Lamy's lament

Nothing of substance comes via snail mail these days. It's just brochures, catalogs, and bills. So I almost threw away the nondescript envelope marked "WTO" that arrived on my desk the other day without opening it. 

That would have been a mistake! It turns out that it was a three page, single-spaced letter from Pascal Lamy, the WTO Director General himself. Mr. Lamy has read my book, you see, and he wants to give me comments on it.  I know the Doha Round is stalled, but still...

Lamy's comments focus on the chapter titled "The Global Governance of Trade as if Development Really Mattered" (here's an earlier version).  He writes that he wants to make some observations that are "primarily factual, dealing with some of the assumptions underlying your arguments."  What he really means to say, I think, is that I do not quite understand how the WTO works, and therefore reach erroneous conclusions. 

His letter is too long and elaborate to summarize quickly, but here are the main points:

1.  Developing countries already have the "policy space" they need within the existing set of rules, as WTO practice has always been to encumber developing nations with fewer obligations than rich countries. If there is a conflict between a "trade mind set" and a "development mind set," it arises from the choices that developing nations themselves make (to use the institution in a particular way) rather than from the constraints that the institution imposes.

2.  The world is more complicated than a binary distinction between developed and developing would suggest. Least developed countries still get an essentially free ride.  Meanwhile WTO disputes revolve around advanced countries and a small set of higher-income developing countries considered to be serious competitors.

3.  My ideas on expanded safeguards are "interesting," but they do not address the more important question of what should and should not be included under the WTO system of multilateral rules and to whom these rules should apply.

4.  It is questionable that an international agency would find it easier to make judgements on the legitimacy of domestic decision-making processes--as I had advocated in my book--than to hammer out the details of differentiated obligations among negotiating partners.

5. One should not place small weight on market access--as I do--in a world where developing nations themselves make a big deal out of it--not just in terms of tariff peaks in the rich countries but also in terms of barriers to trade among themselves.

And oh, he does congratulate me for producing "such a thought-provoking, original and readable contribution to the literature."

Lamy hits on an interesting paradox. I regard a development-friendly world trade regime as one that would begin to emphasize the exchange of policy space over the exchange of market access. But the loudest advocates of market access are the developing nations themselves!  So Lamy is perfectly right to say: you tell us to pay more attention to the needs of developing nations, but what the developing countries say they need is market access. 

I think the trouble is that developing nations (a) greatly exaggerate how much enhanced market access will contribute to their economic growth (given how open the world economy already is), and (b) underestimate how much they can push for market access without giving something valuable (policy space) in return.  There is precious little that the WTO itself can do when developing countries--or at least their trade ministers--operate under these premises.      

By the way, according to Wikipedia, Lamy graduated from ENA ranked second in his class in economics.   

Comments

[Lisardo Bolaños]

Professor Rodrik,

What do you mean with "exchange of policy space"?

Living in a developing nation (Guatemala), I am interested to understand what change might be needed in how we approach to the WTO.

Lisardo Bolaños

[dale]

I suppose developing country economic policy makers tend to be educated in Western universities and are taught to exaggerate the gains to be made by further access to global markets.

[Christian Chavagneux]

Funnily enough, Pascal Lamy was in front of French economic journalists about a month ago. When I mentioned your work (and Stiglitz’s) as someone who did not believe that liberalization of trade was always beneficial for poor countries, he replied that those economists I mentioned were not trade specialists and so…

[Leandro]

Dani,
One of the reasons developing countries exagerates the benefits of market access is because governments, and trade ministers in particular, are prone to emphasize the interest of exporters, generaly powerful businesspeople or high ranking government officials, whose benefits are clearer (and are willing to share them) than the cost for the poorer. Internal democracy and equality also matter.
Focusing in growth we loose
sight of distributional questions.
Liberté, egalité, fraternité.