Pascal Lamy on Protectionism

Pascal Lamy, the Director General of the WTO gave this lecture at the Peterson Institute in Washington DC late last week. Knowing that it was probably delivered as as well as it is written, I am struck by the defence to open international trade that it advances. Granted that most of the arguments deployed are pretty standard for a student of economics, it is essential that there is a proper and lucid defence of the value of open markets at this time. It states that trade is essential but is not sufficient unless supported by a compatible domestic policy.

But more important in Pascal Lamy's lecture is the fact that he plainly attacks the popular fallacy that protectionism during a recession is sound economic policy. Speaking with concern for low-income countries, he states that higher income countries may be able to afford protectionism as they can more easily absorb the costs. This is a poignant point for the reason that beggar thy policies are comparatively less damaging to higher income countries that the rest. So while it may be politically profitable to respond to domestic pressure and hike tariffs, lower income countries should be most reluctant to be populist at this time.

That the economic crisis facing the world today will come to an end is without doubt. Hence the injunction from Pascal Lamy that policy with adverse effects would be especially costly when the recovery arrives. In the spirit of not wasting a crisis, astute governors should take the opportunity to prepare for the recovery since openness will be valuable at that time. Economies that are more open will be ahead when the recovery comes.

Being that the Doha Agenda has long been on the table for the World Trade organization, Pascal Lamy reiterates its relevance by responding to skeptics who have made comments suggesting that the promise of its conclusion is substantially eroded. In spite of the good defence, it is the on the status of Doha that I am least inclined to agree with Lamy's assessment. Indeed, I consider that the promise of Doha is less worthy of debate than the realism of its conclusion.