Legal Journals

Lamy: Domestic Policies-Not Trade Protectionism- Solution for Financial Crisis

By fshadan

On 29 October, 2008, Pascal Lamy, the Director General of the World Trade Organization (WTO), in a lecture at the University of California, Berkley, emphasized the need for enhancing international trade under the WTO, particularly during the current international financial crisis. Mr. Lamy advocated for changing  domestic policies rather than trade protectionism as the answer to the present recessionary trend.

Urging his audience to learn from history, Mr. Lamy referred to the enactment of Smoot-Hawley Act (Act) in 1930, as a response to crash of 1929. The Act, which was intended to protect US farming and other industries from imports, caused a chain reaction of retaliation and counter retaliation from countries across the world, that led to a global surge in import tariffs. In the process, global trade contracted sharply, increasing unemployment, depressing growth and substantially worsening the already bad economic situation. Mr. Lamy stated that imports have always been and continue to be good for the US.

He pointed out that since the establishment of the General Agreement on Tariffs and Trade in 1947, the share of international trade in the US GDP has increased manifold. According to him, the primary cause of job losses in the US is not international trade but an increase in industrial efficiency, which has in turn decreased the demand for labor. He admits that while international trade does reduce some jobs in the US, this effect is more than offset by the economic activity in the form of increased GDP that results from international trade.

He further argued that WTO cannot fix issues of domestic inequality, or poor health and pension systems as these lie completely outside the domain of international trade. These must be improved through domestic policies of taxation etc.

Mr. Lamy characterized the growing trend of bilateral and regional trade agreements as useful but not an alternative to the multilateral process at the WTO. He said that none of these agreements could address the major problems of global trade, such as trade distorting farm subsidies, fishery subsidies, etc.

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Full post as published by Harvard International Law Journal Digest on October 30, 2008 (boomark / email).