Getting the world to sing in tune on trade

Pascal Lamy is determined to stop worried World Trade Organisation members putting up protectionist barriers as they did in the 1930s. File photo / NZ Herald

Given the choice, Pascal Lamy would be in New York City this week, pounding the streets of Manhattan in his running shoes in preparation for his favourite marathon.

Instead, the lean 64-year-old Frenchman who is director-general of the World Trade Organisation, will be on home turf, briefing the G20 at its Cannes summit on the state of the world trade negotiations over which he presides.

These negotiations have turned into a marathon of their own. Next week is the 10th anniversary of the start of the round, which began at Doha in Qatar shortly after the terrorist attacks on September 11, 2001, but are still going nowhere fast.

Hopes of an ambitious, comprehensive deal that would see sweeping reductions to trade barriers in goods, services and agriculture, together with unlimited access to Western markets for the world's poorest countries, have been pared back.

Lamy's aim now is to salvage what he can from a decade of trench warfare at the talks and prevent WTO members worried about jobs and growth from putting up protectionist barriers as they did in the 1930s.

He is confident the deadlock can be broken but says the WTO has to move away from the idea that nothing is agreed until everything is agreed.

"You can [have an] early harvest. There is some low-hanging fruit." Asked if WTO members won't simply pick the low-hanging fruit and leave the more difficult issues - such as industrial tariffs - rotting on the tree, Lamy says: "What's the alternative? If the alternative is to do nothing, for how many years do you accept that?"

Away from the WTO, Lamy chairs the board of one of France's leading orchestras, Les Musiciens du Louvre-Grenoble, and gets a thrill out of seeing how the conductor gets the musicians from "somewhere to elsewhere".

It is like throwing a pot: "You start with the raw material, then you turn it, you cook it, you paint it, you re-cook it and something different comes out at the end."

The orchestra he conducts at the WTO talks is made up of more than 150 states, and for the past 10 years some discordant music has been emerging.

Trade barriers were gradually dismantled in post-war rounds of negotiations and Lamy identifies two key reasons why the so-called Doha round - the ninth - has been the longest and most difficult so far.

Firstly, the world is no longer divided into rich nations and poor nations; a third group of fast-growing and powerful developing countries - China, India and Brazil - has emerged, which has changed the dynamics of the negotiations.

Secondly, governments are reluctant to make concessions now the economic skies have darkened.

"The current position of the US is that these countries [China, Brazil and India] have now emerged and we need a level playing field with them," explains Lamy.

He says Washington's argument is that if the United States is going to have to cut tariffs on imports of manufactured goods to zero, then the big emerging nations have to do the same. India and China counter this by saying that they still have big development challenges and cannot abide by the same trade terms as the rich nations of the West.

"There is a difference between trade policy and the politics of trade. An economist might say to the Chinese Government that opening up to trade has been good for growth, so why not cut industrial tariffs to zero? But there is a political problem. Some constituencies in China won't like it and if it looks like they are bowing to the US, it won't get through the politburo. It is as simple as that."

Nor is freer trade an easy sell in the United States, he admits. "Ten per cent unemployment in the US has a political dimension no other country understands. It is a political catastrophe because there is not the same social safety net that there is in other countries. Ten per cent unemployment is a terrible social shock.

"The US vision of China is a strange mixture of how it viewed Russia in the 1960s and Japan in the 1970s. It is a geopolitical threat. It is a security problem. It is an economic problem."

The poorer developing countries are frustrated, he admits, that they are not going to get all the concessions they thought they would get in 2001 but China, Brazil and India have agreed to be treated differently from nations in sub-Saharan Africa, offering the chance of concluding the round.

"That was the landing zone. The financial crisis is probably why the expected landing did not take place and why the plane is still circling."

The WTO talks have been in a holding pattern for the past three years, when talks broke down because of a disagreement between India and the United States, so does Lamy despair?

"I have a job that's incredibly stimulating. I learn something every day. But with a temperament like mine, which is about getting things done, it's frustrating. Trade negotiators are incredibly paranoid. They suspect others of cheating. The system is viscous and paranoid."

Lamy is the classic poacher turned gamekeeper, having been Europe's trade negotiator after working for European Commission president Jacques Delors.

Europe, he says, is limping along because it has one strong leg - monetary union - and one weak leg - economic union. The choice is to integrate further or watch Europe unravel.

"It is not a question of one step forward or one step back; it is a question of one step forward or four steps back, because if the euro goes, the next thing to go will be the single market and after that the customs union. You go back to square one."

Did the people who began the round bite off more than they could chew?

"That's probably the case. There are more topics, more players, more complexities." Success now would be to show that the WTO is not just a body that polices world trade, imposing sanctions on those who break the rules, but that it also has the power to break down barriers.

If the WTO cannot achieve that, Lamy believes there will be a greater risk of protectionism - a risk so far remarkably avoided.

"It's the dog that didn't bark," he says. "But is there no danger at all? No, there is a risk - while there is unemployment, social distress, pain, and where people think protecting trade is a way to protect their job. It doesn't work but people think it does.

"We will publish something for the G20. It is like the check-up from a doctor: the x-ray is roughly okay but there are a few spots there."

GOING NOWHERE FAST

November 2001: The Doha development round of world trade talks begins in the Qatari capital after the September 11 attacks. Amid claims that grinding poverty in the developing world fuels terrorism, the west promises to rewrite the rules of the world marketplace, particularly in the heavily subsidised farming sector, to make it fairer.
September 2003: After two years of graft by negotiators in Geneva, the world's trade ministers gather in Cancun, Mexico, for a conference aimed at delivering a basic deal on the framework of the Doha round. Instead, the meeting descends into chaos: developing countries are infuriated the rich world insists on discussing the "Singapore issues" - because they were first raised at the Singapore conference of 1996 - of investment, competition and government procurement, instead of sticking to cuts in agricultural trade barriers. The G20 group of developing countries, led by Brazil, China and India, decides to flex its muscles, and walks out, leaving Europe and the US stunned.

July 2004: After months of deadlock, negotiators sign the "July Framework," which lays down a complex set of "modalities": the rules that are meant to shape future talks. They include principles such as flexibility: the idea that developing countries will be allowed to choose which products they cut tariffs on; and longer adjustment periods for poorer economies. With this framework in place, ministers aim at narrowing their differences on issues such as how large the cuts in farm subsidies should be over the ensuing 12 months, with the hopes of holding a further summit in Hong Kong.

December 2005: Even before the Hong Kong Ministerial it has become clear the gulf over both agriculture and industry, remains too wide to pull off a deal. After six days of talks, ministers talk up the few numbers produced in the deal, including a deadline of 2013 for removing farm subsidies, and 2006 for controversial cotton subsidies; and fairer opportunities in rich countries' markets for developing world producers - referred to as tariff-free, quota-free.

July 2006: Meeting in St Petersburg, the G8 group of rich country leaders seeks to bring the round to a conclusion by instructing negotiators in Geneva to settle their differences. Hopes of a breakthrough are dashed within 48 hours as it becomes clear that the gap between trade diplomats is still unbridgeable.

July 2008: There is optimism the a bargain can be struck, with the rich countries accepting cuts in agricultural subsidies in exchange for easier access for their manufacturers to the markets of leading developing nations. Negotiations at the WTO's headquarters in Geneva drag on for nine days before collapsing, with India and the US the main protagonists. When Susan Schwab, America's trade negotiator, tells reporters the talks have fallen apart, she is visibly upset.

- Observer