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Former WTO Chief Reflects on Free Trade, Tariffs and the Future

Posted May 28, 2014

Most free trade agreements, whether bilateral deals with Japan and Korea or the stalled Trans-Pacific Partnership trade negotiations, are “old fashioned” and generally “not worth the effort” according to Pascal Lamy, the former director-general of the World Trade Organization.

That was part of the surprisingly direct message Lamy delivered to Fairfax Media earlier this week following a meeting with Australian government officials to discuss the upcoming G20 and policy approaches to address intergenerational concerns.

“Look at the US-Japan agreement. It’s about pork, beef and rice. They are not exactly 21st-century trade opening topics. The Trans-Pacific Partnership agreement Australia is negotiating with the U.S. and 10 other countries, it’s a good old-fashioned agreement,” Lamy said. “It’s about goods, services, government procurement, a bit of intellectual property, but it’s the last of the big old-style agreements.”

Citing the fact that the trade-weighted average tariff is now just 3 or 4 percent, Lamy also dismissed the role of cutting tariffs in helping to advance trade. “Tariffs are like dead stars. They are millions of kilometres away, they are dead, they don’t emit any light any more, but you still see the light of the star because it takes so long for the light to come to your eyes. They have been dead for thousands of years and you still see the light of the star. That’s what tariffs are like, tariffs are dead.”  What are left, he said, are for the most part nuisance tariffs which don’t greatly impede trade and are scarcely worth avoiding.

In contrast to his apparent contempt for “old-style” trade agreements, Lamy sees the proposed Trans-Atlantic Trade and Investment Partnership (TTIP) as the beginning of a “new era” in global trade relations. This is because, rather than concentrating on eliminating fairly minimal formal barriers to market access, TTIP is focused more on resolving regulatory differences that often make trade more difficult and costly than need be. Harmonizing regulations would “make an enormous difference to trade,” Lamy insists, by allowing global corporations to “truly take advantage of economies of scale.”

Unlike the case of the TPP where the various countries involved all have quite differing ideas about standards, a “harmonized” approach can be achieved between the U.S. and Europe because of largely similar views on a range of issues such as consumer protection and safety. If the transatlantic trade pact does happen, Lamy believes it will probably then become the de facto standard for the world.

Since stepping down from the WTO last year, Lamy now chairs the Oxford Martin Commission for Future Generations. He also happens to be considered a strong contender for the position of European Commission President.