Closed markets won't solve economic crisis: Lamy

Economies that are more open will be better placed to stage a faster and stronger recovery once the global crisis comes to an end, Pascal Lamy, director-general of the World Trade Organisation, said in a speech delivered at the Peterson Institute for International Economics in Washington yesterday.

He said conclusion of the Doha Round ''could complement national stimulus packages that many countries such as the United States have put in place,'' Lamy said.

He said the worst economic crisis in generations and the first global crisis in the history of mankind now threatens to undo the economic development achieved by many countries and to erode people's faith in an open international trading system. 

''Trade has been another casualty of this crisis, with WTO economists foreseeing a decline this year of nearly 10 per cent in volume terms, its worst result since the end of the Second World War,'' he said.

''This virtual freefall in trade and the belief that the more open economies are bearing the brunt of this decline have led some to argue that trade openness has made economies more vulnerable to the crisis,'' he pointed out. 

While trade has not been the cause of the global crisis, he said, the general fall in aggregate demand across all major world economies has indirectly affected trade finance, which oils the wheels of international trade.

Global trade, which exceeded growth in world production, is now seeing an exponential decline with the global contraction.

''Countries have increased tariffs, instituted new non-tariff measures, and initiated more anti-dumping actions. Some of the measures that have been introduced to stimulate economies contain provisions that favour domestic goods and services at the expense of imports,'' he said, while agreeing that some of the measures are allowed under WTO rules.
Countries gain from trade as a result of the increased economic efficiency brought about by specialising in goods in which they have a comparative advantage, he said, adding ''If accompanied by the right domestic policies, trade can be a powerful tool for fostering growth and contributing to development.''

''The key lies in the ''if''. More open trade is essential but it is not enough. We need better worker training, greater mobility in labour markets, more expansive social safety nets. We need investing in critical areas such as health care, education and clean energy. And, not least, a better regulated financial system.''

Adequate domestic policies also include greater investment in physical, social and government infrastructure, which helps to increase the benefits of trade, in rich and poor countries alike.

''While rich countries can count on their governance, on their know-how and their taxpayers' wealth to implement these policies, many developing countries simply cannot afford them. And yet they keep stressing, rightly in my view, that opening trade is good for them,'' he pointed out.

''Retreating from market opening is not a solution to the economic crisis. For countries that depend on trade and have specialised according to comparative advantage, a reversal of openness will impose significant costs on the economy.  What is more, setting up new barriers to trade will be seen as protectionism and will risk retaliation from trade partners. One country's exports are another country's imports. Rather than reviving economies, the effect of this will be to worsen the global crisis,'' he sad.