As one of the three pillars supporting the development of world economy since World War II, the World Trade Organization (or WTO) is a UN specialized agency for international trade issues as the trade arm of the Bretton Woods system, with an importance parallel to the "monetary arm" (the IMF) and the "financial arm" (the World Bank). And as the head of this important institution, Mr. Pascal Lamy is also highly revered for his dual professionalism on the double tracks of politics (as former European Commissioner for Trade) and business (as CEO of Credit Lyonnais).
Just days before Director-general Pascal Lamy’s annual visit to China this year, People’s Daily was granted with an exclusive opportunity to interview Mr. Lamy at his plainly decorated office in the picturesque lake-side WTO Headquarters in Geneva, Switzerland. The exclusive interview was conducted by Dr. Liu Chao, Editor of International Weekly of People’s Daily, on June 13th.
During the brief waiting time at the lounge to the Director-General’s Office, it was observed by Dr. Liu that a large number of China-related bulletin reviews, newspaper clips, journal articles and policy briefs were easily spotted among the neatly laid reference materials for the use of both the Director-General and the visiting guests. It was a clear indication of the Director-General’s interest in and attention to the increasing number of trade issues related to China. So the interview started with the question as to what specific trade issues Mr. Lamy is planning to touch upon during his coming meetings with the Chinese leaders --
Editor: You are soon to pay a visit to China again. What trade issues are you going to discuss with your Chinese counterparts during this visit?
Director-General: I pay a visit to China as a routine every year. Some may say "some countries seem to be more equal than others", but to me every WTO member is equal.
During this trip I am going to discuss the issues concerning agricultural subsidies, anti-dumping and the progress of the Doha Round negotiations, among others. I will do a lot of listening, making sure that I am aware of the concerns of the Chinese side. I am neither negotiating nor mediating, but am working together with my counterparts instead.
Editor: China is a new member of the WTO. What a mark would you rate China’s performance after WTO accession out of a scale of 100 points?
Director-General: I am not a professor. I do not teach any students, so I could not give any marks. But the WTO does make regular trade reviews of our member countries.
Overall speaking China has enforced most of the WTO rules well, and has fulfilled most commitments prior to the accession. Of course China’s performance is not perfect --- for a country of this size, it would be hard to have perfect performance. After all, China is still a developing country, although this image is changing. China contributed to approximately 20% of the world economy every year since WTO accession, and the accession to the WTO procedures has started to contribute to a framework for China’s new trade regime.
Overall speaking China’s WTO accession is a win-win game.
Editor: Why do you think is the largest change after China’s accession into the Organization?
Director-General: The biggest change is the contribution which the opening of the Chinese economy made both to China and to the world economy. Import and export from China have been growing at 25% a year since China joined the WTO. All of this is not the direct result of acceding to the WTO, but acceding to the WTO and abiding by a set of rules and procedures creates transparency, stability and predictability which would be conducive to trade engagement. So I think it has contributed to creating a framework within which business operators feel more comfortable, they trust the system more because of the reforms, and because the huge structural contribution to the development both of the Chinese economy and of the international economy. So overall it is a win-win game. China has gained. Others have gained. This is what economic scientists say will happen when trade flows more freely.
Of course, not everybody has been a winner. Nor is it everywhere, every time. But this is overall speaking a win-win game. There are winners, but there are also losers. And this needs to be addressed by appropriate domestic policies in terms of regional imbalances, environmental degradation, social qualities, the depth of the matter goes beyond WTO.
Editor: There are some disputes between China, the USA and the EU on issues like the Intellectual Property Right and trade subsidies. How do you assess these disputes?
Director-General: We brought up the issue among the WTO members. About the notion of the origin of what is traded has to be there, we are relatively familiar with. So this is a question whether or not new standards and new regulations in such a field create unnecessary obstacle to trade. We have an agreement, a code and a rule in WTO which determines the policy base which member states have on technical barriers to trade. They are allowed to put technical barriers to trade for some rationales. The limit is if these technical barriers are equivalent to protectionist measures which are discriminating, which goes against the WTO principles of non-discrimination. So there is a policy base.
Because it is in a dispute or pre-dispute stage, I cannot take sides. When there is a disagreement between WTO members, the role to litigation is open, but I cannot take sides, because it would be procedurally wrong in this process. I have to remain neutral, because the dispute settlement team in this system, which is extremely professional and sophisticated, has been respected by everybody for the high quality. I have to remain absolutely fair and neutral when the dispute nears its litigation result.
Editor: Recently the US signed a FTA agreement with South Korea, while the EU and the US are also keen on establishing a trans-Atlantic free trade area. Do you think such a strong trend of FTA development might one day undermine the multilateral trade system or affect the process of economic globalization?
Director-General: There have always been multinational trade agreements and bilateral trade agreements for the past 50 years. The problem is whether these two processes are synergetic or not. And the answer to this question is relatively simple: we have rules in the WTO that enshrine WTO compliance of bilateral agreements, and we have a process in the WTO to assess whether or not bilateral agreements comply with WTO rules. I am not opposed to bilateral agreements at all so long as they abide by the WTO rules and they are not seen as substitutes for but complementary to multilateral trade negotiations.
The reality, however, is that the WTO multilateral system is more favored than bilateral deals. Many developing countries have a bigger power or leverage around the WTO table than they have on the bilateral basis especially with the big shots like the USA, China, the EU, etc. For this reason many developing countries usually prefer multilateral road rather than the bilateral one, although some of them have to do that.
So it is not black and white. It all depends on the intention and of course there has to remain a primacy of the multilateral system over the bilateral system, which has limits. You don’t address agricultural subsidies or anti-dumping rules in bilateral agreements. So they have a limited capacity from a systematic point of view. Of course multinational systems have their own limits. If you have multilateral trade agreements you have multilateral rules of origin. The businesses have to comply with 20 kinds of rules of origins, then you limit the economies of scale which trade opening usually creates. So there are contradictions, but overall it is a question of complementarities and not substitutability.
Editor: Against such a backdrop, then, how will the WTO guide the process of globalization actively? And what does this signify to emerging countries like China?
Director-General: Globalization creates or reshuffles economy and social fabric in every country. The question is to make it work in a fair way. There is an international side to that, and there is a national side to that. The international side lies in the control that the rules of the WTO are adjusted so that a level playing field is created, and so that the opportunities are shared more evenly between developed and developing countries. This is the purpose. The fundamental purpose of the negotiation is to rebalance the trend about globalization in a more development-friendly way, so that countries with comparative advantages can benefit from them in a fair way. This has happened in the past. The textile industry was an instance. We inherited from the 1960s a system where textile agreement and trade was protected, which was seen as unfair by the developing countries. This has changed. We are now moving in the same direction in the field of agriculture. The developing countries believe the rule of the game which allowed EU, Japan and the USA to heavily subsidize their agricultural sector. They demand it have to be changed in a fair way. That’s what the negotiation is about. So we have a duty and we have a mandate to make the trade part of globalization fairer at the international level so that winners and losers share the view that they participate in a sort of fairer game.
Then there is a national side to that, which is addressing nationally or domestically the imbalances, reshuffling, change of positions, the qualifications, the training and localization which trade expansion implies. And this is for the national authorities to adopt the necessary domestic policies. US, EU, India, China, South Africa, Indonesia and Egypt are confronted with this problem. In most of these countries, it is domestic issue because they have the necessary governance, budgets and power systems to set up, develop and implement national policies. In some developing countries, they are weak in this capacity to have the necessary infrastructure, the necessary education, the necessary research and the necessary regional policy. And this is where international organizations like the IMF, the World Bank, UNIDO should step in and put in more trade-focused development assistance. This is also part of making the game, because if you don’t have the resources to increase your capacities and you don’t benefit from trade opening. So it is a complex thing, which has to be addressed to WTO through the international system of fair trade and through domestic systems which have to adjust to these new changes.
Editor: Not long ago the US brought a dispute over China’s trade subsidy policy to the WTO, and many in the US believe China’s currency re-evaluation is a need arising from trade fairness. Do you agree that the Yuan appreciation can solve the inherent causes for China’s surging trade surplus?
Director-General: There is a disagreement among WTO members. Obviously it is a debate to which there are different positions. And again I have to remain sort of neutral. The more it nears the dispute settlement zone, the more my response is constrained. Once I am down there, my response is constrained to silence (laugh).
Overall, given the development of the Chinese economy and the notion that the Chinese currency will remain pegged to the Dollar, if it had rationale in the past as in today, when you look at the development of Chinese trade, it is obvious such a peg might be sort of a right thing in the past, but is might be a less right thing in the future. Surely I will have a private conversation with the governor of the People’s Bank of China. My view on this question is really simple: the relationship between the economy and its currency is the relationship you have with your dog. When you walk your dog, you leave home at the same time. During the walk sometimes the dog is ahead, sometime it is behind you. But you leave your home together. And you are back home together. That’s my overall theory about the relationship between economy and the currency.
Editor: In line with the widespread anti-globalization protests in recent years, there are also recently critical remarks in China saying "The rich have become richer and the poor poorer, with Chinese farmers and laborers bearing great hardships caused by globalization" and China’s WTO membership. Do you agree globalization itself is so much to be resented? Or the world trade regime needs some kind of readjustment/rectification?
Director-General: Again I think this trade part of globalization has brought us benefits. Tens of millions of Chinese have been lifted out of poverty thanks to the economic development. So there is obviously a positive side. But again, there are winners and losers. It is the case internationally. And we have to adjust the rules so that the developing countries enjoy more benefits. And this is what the Doha Round is about. And there are domestic aspects to this fairness question, which is for the countries to address. But globally, it remains a win-win situation. Locally, it may lead to hardships for part of the population because of competitive pressure. We have that throughout the whole economic history. It has to be acknowledged. And there has to be a close link between trade negotiations and development of national or international policies that complement this process in order to adjust to the changes in populations and systems. That’s what I call the Geneva Consensus. The Geneva Consensus is that trade opening is good, but it has to be complemented, supported and backed by a number of other policies which take into account the cost of social and economic adjustment.
Editor: As we note, China has not yet produced any world-renowned trade mark like other industrialized countries. Some entrepreneurs in China are already actively pushing for the not-so-glorious "Made in China" logo into a more meaningful one like "Made by China" or "Created by China". Do you think such a substantial change would take place? Many Chinese economists are concerned China is only earning marginal profits while most profit is reaped in the hands of multinational corporations. So they warn China should try our utmost to move up the value chain. Do you agree?
Director-General: Yes. That’s what I believe. Looking at past experiences, countries, including the USA, EU, Japan for instance, all climbed up the ladder. But what I am convinced is that this works only when you open your economies, but it does not work when you close your economies. That’s a fundamental lesson of history. And if you look at the Chinese history, I think it is also true. The most brilliant moments of China’s economic history had been when China was open. But the most difficult moments of China were times when China was closed. History is not always useful to prediction, but it is a contribution to wisdom.
