crossed, before considering either an enlargement of the WTO's agenda or a changing of its decision-making practices.

Author: Justin Smith

Posted: 24-09-2008

Source: www.bi-me.com