The new world trade order is about “precaution not protection” – Pascal Lamy

Pascal Lamy, the ex-Director General of the WTO paid a visit to ITC on Monday to speak to staff about how the changing nature of trade liberalization and where Aid for Trade should focus its efforts to support small businesses in developing countries.

Pascal Lamy speaking to ITC staff, with Arancha Gonzalez Executive Director of ITC (photo: ITC)

Pascal Lamy speaking to ITC staff, with Arancha Gonzalez, Executive Director of ITC (photo: ITC)

Introduced by the Executive Director of ITC, Arancha Gonzalez, Lamy characterized the “new world of trade” as having moved “from a world of protection to precaution”. In the “old world of trade”, policies protected national producers. Today, “the obstacles to trade stem not from protection of producers but from protecting consumers from risk”. These obstacles are in the form of standards and regulations to mitigate risk and protect consumers’ health, safety as well as issues of interest to socially conscious consumers like workers’ rights, animal welfare and the environment.

He made three points about what this meant for developing countries’ trade and their trade negotiators.

1. Whereas in the past, trade negotiators focused on “removing the measure”, e.g. a tariff on a good, in today’s world, negotiators cannot get rid of a measure. Today’s measures are not removable tariffs but standards providing consumers protection for example on maximum pesticide residues (MPRs). This protection for consumers “trumps other objectives”. These standards will not be removed. The objective therefore for trade negotiators looking to increase their countries’ access to developed country markets should be to look at “…setting a fair MPR level, not getting rid of the measure”.

2. There is a “very different sociology” of actors that command influence in trade opening today. In the past, the groups with influence to remove measures were “sovereign nations”. Today, it is private actors, namely retailers, brand owners, importers motivated by “marketing purposes, for example, marketing flowers that are more green than the others” and thus employing private standards for that purpose.

3. In the old world of trade, consumers favoured opening. In today’s world the reverse is the case. Consumers in rich countries are skeptical of trade opening because of “the tendency to believe that opening will lead to precaution dumping. As you get less poor, you acquire the right to dream”.. (e.g. for safe food)…”that was previously constrained by lower economic status, ”…”but also the right to have nightmares” (e.g. about the risks of unsafe food).

Lamy made several recommendations in how ITC should direct its efforts in Aid for Trade.

  • Firstly it is worth bearing in mind where the obstacles to trade lie. Five percent of trade costs are made up by tariffs, as measured by the average tariff rate. Ten percent of costs come from crossing borders, which the trade facilitation agreement is addressing. Another 20% of trade costs come from coping with the regulatory and standards systems. Aid for Trade should address these costs which are largely the “costs of compliance” for exporters in meeting with regulations and standards.
  • He remarked that small exporters had an “an inbuilt handicap” compared to big producers given that compliance costs were a fixed cost. Their “only option is to get support and increase volumes”. AfT agencies like ITC should focus efforts also on “more technical analysis of where these trade barriers and drill down deep into the “micro” of global value chains to help build comparative advantage.
  • Furthermore, ITC could usefully “enlarge parameters in GVC analysis starting with investment protection and taxation systems”.

The themes of Lamy’s talk are covered in his book The Geneva Consensus. Here are some of the programmes at ITC working on non-tariff measures, sustainability issues in agri-food and natural product value chains and a database and benchmarking tool for private voluntary standards.

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