STEPHANIE KWONG and ANA SIRBU

The Harvard College Economics Review discusses the current state of the world economy with Pascal Lamy, Director-General of the World Trade Organization [WTO]. Mr. Lamy holds degrees from the Paris-based École des Hautes Études Commerciales, from the Institut d’Études Politiques, and from the École Nationale d’Administration. He acted as advisor to French Finance Minister Jacques Delors, and subsequently to the Prime Minister Pierre Mauroy. From 1985 to 1994, Mr. Lamy was Chief of Staff for the President of the European Commission. As Director-General of the WTO, Mr. Lamy has worked to address issues pertaining to trade barriers and the alleviation of world poverty.

The HCER is grateful to the Institute of Politics for facilitating this discussion.

HCER: What do you think will be the impact of trade in a continuously globalizing world? Do you think it will increase more in light of growing economies such as China, or will it be more regulated because of increased barriers?
PL: I think the long-term trend is an increase in trade. When you look at the numbers, the ratio of trade to GDP or the ratio of expansion of trade to expansion of GDP is growing, so it is an increasing proportion of the size of the economies. It is this way because of globalization—globalization, technology, and transport costs allow for a larger shift in production in various places, which translates into the numbers on trade. So yes, I believe that this sort of international division of labor will increase in the future, and that all the big economies who joined this sort of “planet system” in the last 20 years have gone in the direction of increased trade, as seen in China, India, Brazil, South Africa, and Indonesia.

HCER: With group trade blocks like the EU, if you want to have global trade, do you see them as favoring this trend or as impediments?
PL: It’s for individual countries to decide how they want to run their trade policy. Europeans have decided they will pull their sovereignty. They decided this 50 years ago, not yesterday, because of globalization. They decided they were going to pull their sovereignty for various reasons, both political and those concerned with efficiency. They believed they needed to have a way to unionize on their table. No other place on the planet has yet gone this route. The Mercoser is a sort of custom union, but they haven’t decided whether to implement a single trade policy. Even in Africa, things like ECOAS, for instance, which are meant to be custom unions, haven’t decided that they need to have any kind of trading restriction. So it depends, though what I believe is that the trend of economic regional integration will reinforce groups such as the ASEAN group of countries, which is obviously after something more integrated. Now whether they decide to cross the line of single trade policy and fully participate in the WTO is for them to decide.

HCER: What do you think about the current hostility in the EU market towards Chinese goods? What do you think will be the impact of a barrier on the development and welfare of these countries?
PL: These frictions are certainly there. They are inevitable given the speed and the size of China’s entrance into the global economy. So there are frictions with Europe, there are frictions with Japan, with the US, and also with South Africa—look at textiles and clothing, for instance. So these frictions are there and they are inevitable given these huge forces that are at the origin of this process. This is a system in which people have subscribed to the collective insurance policy that is protectionism. And this system has a name: it is the WTO. So the question becomes how to use our collective capacity in the WTO to harness this process. And when China joined the WTO it took a big step in this direction by accepting the rules of the game, which are global rules. China benefits from this in terms of protection, but it also has taken on obligations to behave in a way that benefits other countries as well. So it all depends. Since all of these forces are here this process will occur, and it can happen in an orderly or disorderly way. We know what happened in the 1930s with protectionism—the domino effect it created and the impact it had on the war. So it is up to the members to decide. These forces are there—it can happen the right way, peacefully and to the benefit of countries, or in a more abrasive way. I am going to do my best in terms of my duty to push the system in the first direction rather than the second.

HCER: Do you think that the almost utopian idea of achieving a single global market is realizable or desirable in the long term? And do you think that global trade is 100 percent compatible with global social values? What would be an appropriate balance between the two?
PL: No, I don’t think that we are working toward a single market. We are simply working to make the playing field more level so that the game of comparative advantage, especially in developing countries, is fairer. This, of course, raises problems of articulation relating to other values with trade opening, which is not an end, but a means to increase welfare and reduce poverty. In the end it impacts other value systems, and this cohabitation can be seen at present. As I have said, there are explicit instructions that our members have given us at the WTO to make sure that trade and health, and trade and environment, do not bump into each other. This has been done at a certain stage of the economy’s development and the development of values, and it will have to adjust and change over time. But this cohabitation is necessary. It is as necessary in the WTO as it is necessary in the UN system, where the same sort of problems arise when you talk about issues such as human rights. We have to run this planet as a whole even if it won’t be a single market, which I don’t think it should be.