Lamy Says Keeping Trade Open Important for Recovery
WTO director discusses role of the multilateral trading system in the recent economic crisis.
Compiled by staff
Published: Jul 16, 2009
On Wednesday World Trade Organization Director-General Pascal Lamy was honored by the United Kingdom's University of Warwick with an honorary degree. During his speech, Lamy talked about the importance of a multilateral trading system during times of economic crisis.
"We are faced today with the deepest and most global economic crisis since the 1930s," Lamy said. "Indeed, some have pointed out that the trade contraction we have sustained in the last year or so, forecast at some 10% in volume terms in 2009, has been even fiercer than the shrinkage of trade in the Great Depression."
Lamy went on to say that trade contraction followed economic troubles elsewhere in the economy and was an effect, not the cause of the crisis. However the protectionist trade that occurred prolonged and deepened the depression.
"This time, governments have so far shown considerable restraint and have largely kept markets open," Lamy said. "I say 'so far' because I do not believe we are out of the woods yet. In comparing policy reactions now and in the Great Depression, authors such as Douglas Irwin and Barry Eichengreen have shown how active monetary and fiscal policies have helped to manage today's crisis, whereas these instruments played no such role in the late 1920s and early 1930s."
Lamy says this policy activism has helped to place a floor on economic contraction and fuelled hopes of recovery in the not-too-distant future. He also says it has arguably supported restraint in the application of beggar-thy-neighbor trade policy, but even more important is the existence of a multilateral system of trade rules under which governments have pre-committed to a set of norms which constrain their policy behavior.
"In the last sixty years the multilateral trade rules have played a vital role in increasing predictability, reducing uncertainty, underwriting the rule of law and fostering a sense of legitimacy in trading relationships," Lamy said. "In the current climate, temptation abounds to placate those most affected by reduced demand with the temporary but ultimately destructive balm of protection from trade competition. Trade rules are a source of opportunity in times of economic growth and a restraining influence in times of difficulty. It is in this latter role that the rules are serving us particularly well right now."
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