Global trade in ‘age of transition’: WTO

The world is flat.

Or flattening at least, according to World Trade Organization director-general Pascal Lamy.

But it isn’t necessarily a bad thing.

“The reality of twenty-first century economics is that the notion of geography and of a defined marketplace is becoming increasingly irrelevant as the DNA of trade continues to transform,” Lamy said during a recent speech in Australia.

During his speech, Lamy spoke of the evolving global trade environment, which he described as “subdued.”

“Subdued prospects and subdued expectations,” he said of international trade and sluggish growth projections for economies small and large.

According to Lamy, the WTO recently revised its forecast for global trade growth in 2012 to 2.5 per cent.

That’s down from 3.7 per cent in the spring.

And while developed and emerging economies alike continue to look for ways to combat the across-the-board slowdown in growth, Lamy warned of the potential dangers involved with turning to protectionism in today’s globalized economy.

“Protectionism does not work,” he said. “Closing off markets would be a mistake in a world where hampering imports will actively harm prospects for exporting success.

“Protectionism does not protect. It does not strengthen economies and it does not save jobs.”

It’s that point of exporting success Lamy belabored, describing the twenty-first century as a “multi-polar world,” where market power has shifted and products are made with components from around the globe.

“Increasingly, countries are trading in intermediates, not final products,” Lamy said, noting the WTO refers to this phenomenon as ‘Made in the World’.

“The concept of made in country X is becoming obsolete as we see the exponential increase of trade in intermediates or trade in tasks—where components of goods and services are produced and assembled in different countries.”

This is exemplified in global exports, where, according to Lamy, the average import content in export products is around 40 per cent.

The balance of power is also shifting, Lamy said.

“The emergence of some developing countries as key players and as real contributors to global dialogue on trade and economics is a fundamental feature of this new geo-political reality,” he said.

Emerging powers like India, Brazil, China, Mexico, Malaysia, Indonesia, Thailand, Chile and Turkey are no longer “policy takers,” according to Lamy.

“These countries now increasingly influence the pattern and scope of international trade, creating new supply and demand pulls and flexing their (respective) influence in international organisations,” he said.

In fact, Lamy said developing or emerging countries are now the largest market for each other.

While the landscape of trade may be changing, Lamy said there may not be anything wrong with that.

“I believe the future of the multilateral trading system is bright,” Lamy said in summary. “It will be different—and in some cases unrecognizable—but bright.

“I am confident of that.”