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WTO chief says China is the panacea, not the problem

If China's economy were not what it is today, the world would be worse off, says Pascal Lamy. (ST PHOTO: NG SOR LUAN)

Publication Date : 09-10-2012

 

Protectionism is rearing its ugly head in many countries struggling to create jobs for their people, boost business and get fresh capital.

But World Trade Organisation (WTO) director-general Pascal Lamy thinks protectionism's ill-effects have been greatly exaggerated - for now.

For instance, in recent weeks, some quarters have tried to portray China as a chief culprit of protectionism, skewering it for shutting its markets to foreigners. This included Time magazine's September 24 cover story, entitled "The New Great Wall", which called China protectionist.

It detailed how China's leaders have been championing home-grown brands of late, while apparently putting up more barriers to, and imposing tight conditions on, foreigners who want to expand their enterprises there.

But Lamy thinks the issue has been overstated. "Time is not an academic trade magazine, eh? It wants headlines and has its own spin, but it's a bit exaggerated, as it should be in a magazine like this."

Lamy, 65, was speaking to The Straits Times last month, ahead of this year's Singapore Global Dialogue, a yearly pow-wow on strategic security issues organised by the S.Rajaratnam School of International Studies (RSIS) here.

In fact, he stressed: "If China's economy were not what it is today, the rest of the world would probably be worse off. So Time's simplistic presentation does not fit reality."

What, then, is the reality?

For one thing, he says, only 3 per cent of total world merchandise trade today, or US$546 billion, is currently affected by protectionism.

Lamy defines protectionism as the net fallout between trade-restrictive and trade-friendly measures put in place by the WTO's 157 member countries, whose latest entrants are Russia and Vanuatu.

For another, bad press notwithstanding, in fact the leaders of most countries understand that protectionism doesn't work because their economies are so intertwined today.

Technology has changed the pattern of global trade fundamentally in the past 20 years. Countries are now more dependent on one another for goods and services to meet shortened and increasingly frenzied manufacturing cycles, to meet growing global demand.

As an example, he says, about 40 per cent of any exported product consists of imported material too. That is double the imported content of just 20 years ago. "So," he stresses, "shooting on your imports today means shooting on your exports too. That is why protectionism does not protect jobs."

Without China, the world would be "far worse off" economically, because the dragon is importing so many of the world's products that China's rate of growth in imports has been between 15 per cent and 20 per cent a year for the past 10 years.

Still, the WTO is monitoring pockets of protectionism around the world, despite their minimal effects on global trade for now. That's because creeping trade restrictions are like "bad cholesterol" - hard to detect in small amounts but heart-stopping if allowed to accumulate.

But for now, he stresses, the world's trade arteries are still fairly clear.

What everyone should really focus on instead, is how to grow their economies for the future.

One reason for the global economic slowdown today, he argues, is that developed countries don't know how to deal with the shift of economic power from the West to China, or what he calls "this big rebalancing of the planet".

For example, the United States has a wrong view of China: "To the US, the rise of China was economically more a challenge than an opportunity, more a threat than a good thing."

The WTO's latest forecast for global trade growth has had to be revised sharply downwards - from 3.7 per cent of total trade volume in its April forecast to 2.5 per cent this year. Lamy considers that "pretty severe" and blames it squarely on the continuing crisis in the euro zone, weak job and growth figures in the US, and a slowing Chinese economy.

He is that rare blend, a philosopher who is also a pragmatist. He avows free trade as the most immediate and effective way to lift billions of people out of abject poverty with the same fervour that he enforces the WTO's many rules against its member countries which step out of line.

The plain fact, he muses, is that opening one's markets to the world is "painful" because it makes one have to compete more fiercely with others for jobs and business, which inevitably means that some win big, while many others lose.

The biggest winner of all, he says, is the consumer, but, as Lamy notes, very often, they don't know why they have won.

"If your food or T-shirt is 30 per cent cheaper than it was a few years ago, you don't find on your food or T-shirt label the words, 'This is thanks to the WTO'."

Lamy, who was trade commissioner of the European Commission for five years, became WTO chief in 2005. He will remain so until next year, after which he is tipped to become France's next finance minister. Asked about that, Lamy said he did not answer "What if?" questions.

Those who know the Frenchman call him tenacious, obstinate even, which they say comes from his hobby of running marathons. "He simply does not give up," said trade economist and RSIS associate don Pradumna Rana, 65, in a later interview.

But shouldn't even the most determined person call the Doha Round of trade talks, which have been stalled since 2001, a dead horse, and begin a fresh chapter in world trade negotiations?

After all, doing so would not dent the WTO's good work thus far, which has included giving technical assistance to developing countries so that they can hone the skills of their people to work to world-class standards, compete with the best, and in so doing, prosper.

But Lamy insists: "International negotiations never die!

"The notion that we should forget about Doha doesn't make sense politically because many of the questions that were originally on the Doha agenda are still questions for today and tomorrow. You cannot forget about trade-distorting farm subsidies, or peak tariffs, or ocean-depleting fishery subsidies."

The way out, he says, is for the WTO to adjust its many stringent rules to suit changing circumstances. "But that will take time," he says.

Prof Rana says that, to begin with, the 17-year-old Geneva-based global trade club should do away with the requirement that all its members agree to agree, otherwise their talks will always be at an impasse. Also, he adds, the WTO should allow its members to choose whether or not to take part in certain negotiations, otherwise some might take advantage of the "all for one and one for all" situation to put talks off.

Countries, in general, covet WTO membership because it opens their products, and some services, immediately to most countries whose markets they would otherwise not have access to. This can boost jobs and incomes.

But the Doha Round of talks broke down after many WTO member countries - chief among them the US and India - could not agree on doing away with farm subsidies. Subsidies are considered an unfair trade practice because subsidised farmers can sell their produce cheaper, undercutting farmers without such subsidies.

The 11-year-old Doha deadlock has since led many WTO members to sign bilateral free trade agreements (FTAs) with each other, or with smaller groupings of countries. That tangled web of FTAs, says Prof Rana, is like "poison ivy" snaking around the WTO's truly international, multilateral system of promoting trade, as well as adjudicating trade disputes.

But Lamy says the stalled trade talks are really a reflection of how slowly all countries are adjusting to the new world order, which puts China front and centre for the future. It is a case of how current powers, like the US and Europe, are trying to cope with, or deny, the shift in balance.

"In a way," he says, "we've been a victim of this difficulty to adjust to this rebalancing of the planet, in terms of how it translates into rights and obligations of members in an international system like the WTO."

 

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