Transcript: CEO podcast - Pascal Lamy
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>>Bruce Gosper: Today I’d like to welcome Mr Pascal Lamy, Director-General of the World Trade Organisation. Good morning, Pascal.
>>Pascal Lamy: Good morning, Bruce.
>>BG: Thank you for giving us your time this morning. I’d like to go through a few issues where you could give us your perspective from the WTO, that very important multilateral institution that has a view to all of world trade and the rules and issues that affect world trade.
Maybe we could start, Pascal, if you could give us what you see as the outlook for world trade over the next 12 months – what’s ahead of us, do you think?
>>PL: Well, what’s ahead of us according to our WTO forecast, is a growth of volumes of world trade of roughly 3 percent this year, which is a bit better than last year which was 2 percent, but still clearly below the medium and long-term trend of world trade growth, which is 5 percent. So it’s still clearly below potential. As a result of relatively low growth in the world economy, what’s interesting is that this 3 percent is made of two halves – one which is 1 percent which is growth of trade for developed advanced economies, and one 5 percent which is developing economies. So it’s clearly sort of two-speed world trade.
>>BG: So still diminished prospects in the wake of the financial crisis and a good deal of uncertainty about. Are we likely to see that uncertainty resulting in steps backwards by people on the trade regime, in protectionist measures of one sort or another?
>>PL: Well, since the beginning of the crisis in a way we’ve had, as could be expected, protectionist pressures. In times of economic and social crises on average rising unemployment, there still are protectionist pressures although so far they have been relatively well resisted by governments. We in the WTO regularly track and monitor the appearance of either trade-restrictive or trade-opening measures worldwide among all the countries of this planet. We publish this roughly twice a year, notably for the G20, and all the data is made public on our website. What appears is that there has been a bit of a seepage, i.e. between the plus of trade-opening and the minus of trade-restrictive, the balance is slightly on the side of the minus, the problem being not so much the number of trade-restrictive measures, whether it’s an increase in tariffs or a complication of administrative licensing requirements, whether it’s the use of anti-dumping. The real problem is that we don’t have that many trade-restrictive measures but they remain, they accumulate, and they’re not removed enough. So, one more reason to remain extremely vigilant as long as growth below potential in many countries.
>>BG: Is this one reason also that you talked recently about the need to restore growth through some addressing of what you see as structural flaws that are now clearly there post-financial crisis?
>>PL: Yes, my own view, for what it’s worth, is that we are not yet out of the woods for one main reason, which is that in many places on this planet the financial system, the banking system, still needs repairing, still needs deleveraging, and this inevitably has a consequence of lowering growth. I think the US is now roughly there. I think it takes more time in the EU, and as we know by the example of Japan, it can take a lot of time if this is not addressed upfront. So I think this is the main impact on growth potential. Other than that I think there still are many economies who need more structural reform, and I think trade-opening is probably the easiest, quickest, less costly way of doing this, especially in areas that matter a lot for competitiveness and for growth today and tomorrow, which is the services area which sometimes has been neglected.
>>BG: If we want to be an efficient producer of food and exporter to the world, or of resources, acknowledging the role of services in being able to do that and get it to the rest of the world and market it and distribute it the right way is quite important, isn’t it?
>>PL: That’s absolutely correct. If you look at examples like Singapore or Chile or even small countries like Costa Rica, the experience of the last 10-20 years has shown that this is the main area where they have grown their economy. I think for a country like Australia which is geographically distant from many consumption places on this planet that means, in my view and seen from where we are in WTO, a priority to the modernisation and the competitiveness of the services sector as a whole.
>>BG: The other thing that’s quite interesting in this sort of work in global value chains of course is the way in which Asia, where we’re seeing such high levels of growth, the way in which Asia is integrated into global value chains, in particular China, and some of the work that you and the OECD have done has well demonstrated that in fact our integration into this part of the world is part of a broader global integration as well.
>>PL: Yes, that’s absolutely correct. If you look at the planet of trade, you’ve got a place like Europe which now trades sort of 70 percent with itself, you’ve got a place like Asia as a whole which trades 50 percent-plus, then you’ve got North America which is to the tune of 40 percent, and then you have places where integration through trade within a continent is much lower, such as Africa or the Middle East.
Now, when you look at how and why this happens, if you take the division of labour between Japan, China, Korea, Chinese Taipei has played a big role, but it is also true that in places under an umbrella such as APEC for instance, or ASEAN, these countries have been good at facilitating trade. In other words, it’s not only an industrial or services strategy of expanding the size of the market, it’s also attention to how you move goods and services easier, which we in WTO call trade facilitation, and in many ways this Asian region has shown the way to others on how to reduce importantly the cost of trade. If you look at the cost of trade worldwide, which is how much does it cost average to move trade through borders, it’s roughly 10 percent average worldwide on top of the average worldwide 5 percent tariff. So in many ways moving through the border is twice as costly as just paying the average tariff. This is where places like Asia have been good at shrinking this sort of administrative cost. There remains some, but of course the more these supply chains give it up, the more attention to the cost of moving something from one country to another becomes important.
>>BG: And the gains are quite significant, and I know that’s why you and others have been working so hard to see if we can get some outcome on trade facilitation in the DOHA round.
>>PL: Absolutely correct. If WTO members, which I think is now doable and possible by the end of this year, if they would agree on a multilateral agreement which would streamline, simplify, harmonise, standardise customs procedures in let’s say five or six years, this 10 percent cost could be brought back down to 5 percent, which on the world economy would have the same equivalence as reducing all tariffs to zero, which is a huge pot of money, of efficiencies, and at the end of the day for the pockets of the consumer.
>>BG: And a very appropriate message that we could end on from the Director-General of the WTO. Pascal, thank you for your time today. For our listeners I should note of course that you’ll finish your term as Director-General of the WTO next month. Of course over these last eight years DOHA has been a struggle for all of us, but you’ve had the task of guarding what is an extremely important multilateral institution that has been part of global prosperity for more than half a century through some big changes in the global system and the global financial crisis, which of course is no small thing. I’m sure that many here in Australia would join me in thanking you for the stewardship of the WTO in this period and in wishing you well for what comes after the WTO.
>>PL: Thanks a million, Bruce, and good luck in your responsibilities at Austrade. What I can say from my WTO experience is that Australia may be far away distance-wise, but trade-wise and within this organisation Australia is really part of a core group of countries that has been instrumental in moving trade openness so far. So maybe far away but certainly not in the WTO.
>>BG: Well thank you Pascal, and we’ll look forward to seeing you in Australia I hope in coming years.
>>PL: I look forward to that.
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