Pascal Lamy discusses global economic growth and the future of global governance

On February 10, 2014, Pascal Lamy, the former Director-General of the World Trade Organization, visited Stanford University as a special guest of The Europe Center and the Freeman Spogli Institute for International Studies.

During his two-term tenure at the helm of the WTO (from 2005 to 2013), Mr. Lamy successfully guided the organization through complex changes in the regulation of international trade. Among his many achievements, he oversaw the systematic integration of developing countries into positions of political leadership in the world economic order.

Prior to the WTO, Mr. Lamy served as the European Commissioner for Trade, the CEO of the French bank Crédit Lyonnais, and in the French civil service. 

Mr. Lamy has been decorated with medals of honor from countries ranging from France to Mexico, and has received honorary degrees from eight universities around the world. He has authored several books, including recently, The Geneva Consensus: Making Trade Work for All.

In his farewell statement as the Director-General, Mr. Lamy said in July 2013: “Together, we have strengthened the WTO as the global trade body, as a major pillar of global economic governance. Despite the heavy headwinds and the turmoil in the global economy as well as on the geo-political scene, together we have made this organization larger and stronger.”

Mr. Lamy drew on these experiences to offer insights related to the designing of global governance during his visit to Stanford.

He first participated in a lunchtime question and answer roundtable with undergraduate students. Stephen Stedman, Deputy Director of the Center for Democracy, Development, and the Rule of Law, moderated the event. Among other topics, Mr. Lamy spoke about the necessary mix of economic, social, and political policies that determine the efficacy of free trade as an engine of global economic growth. 

Mr. Lamy then delivered a public lecture, titled “World Trade and Global Governance,” before an audience of over a hundred members of the Stanford community.

In this talk, Mr. Lamy outlined a statement of his own thinking about the future of global governance and international trade, and described what remains to be done in addressing the challenges of globalization. Additionally, he reflected on the features of modern politics that create governance gridlock and thwart global oversight, and identified how progress can be made in overcoming impediments to policy action at the international level.

Mr. Lamy’s lecture focused on three overarching points. First, notwithstanding some setbacks, governments and international organizations have achieved major successes in regulating the liberalization of global trade. Tariffs are on average lower than ever before, and governments did not raise tariffs during the recent financial crisis as they did during the Great Depression.

The WTO has played a central role in facilitating regulatory convergence in international trade. Institutional features such as the organization’s dispute resolution mechanisms have deterred nations from enacting unilateral forms of protectionism. Additionally, by “naming and shaming” nations that raise tariffs during economic crises, the WTO has prevented reversals to autarky in the global economy.

These policies have had a salutary effect because free trade and open markets enhance economic competitiveness, generate growth, and raise welfare standards around the world.

Second, despite these successes in the governance of international trade, challenges remain. A new feature of the global economy is that protectionism based on economic objectives has been replaced by “precautionism” based on normative prerogatives. For example, competing national perspectives on product standards such as those related to safety or labor norms thwart efforts to achieve consensus on trade regulation.

Genetically modified foods represent one example of globally traded products that are held to different normative standards by different countries. Disputes over regulating the global production and distribution of these products are therefore less likely to be resolved by traditional negotiation mechanisms.

Third, in order to overcome this governance gridlock and achieve regulatory convergence, we need to bring together stakeholders from the public and private sector to build coalitions that jointly negotiate conflicts in matters of global governance.

For example, the “C20-C30-C40 Coalition of the Working” that comprises the 20 largest countries, the 30 largest companies, and the 40 largest cities in the world is currently striving to overcome regulatory gridlock on climate change. This coalition can define carbon emissions targets, supervise urban infrastructure projects, and evaluate progress on energy and environmental objectives.

Mr. Lamy reiterated that trade can only serve as an engine for economic development if governments and international institutions enact economic and social policies that reflect the preferences of a broad swath of global stakeholders. Only by adapting the governance structures of the twentieth century to respond to the challenges of the twenty-first century, can we overcome new forms of policy gridlock at the international level.