Marketplace Middle East - Blog
3/26/09
Tour de Trade

He walked into the Brussels hotel suite looking energetic, despite the many obstacles he is facing as World Trade Organization director general.

Fresh off a trip from Washington, where he met key players of the Obama administration, Pascal Lamy knows that finalizing the so-called Doha Trade Round, which was launched in the Qatari capital eight years ago, is not the world's number one priority these days.

Well ahead in this race to mend the global economy are: Cleaning the system of toxic assets, re-regulating the global financial system to avoid a repeat performance of the 2008 meltdown, and even trying to close down or limit the use of tax havens.

Those other issues however do not prevent the former French politician and European Trade Commissioner from performing his “Tour de Trade.”

Mr. Lamy aptly said that trade negotiations are like riding a bicycle: “either they move or they fall.” The key now, he says, is not to let them move backwards: “First thing we have to do is push back on protectionist measures which understandably appear here and there."

Having covered the final Uruguay Trade Round in Geneva where there were far fewer countries, and talks were dominated by the U.S., Europe and Japan, I know that this Doha Round is much more complex.

The key difference is that what was not covered the last time around has been swept into this attempt. More importantly, China, India and all the other developing country players are feeling emboldened by their new roles in the global economy -- they do not want to be bullied into a deal they don’t see as favourable to them.

In the G20 process, all the major players are sitting around the same table. That, in theory, should help this effort but, so far that has not been the case.

At the European Business Summit in Brussels, the largest business trade group in the European Union, Business Europe, said that 17 of the G20 have participated in some form of protectionist practices.

Director General Lamy admitted they are not breaching the rules of the WTO, but they are stretching the limits these days in various ways, like by filing more anti-dumping cases, or by nudging tariffs to protect industries such as auto-makers and textile manufacturers.

So "the DG," as his staffers refer to him, has adopted a new line that appeals in particular to developing giants like China: Don’t see the Doha Round as a process of giving up something, but as an insurance policy to protect the now vulnerable G7 countries from backing out of their commitment to free trade.

“Keeping the insurance policy which the WTO offers for the world against protectionism; that is very important at this stage, to make sure it does not move back,” said Lamy.

This is where we should watch closely. Mr. Lamy was encouraged by President Obama’s action to draw a line in the sand in terms of policy when he stood against the “Buy American” clause being put forward by the U.S. Congress.

Pushing that through would have rolled back the clock to the 1930s, when the Smoot Hawley trade act exacerbated the Great Depression. Since many compare this global depression to that one, there have been great fears that policymakers would follow the same tack, ignoring historical evidence against such a move.

But, when asked directly if Washington is committed to passage of the Doha Round, Mr. Lamy replied, “That is the general line they are taking.”

Until the President of the United States and his counterparts in the G20 jump right into the global trade "pool," don’t expect rapid movement. That was the case in the previous round, and the only real difference here is that a global recession does not lend itself to signing onto measures that may be seen to jeopardize jobs for textile workers, farmers or auto-makers.

The DG makes another valid point: While G7 countries, especially the U.S., can open up the taps to jumpstart their economies by spending a collective $2 trillion, many developing countries in Africa and Latin America cannot. Trade to them offers what Mr. Lamy calls “a bit of blue sky” -- a hope to grow their way to prosperity.

Against this backdrop, regional trade blocks should not place all their bets on the Doha Round.

The Greater Arab Free Trade Agreement has 18 countries of the region loosely agreeing, at this stage, to create their own market of nearly 350 million people. It looks promising on paper.

As Saad Hariri, leader of the Future Movement in Lebanon noted during an interview, this downturn should prompt leaders to move this process forward to create inter-Arab trade and ultimately jobs. Lebanon is applying to the WTO to join the other 11 regional states who have become members of that organization since 1995.

“Regional integration and opening trade globally are two things that have to go together,” notes Mr. Lamy. There is not the threat that regions will live in isolation as the world trade talks stall.

But how about getting past the final two or three hurdles to get a deal done in 2009?

Calmly the DG states, “We are 80 percent of the way, but we have a couple of tough nuts to crack.”

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ABOUT THIS BLOG
John Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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