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Monday, 29 September 2008 19:57 |
Financial Times
By Fiona Harvey
Original Publish Date: September 25, 2008
Calls for protectionism are likely to rise in the wake of the financial crisis, but should be resisted, the director-general of the World Trade Organisation has warned.
Pascal Lamy said in an interview with the FT: “There is a real danger that people will be tempted down that path [of protectionism]. But I would ask them to consider. There is huge damage in closing markets.”
Mr Lamy compared the crisis to the crash of 1929, and said that moves towards protectionism during the Great Depression helped to deepen economic problems, and ultimately was one of the factors behind the second world war.
“If that was true in 1929, when there was less trade around the world, just imagine what the consequences would be today,” he said. He said that continued free trade in the aftermath of the 1997-98 Asian currency crisis had enabled the world’s economy to recover more quickly. “There was a collective way of handling the crisis,” he said.
Mr Lamy said the large US trade deficit would intensify calls for the spread of globalisation to be halted or turned back.
He added that the fact that the social safety net in the US was lower than in most other developed countries made the downside of globalisation more painful to people, for instance manufacturing workers whose jobs migrated overseas.
Politicians who used these problems to call for the protection of jobs in the domestic economy could expect an enthusiastic hearing from voters, Mr Lamy said. “But that is just the same old scapegoating exercise,” he said.
He insisted that the correct way to deal with the current financial crisis was to continue work on lowering tariffs and other barriers to trade.
Mr Lamy said that trade was also the answer to the climate change problem. He said a global system of trading in greenhouse gases could help to bring down emissions, and cautioned against countries trying to use trade sanctions to encourage higher environmental standards.
Mr Lamy acknowledged that developing countries were worried that some rich nations were trying to use environmental concerns as an excuse for protectionism, by proposing that imports should meet certain high environmental standards.
France led calls last year for trade penalties against countries that failed to cut their emissions in line with the Kyoto protocol. This would have hit exports from the US. But the US joined with the European Union to try, through the WTO, to draw up a list of environmental goods and services on which tariffs should be removed. This attracted criticism from Brazil, which accused the US of hypocrisy because it imposes tariffs on imports of biofuels, effectively preventing the import of cheap Brazilian ethanol made from sugar cane.
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