Today's Challenge is to Manage Change without Conflict: Pascal Lamy

The relative dynamism of emerging economies over the past several years has meant that these economies, many of them in Asia, have come to play an ever-growing role in the world economy and to account for a larger and larger share of economic activity. The consequences of shifts in economic power take time to adjust to politically and organizationally.

As we work towards a new equilibrium in international cooperation, new relationships and leadership patterns will inevitably emerge, just as they have throughout history. While this transformation is in progress, multilateralism is going through a difficult time. This is not just about trade. It is also true for climate change, for financial regulation and for macroeconomic coordination. Nations are being tested in defining and implementing common strategies in response to all the global challenges facing us. A core challenge of our time is to manage change in a manner that avoids conflict.

Are these objectives easy to attain? Not really, and certainly not in a rapidly changing world. I would like to identify broad areas where I believe we face particular challenges as we see to attain harmony and mutual benefit in international trade relations.

The first concerns the continually shifting weight of economic power and influence within the world economy and the implications this has for cooperation and global leadership.

Multilateralism is going through a difficult time. This is not just about trade. It is also true for climate change, for financial regulation and for macroeconomic coordination. Nations are being tested in defining and implementing common strategies in response to all the global challenges facing us. A core challenge of our time is to manage change in a manner that avoids conflict. Let us hope that the leaders of today can show the way, as their predecessors had to do in the past.

In trade matters, we need to address competing views among governments as to what constitutes a fair distribution of rights and obligations within the trading system. Before the WTO was established in 1995 there was, in broad terms, an arrangement whereby developed countries agreed to open their markets, while more emphasis was placed on special and differential treatment for developing countries. Developing countries were not called upon to open their markets in a substantial manner. This arrangement reflected basic differences in development levels and capacities.

Over time, the differences between developed and at least some developing countries have narrowed, and with it the rather simple dichotomy upon which the GATT trading system rested. As developing-country growth has outstripped developed-country growth and the gap has narrowed, it is becoming harder to find a balance of rights and obligations that is regarded as legitimate and fair in the eyes of all parties concerned. These tensions had already begun to manifest themselves well before the creation of the WTO.

Underlying all this is the question of what constitutes reciprocity. For some, the emerging economies have attained a level of competitiveness and efficiency in key sectors that warrants treating reciprocity as parity in obligations. Others emphasize that emerging economies still face formidable development challenges in many areas of their economies and are still far from enjoying the per capita income levels and standard of living of those in industrialized economies. In this world, it is argued, treating reciprocity as equality of obligations is not appropriate, fails to meet a fairness standard, and handicaps development policies.


It is not my role as Director-General to take a position on this issue, but in many ways, it is this that has made it impossible for us so far to reach agreement on a big package of new regulations of world trade in the Doha Round.


The second challenge to the trading system relates to the way technology and transport costs, backed by open trade and investment policies, have changed production structures. A vast and growing amount of international trade involves global supply chains whereby parts and components cross many borders as production is shared in many different locations. This production sharing is very different from the traditional way of working, where a single country would import the necessary components and parts, add local inputs plus labour and capital, and then export final goods.


The third challenge I mentioned at the outset was the explosion of regionalism and its impact on multilateral trade arrangements. More than 300 preferential trade agreements are active around the world. In our World Trade Report for 2011, we undertook a detailed study of these agreements and what they mean for the WTO. The Report argues that a good deal of activity, especially in Asia, is driven by a desire to create conditions favouring supply chain production, where there is a premium on eliminating tariffs and creating a friendly regulatory environment. This is not problematic as far as it goes.


But it also highlights that, with regulations and behind-the-border policy regimes becoming so important in preferential agreements, we run the risk of regulatory divergence and a resulting fragmentation of markets. Segmented markets reduce trading opportunities, hamper economies of scale, tend to exclude some countries and introduce discrimination. Addressing these potential sources of difficulty in international trade relations is becoming an increasingly important challenge for the WTO.


In conclusion, I should like to say something about the Doha Round of trade negotiations. It is no secret that governments are finding agreement elusive and in ten years we have not been able to complete the negotiations. We have a stalemate. The challenges I have referred to above partly explain this governments are struggling to agree upon how to balance rights and obligations among dissimilar nations. I believe I have also said enough about the other challenges facing the multilateral trading system. We shall be illequipped to address these if we cannot break the stalemate. Not only will the world economy suffer from increased uncertainty and lost economic opportunity, but the WTO will also be weakened as paralysis sets in around an intractable negotiation.


I do not believe we can afford to add further burdens to the world economy nor undermine the authority of international institutions. I therefore hope that all WTO members and, in particular, those with greater influence than others, seek out common cause with their trading partners in order to move the trade agenda along.


Originally Published in The Stitch Times, November-2011