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Lamy Reiterates Importance Of Doha

Tuesday, March 2, 2010

The World Trade Organization Director General, Pascal Lamy has re-emphasized the need to conclude the Doha round as part of the second phase of the recovery of the global economy from the economic crisis. In a speech on February 24, Lamy urged that freer trade would bring confidence and job creation.

Lamy told the European Policy Centre that it is "economically imperative" to conclude the Doha Round in order to inject vitality into global trade and shore up confidence.

Observing the current position facing advanced economies, Lamy stated:

“These are not easy times; we know that in 2009, real world GDP contracted by 2.2%. Furthermore, the global unemployment rate reached its highest level ever; the International Labour Organization estimates that over 200 million people are now unemployed, and the adverse impact of the recent financial undeniable.”

“World trade has also been a casualty of this crisis, contracting by around 12% in 2009 — the sharpest decline since 1945. The main explanation for this freefall in trade has been the simultaneous reduction in aggregate demand across all major world economies. The drying up of trade finance during this period has also been a contributing factor. To a much lesser degree, trade has been adversely affected by some instances of increased tariffs and domestic subsidies, new non-tariff measures and more anti-dumping actions.”

“We started last year with a collapse in trade; a drying up of trade finance; concerns that donors would reduce funding for 'Aid for Trade'; and worries that protectionism would kick in. Yet one year on from the onset of the crisis, we see that, to this point at least, the multilateral trading system has proven its sturdiness as a bulwark against runaway protectionism.”

“The positive impact of national stimulus packages is fleeting and worries are mounting over the huge budget deficits rung up by many governments. Economies urgently need other sources of growth - sustainable engines of growth which will not add to our already seriously indebted economies. This is where trade can be an important part of the story, both in the long-run and in the short to medium-term.”

Continuing, Lamy emphasized that trade, in general, and exports, in particular, could contribute towards the reduction of unemployment, key to the next recovery phase. Lamy then explained the importance of global trade on many economies. For example, in Germany, 22% of total employment is directly dependent on the export sector. Similarly, in the United States, two out of every ten manufacturing jobs in 2006 were related to exports of manufactured goods. There are also a large number of workers involved on the import side of trade. In Australia for example, where 1 in 10 workers were involved in import-related activity in 2008.

Going forward, Lamy said preliminary estimates suggest that exports could contribute to the creation of 40 million jobs in China, and manufacturing exports could create about 160,000 jobs in the United States in 2010.

He noted that “not all the jobs created in export-oriented sectors will go to previously unemployed workers. Instead some will go to previously employed workers who are transferring to the export sector because of better opportunities.”

“Even so, this re-allocation is economically valuable,” he emphasized. “It means that workers are moving from sectors where their marginal product is lower to those where it is higher. This results in productivity gains to the economy and hence increased output and unemployment. But given the current high rates of unemployment the world over, it is likely that many of those getting these jobs in the export sector will be from the ranks of the unemployed.”

“So what can we say in terms of the role of trade policy during this period of recession?,” Lamy asked. “The key point is that trade can have a positive impact on incomes or output and job creation during this economic downturn. But for this, international markets must remain open and countries must continue to trade on the basis of comparative advantage.”

“We must therefore ensure that trade remains open. But we must also work to keep opening trade through the conclusion of the Doha Round. A Doha deal would provide new market opportunities through the reduction of tariff barriers and domestic subsidies. It would also reduce the fixed costs of trading through the enhancement of customs procedures and reduced bureaucracy."

“Finally, and very importantly, the DDA (Doha Development Agenda) will provide for more certainty in trading arrangements by securing binding commitments from member countries. This is especially important for economic growth to create jobs, as experience from past recessions suggests that employment growth will be sluggish in the aftermath of the crisis even though output expansion may have resumed.”

“One reason commonly advanced to explain this 'jobless recovery' is the uncertainty faced by employers about whether the economic expansion they are witnessing is sustainable. Only if they are convinced that demand growth is durable will they be willing to commit to new hiring. A successful Doha Round will greatly reduce uncertainty relating to protectionism, the spectre of which may hinder new hiring, especially in the export sector, since it is the most vulnerable to trade restrictions.”

Concluding, Lamy said: “If there was a geopolitical sense in launching the Doha Development Round in 2001, another year when the world was put to the test, it is today economically imperative to conclude it.”