Pascal Lamy: World Trading System About Right, Not Might

As the tariff issue continues to keep the world on tenterhooks and concerns mount about its impact on the global economy, The Secretariat reached out to Lamy for his views on whether the WTO has gone missing in action while the multilateral trade system is seemingly being upended.

Edited excerpts of the interview:   

Q: Has the WTO gone missing in action while the global economic order is being upended?

A: I do not think so, for four reasons - firstly, (it is) too soon to say if the current trading order is "upended". We have a serious confrontation between the USA, which represent 13 per cent of world imports and 9 per cent of world exports, and the rest of the world, and we are far from the end game. There will be new episodes as economic realities will resist voodoo trade theories. Not sure crying wolf is helping, and we all should remain cool-headed.

Secondly, the WTO remains “member driven” and not “member driving”, as Indian trade diplomats often like to recall. The D-G has no authority to point fingers at a member, only members can do that. In circumstances like the present, the D-G is careful not to make things worse by attracting the ire of (Donald) Trump, who would probably say he does not care. The same prudent behaviour can be observed by the UN S-G, the IMF MD, the World Bank President and the OECD S-G.

Besides, the USA has de facto left the WTO progressively since 2008, and, most importantly, its dispute settlement system, which is where the real teeth of the WTO are, compared to other international organisations. Trump's tariffs are a clear violation of the USA's commitments, and the blanket invocation of the national security clause does not fool anybody. They have simply decided to behave like a WTO outlier.

Lastly, the USA has not paid its WTO budget contribution and can threaten not to, if negative pronouncements are made in the name of the organisation, which would result in layoffs. 

Q: How can the WTO make its importance more visible in the current global environment?

A: It is up to members to take the initiative, but what has been tried so far — by Switzerland for example — did not really take off. Many members are in a wait-and-watch mode, or do not want to find themselves in the line of fire, which is understandable given the daily volatility of the US President and his aggressiveness.

The bigger ones have adopted different postures, ranging from retaliation to negotiation, without, at this stage, attempting to build a strong coalition. Yet, there is room for the WTO to affirm that the organisation will do its best to avoid what could be destructive contamination of protectionism.

Q: How much leverage will Trump's tariffs give the US during ongoing bilateral trade talks with various countries, including India?

A: Among the many reasons Trump must believe (wrongly, in my view) that tariffs can fix the problems faced by the US, imposing a tariff to give it leverage and a favourable negotiating position — to extract whatever the US needs from a country, including on non-trade issues — is certainly one.

But trade negotiations should remain balanced. (It’s) up to India to make its own choices about what "balance" means. But I am pretty sure that other big shots like China or the EU — who are open to fair negotiations — will not cave-in under intimidation. The world trading system is not about might, but about right.

(The interviewer is a current affairs commentator. Views are personal.)