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Thursday, December 12, 2013
Pascal Lamy, director-general of the World Trade Organisation (WTO), writes in this column that examining the way trade has changed in the last decade provides clues that can make navigating the future more manageable.
- On Aug. 31, I will be stepping down after eight years as Director-General of the World Trade Organisation (WTO).
We have lived through eight transformational years. We have seen the rise of China to number one world exporter, and significant progress in meeting the Millennium Development Goals. And developing countries now account for more than half of the world’s economic activity and more than half of global exports.
But we have also seen challenges such as two food crises, the biggest financial and economic crisis since the 1930s, pandemics and natural catastrophes which have severely impacted the functioning of global production chains.
More than 100 years ago, the Spanish philosopher George Santayana said “those who cannot remember the past are condemned to repeat it”.
The founders of the global trading system took him at his word. They saw the merit in creating the system in part because they remembered the past so well.
They remembered U.S. congressman (Willis C.) Hawley and senator (Reed) Smoot, whose pictures I have in my office to remind me of who the real founders of the WTO were. And they remembered how their notorious protectionist act accelerated the downward spiral that led world trade to contract by two-thirds from 1929 to 1934.
A system for opening trade through international rules and within the principles of non-discrimination, transparency and predictability has provided us with an insurance policy against the kinds of policy excesses of the 1930s. And it has provided a platform for growth, development and poverty alleviation around the world.
Over time, the General Agreement on Tariffs and Trade (GATT) evolved into the World Trade Organisation, and the WTO itself has evolved in ways both large and small. Our dispute settlement system, unique in the field of international conflict resolution, has contributed to peacefully resolving trade differences.
The Aid for Trade Programme which we oversee has mobilised 200 billion dollars since it was launched in 2005. The organisation’s monitoring and surveillance capacity has helped to keep protectionism in check.
Trade has changed a great deal in the past ten years. Today, the patterns of trade, the actors involved with trade and the obstacles to trade are very different than they were a decade ago.
Global value chains have profoundly changed the way we trade. Whereas before we traded in goods, today we trade in tasks.
The fact that goods are increasingly made in the world rather than in any single country means we need to measure trade in value-added rather than gross terms to better understand how global value chains contribute to local economies and to help us devise more effective and realistic trade policies.
The actors have changed too. In 1980, China had one percent of the world’s exports; by 2011 the proportion was 11 percent. During that same time, South Korea more than tripled its share of global exports and Mexico doubled its share. For the first time in history, the South is responsible for more than half of the world’s economic activity and more than half of global exports. South-South trade now comprises 24 percent of world trade, double what it was in 2000.
Moreover, the emergence of powerful developing countries like China, Brazil, India, Mexico and Indonesia has altered the dynamics of multilateral negotiations; in trade, certainly, but elsewhere too including climate change.
These large and rapidly growing economies have also changed the way we think of developing countries. Are they rich countries with many poor people, or poor countries with many rich people?
In the past, trade negotiations were simpler: between rich countries, reciprocity was the template for negotiations while the main theme for poor countries was flexibility. Today, these lines have blurred and emerging countries have taken on greater commitments than ever before.
And the barriers that we encounter in trade today are very different from the standard tariff, the measure of choice for centuries because of its effectiveness in protecting producers. When one talks to businesses today, however, you quickly learn that tariffs are not the problem they find most onerous. Rather, they say the real difficulty is non-tariff measures.
Today, the barriers that exporters encounter are more likely to be of a regulatory nature pertaining to car emission limits, bank regulations, product and food safety standards or customs procedures.
While we can never predict anything with complete certainty, we are confident that these trends will continue into the future. As Santayana suggests, when charting a course for the future, history is among our best tools. Examination of the way that trade has changed in the last decade offers clues that can make navigating the future more manageable.
But history is a compass, not a roadmap or a GPS. History tells us what routes have been successful thoroughfares and which have been culs-de-sac. But it won’t identify every sharp turn or bump in the road.
We cannot foretell every economic shock or the impact of the next technological breakthrough. But we know there will be future economic turbulence and we know that tomorrow’s technological innovations will shape the trading environment of the future just as computer tablets, mobile telephony and satellite navigation influence the patterns of trade today.