Institutional investor interview with Pascal Lamy

Q: your involvement with trade policy goes back to the 1990s, which seems like a golden age now. What happened to shift attitudes?

A: let’s distinguish between reality and perception. What reality tells us is that trade is more open today than yesterday. Even measuring by trading volume, which is obsolete, trade keeps moving forward. We have always known that trade works because it is painful, and it is painful because it works. We do not trade because we believe in trade. We trade to become more efficient. What is true is that the distribution of winners and losers in the u.S., For instance, has probably changed over time. That is because developing countries are increasing their place on the value‐added ladder, and because the u.S. Is a place where social systems are weak.

q; what do you mean trade is becoming more open day by day? What is driving that process?

A: two factors: the cost of distance and regulatory concerns. Technology is crushing the cost of distance, whether for goods, people or information, and making economic areas that have so far been non‐tradeable, like medical services or even haidressers in the future. Then there are regulatory issues. The average world‐wide trade‐weighted tariff today is 4‐5 percent and keeps decreasing. It was 40 percent after the second world war. The challenge for the future is not protection but precaution. My estimate is that meeting standards of safety, quality, tracability, environment comes to 20% of the cost of production for an average exporter.

Q: so is the political ferment of the moment irrelevant?

A: no but you find it more in the u.S. Than other places. You don’t find it in africa or china. The real reasons for stagnant incomes may be the costs of health care, and of course technology. But trade becomes a scapegoat.

Q: will the u.S. Walk away from the trans‐pacific partnership?
A: no, i do not believe the us is not going to walk out of tpp. It may not come back the day after the election, but many trade deals have a long shelf life.

Q: looking closer to home, how do you evaluate the brexit phenomenon? the brexit phenomenon has nothing to do with trade. A: many brexiters campaigned in favor of more open trade than the uk has now. In france, yes, the national front in france is protectionist.

Q: but trade might be collateral damage in the brexit vote.

A: if and when brexit happens, and that’s not a 100‐percent certainty, trade between the uk and the continent will be less than it was. And most impacted will be the part of trade that is growing fastest, which is services.

Q: the standard numbers show that global trade is still growing, but growth has slowed since the financial crisis. Is that a trick of obsolete statistics? it’s a reality if you measure trade the medieval way, which is volumes. But measuring trade in volumes makes no sense in a world of global supply chains. When i was at wto, i launched a big campaign to measure trade the way you measure economics in any other area, which is value added. The growth slowdown in volumes from 5 percent annually to 3 percent tells you that the integration of global supply chains has slowed down, partly because of the crisis, and also because that china’s production is shifting toward domestic from exports. Relatively slow eu growth also plays a role, because intra‐eu trade is counted as international. But growth will reaccelerate at some stage. The moment indian doctors can fix your problem somewhere in ohio, trade in services will increase in a big way. With 3d printing, trade in services will replace trade in. Goods. so you are saying that trade growth has not slowed down according to the value‐added standard? exactly.

Q: how do trade technocrats address that 20 percent cost from nontariff barriers?

A: that’s exactly what ttip is about. [Transatlantic trade and investment partnership, a proposed new agreement between the european union and u.S.] This is why ttip is a totally different animal from ttp. Ttp was the last of the classical trade agreements addressing protectionism. Ttip should be the first trade agreement addressed to precaution. what is the outlook for ttip from europe? it’s a very complex, very touchy, very sensitive way of reaching some sort of regulatory convergence that produces economies of scale for producers of cars, food, chemicals, pharmaceuticals, and so on. It’s a very long‐haul process. does the european elite see the u.S. As a partner or rival in world trade governance? the signals from u.S. Politicians create a situation where maybe the u.S. Will be less of a leader in trade than it has been for the past 50 years. In that case, others will have to do the job, starting with europe, and emerging countries as well.

Q: your years at the wto seem like they might have been frustrating. What was the most important achievement during your time there?

A: the main achievement was that during the ‘08 crisis protectionism did not win. We reacted together with the g20 to set up monitoring of new trade barriers, which put a lot of pressure on members of the wto. The doha round is not dead. It was not completed because the u.S. And china were not able to agree on a few things. This will look very strange to future historians, that the u.S and china could not agree on a few percentage points in tariffs on chemicals, but that is diplomatic life.