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The World Trade Organization and the Global Economic Crisis

Speaker: Pascal Lamy, Director-General, World Trade Organization
Presider: Gail D. Fosler, President, The GailFosler Group LLC
June 24, 2010
Council on Foreign Relations

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GAIL FOSLER: Welcome, all. The 1:00 hour at the council has come, and it is my pleasure to welcome Monsieur Lamy, who is very well known to all of you, for an hour for us to have an opportunity to have a conversation, and you all to have an opportunity to ask your questions.

I'm sure that you all are quite familiar with Monsieur Lamy's background. As near as I can tell, you have had a front-row seat at almost everything that has been important in Europe, and now in terms of the global trading system. Monsieur Lamy began in the treasury and ministry of finance in France and spent an extended tour in Brussels during a time when some of the more creative structure was being put in place to set the European Union and the euro in the -- on the path that it's on today.

Well, I take that back. Maybe not quite on the path that it's on today. (Laughs.) Let's roll that back 18 months. But he certainly has been front and center, as the director-general of the WTO, trying to bring a world together around international trade.

I was probing a little bit in Monsieur Lamy's background to find out a little bit what a director-general of the WTO does in his spare time, and I have discovered that Monsieur Lamy is a very active marathoner. He was actually out in Central Park this morning running, which I consider cruel and unusual punishment. But clearly, he trains in all kinds of conditions, and he runs both the Paris Marathon and the New York Marathon. And he's been known to make the distinction that the New Yorkers celebrate their marathons, and the Parisians merely tolerate their marathons.

But I actually think that it's not a bad metaphor for international trade, because there was a time when we, indeed, did celebrate international trade and the efforts to try and increase -- reduce trade barriers and to increase a level playing field. And now it seems, as we watch what's going on around the world, that in -- we merely tolerate the efforts to try and improve trade policy, and in some cases we try to stand in its way. So I think Monsieur Lamy, who's on his way to the G-20, has a very critical but very difficult job.

And I guess someone with your endurance, Monsieur Lamy, is the perfect person for the job.

So just as a couple reminders to you all in terms of this meeting, this meeting is on the record. As you can see, we have the Fourth Estate here with us today. And I do ask you to turn off your cell phones, or pagers and -- even for vibrations, or whatever. This is really your meeting and let's do everything we can do that we can to make sure everyone is quite comfortable.

So Monsieur Lamy, you know, if we look back over the last 18 months, we -- in some sense, protectionism is the dog that didn't bark. And I think it would be interesting, just to kind of kick off this conversation, with you giving us your sort of take on why you think that's the case, and the conditions that we need to put in place to be sure that protectionism doesn't arise when people feel that they are essentially out of the crisis period, but that the rates of growth are substandard and the rates of unemployment remain very-high.

PASCAL LAMY: Well, I think your starting point is correct as compared to expectations, let's say, autumn '08. We haven't had the sort of protectionist reaction which was expected at the time.

Now, the reasons for that I think are many: Number one, it's an area where there are strong international disciplines which result from, you know, 60 years of international multilateral trade negotiations. We have a rulebook -- which, by the way, started at the time where people wanted to draw the right lessons of what happened during the 1930s. So it's an area of international economic life which is more regulated, more disciplined than others -- not that WTO members do not keep a sort of policy space for their trade policies, but within voluntary agreed constraints. So their capacity to go protectionist was limited by their international commitments.

Second, not only are there rules, but we probably have in WTO a sort of machinery to make sure that these rules are effectively implemented which is stronger than the average of international governance, in terms of monitoring, in terms of surveillance, in terms of litigation. And the monitoring we've put in place during the crisis is a, sort of, permanent reminder to all members of what they've been doing for the last six months, publishing regularly this radar-screen picture -- including on the eve of G-20 meetings, as we did it last week.

There's a sort of culture of transparency reporting which is a sort of halfway to name and shame, which has worked. If anybody wants to know what Russia, China, U.S., Kenya, Japan has been doing since the beginning of this crisis in terms of trade policy, there's a play where you have the -- see a picture.

On top of that, we have a sort of capacity to analyze, you know, what has happened. Some countries have gone a bit in the wrong direction. Others have gone a bit in the right direction. We can't say for how much, who and when.

So it's reasonably informed.

The third reason is probably that globally, the culture of interdependence is better now than it was 20 or 30 years ago. In today's world, the notion that if you start to protect your imports, your neighbor is probably going to do the same and that, you know, your neighbor's imports are your exports, which is a fairly complex abstract notion if you have to go on TV and explain this. (Laughter.)

That's always a problem. But it's more deeply entrenched into cultures. And G-20 leaders -- I don't know if I can see that in their discussions at G-20 -- are aware of this.

And lastly, there's also the fact that, you know, this crisis was sort of northern-generated -- a big problem for many developing countries -- and that the way to make sure that developing countries who are more dependent on trade than others would not be hurt as a consequence of that.

So there's also a very (conjectural ?) political element which probably also has played insofar as northern countries matter about development issues.

So that's, I think, the mix of reasons why we, for the moment, haven't had sort of any serious significant protectionist reactions. There are numbers which are floating on the market here and there, you know, like on any market how you've got various qualities of goods -- good goods or junk goods. Information market is the same.

But serious numbers -- our numbers, IMF numbers, UNCTAD numbers, OECD numbers, World Bank numbers -- these organizations are reasonably serious, show that for the moment, nothing dramatic. For the moment, that's my last part of my answer to your question.

We are not out of the woods. As long as unemployment remains extremely high by historical standards -- which is it is the case today -- protectionist pressures will be there. In domestic politics, protectionist pressures come from the jobs market.

So as long as unemployment will remain high, and there are many reasons why it probably will remain high for the next 18 months or 2 years, that's a reasonably rosy scenario. Pressures will be there, and we will need this sort of campaign, this sort of activism in order to sort of keep this, let's say -- it's been the only stable part of the landscape of the world economy.

Of course, we had a drop of trade in '09 which, given that trade has remained open, will be matched by a reasonably nice pickup in '10.

FOSLER: But I think in that spirit of things tend to slip backward if they don't continue to move forward, you know, it seems as it's almost impossible to make any progress on trade issues, you know, in the current environment. I mean, and a lot of the trade issues are getting into issues of labor standards and of course, a lot of the government procurement -- of course, agriculture is an enormous issue.

But there just doesn't seem to be the appetite to advance. How do you see -- I mean, is the Doha round dead?

LAMY: No. International negotiations never die. (Laughter.) Whether it's about disarmament, whether it's about whaling, whether it's about trade, they never die. They just get to be longer. (Laughter.)

Now, I'm not sure I would agree with your sort of introduction about the golden age of trade when everybody was agreeing that trade opening was great and that we would be sort of a different age where it creates resistances. That doesn't fit with my own experience, and I've been in this business more or less closely connected for, let's say, 20, 25 years.

Trade politics have always been difficult, and they will always remain difficult because the sort of rules of international trade have to be agreed by parliaments and parliaments hesitate where special interests -- of course, depending on countries and political regimes, but I think U.S. is a good case in point. Special interests have a heavy power in parliaments.

And inevitably, trade politics make happy constituencies and unhappy constituencies. And as we all know, in politics, unhappy constituencies often have a larger political clout than happy constituencies, who have a tendency to remain silent or even unaware of the reasons why they're happy.

So it's always been like this. It simply is more complex today because the number of stakeholders, the number of negotiators is much larger, and the number of topics on the table is much larger. Uruguay round -- or let's say Tokyo round, U.S., EU, Canada, Japan would agree. And then sort of 120 members of the WTO would sign up.

It would take five or six years. But now, it's a totally different game. We have 153 members, and among the 153 members, a hundred of them are active participants in the negotiations. And the negotiation is a sort of 20-point agenda, whereas the previous round had probably seven or six.

So it's more complex. It hasn't become easier in domestic politics. Largely because of globalization having its own impact on the domestic debate about international economy. You look at U.S. and China. You know, it's a repetition of what happened in the '60s, '70s, '80s with Japan. It's a bit of the same in Europe.

So I'm not sure things are more difficult than in the past. It's more complex. Maybe -- and that's something we need to think about for the next round. Maybe the technology of what we call the single undertaking, which is bonding together 20 topics and agreeing that, unless we've agreed to each and every of these 20 topics, we've agreed on nothing. Probably this has to be questioned in the future.

But it will remain difficult given that, again, inevitably, trade opening reshuffles competitive positions. Now, by the way, this is one of the reasons why it works. And some are exposed to more competition and either adjust or leave the room to others who are more competitive.

And it's inevitably politically painful. I don't think there is -- we should dream of a world where parliaments will all be happy with trade deals. I don't think democracies work like this.

So trade policies are, in a way, consensual. I think a vast majority of economies on this planet of trade ministers would agree that open trade works. Trade politics will remain difficult, which is why we will need political support by leaders. We will need them to mobilize political energy and, you know, they all have a limited quantity of this, and the question for them is on which forces do they mobilize their political energy?

FOSLER: Now, you're headed to the G-20. Why don't you tell us a little bit about the role of the WTO in that process, and is there -- is there an opportunity -- I think one of the risks in terms of the G-20 is that there are a lot of statements of intention, but no action. Is there an opportunity for some kind of coordination that actually helps you move the ball?

Would you like me to go to the next question? (Laughs.)

LAMY: I'll answer this one.

Please don't be too severe with the G-20. The G-20 is not the world government. They don't decide on anything. They don't have the mandate to decide on anything. They meet. They discuss issues which they have in common and try to come out of that better informed and with a possible sense of commonality and common direction.

The big -- the big benefit of the G-20 you don't see. The big benefit of the G-20 is decisions which governments would take if the G-20 wasn't there. It's a bit of -- you know, a bit like the G-8 in the '80s or the '90s. The notion for these people who spend a lot of their time about their domestic issues -- because this is where they get their job from, this is where they get their legitimacy from -- the notion that once or twice a year, they'll be sitting at a table where they have to explain how what they do fits with a sort of collective interest is an important thing.

So please don't benchmark the G-20 to a national government who has a program, decides I'll do this, and then is confronted whether the government has done it or not, which, by the way, I'd say also shows some difference between what people say they will do to be elected and what they do once they're elected. So, even with that benchmark, it probably wouldn't work.

Now, what's the relationship between the WTO and the G-20, trade being part of the bits and pieces of this international economic agenda: development, growth, imbalances, financial regulation in the case of this crisis? Inevitably, the interrelationship between trade growth, the crisis development is there, which is -- which is why WTO sits at the table, which is why the IMF sits at the table, which is why the World Bank sits at the table, which is why the OECD sits at the table.

Whether these sort of people around the table who represent 80 percent of the world economy can be important in the conduct of WTO negotiation and in the conclusion, obviously yes, but you know, those of you who are specialists of trade negotiations, probably you have heard about the Green Room. The Green Room is sort of a group of countries which WTO DGs interact with, which is a sort of small group within the larger membership where a few ideas, compromises can be tested. And this Green Room has been there for, let's say, 10 or 15 years.

When you look at what the Green Room was 10 years ago, it's very much like the G-20 today. And why is it so? Because as we take decision by consensus in WTO, the sort of inner group -- unofficial, you know, group, because nothing of this is official, it's just informal -- resembles a lot what the crisis created with a G-8 which is the G-20.

So, true, these countries are probably the ones where the main balance of compromises can be made, and I would even go further. Within this G-20, that's my experience in WTO, we have a newer, smaller group which is a sort of G-5: EU, U.S., Brazil, India, China, maybe G-7 if you add Japan and Australia, which is an even smaller group -- not a club, not that they have any official legitimacy, responsibility. The reality is that in today's world of trade negotiation, a balance agreeable to U.S., EU, China, Brazil, India will be 85 or 90 percent agreeable to the rest of the membership, and that's -- that's a function of, you know, geopolitical balance. It's a function of pattern of economies. It's a question of level of development. So, yes, if G-20 leaders make a determination, that's meaningful for the WTO.

We have to be careful that this is not -- again this is not officially recognized because then countries which are not members of G-20 will have a problem with a G-20 existence, and there are some -- you've got countries who have -- who are internationally extremely active like Norway, like Singapore, like Chile, like Switzerland, like New Zealand who have a problem with the existence of the G-20. They've made up a group within the U.N. system which is called the 3G, and they're pushing for a better articulation, which I think is a good idea, between the G-20, the United Nations system, and international organizations.

Now it remains that if EU, U.S., Brazil, China, India agree on what -- how to conclude the round from where we are, which is 80 percent of the job, this will help a lot.

FOSLER: Well, it seems that the question took us directly into global democracy. So maybe we ought to take our questions to the audience.

This is -- this is your time for members' questions. I ask that you raise your hand and wait until a microphone arrives to state your affiliation and ask your question, and try to be concise so we can get as many questions in as possible.

Yes, sir? Can you --

QUESTIONER: Hi. Andreas Billmeier -- (inaudible) -- Investments.

A quick question on trade flows: The down and, as you projected, up in 2010 of trade flow is massive down and up. Do you see any structural damage to international trade from -- just from the volatility of flows, and could you give us an outlook past 2010? Where do you see trade flows going? Thank you.

LAMY: What we've seen for the moment is a big drop -- '10, '09, minus 12 in volume, which is a huge drop in volume, and probably plus 10, 10-plus in '10. Now, the main explanation for that is that shrinking of demand, shrinking of supply, shrinking of trade which is the transmission bed between demand and supply. So the macroeconomic element in this is major.

There's been a bit of added constraint on the trade finance side in '09 which have now eased where the big numbers are -- not where small numbers are, but where the big numbers are. And, again, as we said previously, protectionism has overall, with the pluses and the minuses has probably impacted, I'd say, .5 percent of trade flow. So it's really very marginal.

Now, what may be surprising is how is it that if output decreases by 2, 3, 4 percent, why is it that trade drops by three times the volume?

And by the way, same the other way around. There are specific reasons for that, which we've analyzed extremely well, together with other economic researchers. Number one, the composition of world trade is different from the composition of average economies. There is known to be a higher proportion of equipment goods or consumption elasticity, demand elasticity, sensitive consumer goods which make the products or services that are traded internationally something which is more crisis-elastic than other goods.

The other reason is, of course, that because we still measure trade flows in gross numbers and not in added value, if you produce one car less, the value of which is hundred, but if this car was produced in five different countries, each country adding, let's say, 20 percent of the added value, you had 300 of trade last year. Twenty, plus 40, plus 60 plus 80, plus 100.

Now if this car disappears, national production, which is the sum of added value, increases by 100, but world trade decreases by 300, so there's a big multiplier here. Now, as far as the second part of your question is concerned, at this stage -- at this stage -- and we are working on that sort of research-wise, I don't see any serious reason why, let's say, world trade would deglobalize.

There are some reasons on the one side but there are equivalent reasons on the other side and, again, we are looking at all these factors, whether it's technology, whether it's, let's say, (involuntary ?) constraints, whether it's cultural attitude, the reality remains that this is technology-driven. The reason why the globalized -- global supply chains have worked, have stretched, have extended the way they've extended for the last ten or 15 years, we remain, i.e. technology, efficiency -- yet there are mitigators like consumer perceptions, like, you know, the cost of distribution. Let's assume one day, hopefully, the price of carbon will be at the level that internalizes the present externality. Will this impact world trade? Yes, in some ways, although most of the transportation of world trade is done by ship which is probably the worst transport emitter, among others.

On the other side, it's probable also that the day you have the high price of carbon will lead to a different division, international division of labor with efficiency gains to some, efficiency losses for others, which then would trigger a new pattern of trade. So all in all, I don't see any sort of structural reason why this would happen.

And if I try to look at '11 or '12, we don't have any serious number at this stage, but my guess is that the difference between the pre-crisis pattern is that we will have more south-south trade. And hitting more south-south trade is hitting more trade in the path of the world economy where it has most growth. So there is a dynamism there.

I mean, look at, you know, look at the balance of trade between the Bosnia or Argentina and China, for instance, which is rocketing. So this part will probably lead to a higher dynamic on the south-south part. It still probably is not overall more than one-third of the world economy, but it's the one-third that's growing much more than average as compared to the pre-crisis.

FOSLER: Another member have a question? Yes.

QUESTIONER: My name is Manik Mehta. I'm a syndicated journalist. I would like to have your views on the role of FTAs in a globalized economy. Are these efficient instruments?

LAMY: Well, depends who you talk to. They certainly are convenient for politicians. I was a trade negotiator in a previous life and so, you know, as a politician, going on TV with a good friend of yours signing a bi-lateral trade agreement is a good photo-op. (Laughter.) Certainly better than the WTO-family 153 faces photo-op, where you really have to try and, you know, where am I on this? So it's politically more friendly, so that's one extreme.

On the other side, if your question is, is it efficient? The answer to your question is in business, and while serious studies tell us -- and there's got to be a number of serious studies, notably in Asia. There was a good study that was published last year by the Research Institution of the Asian Development Bank that says that the Asian network, what the English call the spaghetti bowl of free trade agreements is: use 30 percent of its potential. So, existing free trade agreements are practiced.

The preferences they provide are used 30 percent, they are potential, my business for reasons which mostly have to do with administrative obstacles. Which, by the way, is a very important contribution to the academic debate and economic debate among serious economists, and we have a few in this room, whether the cohabitation and coexistence of bilateralists and multilateralists can work.

Most of the economic studies that address this question start from the assumption that once U.S. and Korea have a bilateral trade deal, once Congress will have ratified a bilateral trade deal, a hundred percent of this trade is covered by this agreement, which is the assumption all serious economic studies have done for the moment, so there is a bit of recalibration to be done. Now, at the end of the day, it's a question of fairness. The truth is that if China-EU-U.S. negotiate with a 10 or 20 million size country, the balance of forces is pretty unfair.

These countries will accept in order to get a small chunk of a big U.S., Euro or Chinese market things which they don't accept around the WTO table because they've got much more bargaining power. There is the problem of in-built preference erosions. Each time you get a bilateral preference, a further multilateral negotiation will erode this preference, and there are some special interests in keeping preferences and not having them eroded.

There is the problem of political availability of resources, which for many developing countries is limited, so if they negotiate a bilateral agreement, I mean, they don't have the resources to negotiate a multilateral agreement.

And finally, and I think that's the most important in this argument, is that the more time goes on, the less obstacles to trade will be addressable bilaterally. Tariffs is something that is slowly disappearing. We still have tariffs here and there, but, you know, everybody agrees that 20, 30, 40 years from now, obstacles to trade will not be tariffs. Obstacles to trade will be non-tariff barriers, which are much more difficult to address bilaterally, will be in the level playing field, subsidies.

There's no way we can address subsidies in a bilateral agreement. Agricultural subsidies, you know, are for everybody. You don't subsidize a multilateral chicken and you stop subsidizing your bilateral chicken. (Laughter.) They're different.

Same for fishery subsidies. There's nothing like bilateral fish or a multilateral fish. They swim even quicker than a chicken runs.

So it's -- if you lock at the future, the relevant of what can be done bilaterally is shrinking. So countries will need to have overall more eggs in the multilateral basket relatively to what, for the moment, they've put in bilateral baskets. And this can be somehow mitigated by the sort of regional integration component where bilateral regional deals -- I mean, as they are on the East African community, Central American community -- is only one part of a larger economic and sometimes political integration. And that, in my view, is a sort of different category.

FOSLER: Well, I knew we would get to agriculture eventually. Another member question here? And the microphone is right there.

QUESTIONER: Well, thank you so much, Director Lamy.

Carole Brookins -- I used to be on the board of the World Bank and, before that, I did a lot in agriculture and trade. I was active in the Uruguay Round.

My question to you is this: What lesson learned from your experience as a trade negotiator and in the WTO should be learned now by climate negotiators in terms of trying to forge an agreement? Are they being overly ambitious? Are they trying to take on too much up front? And what is the interaction right now, because we know that there could be some real legal crossovers and trade-remedy crossovers if there is a successor to Kyoto.

Thank you very much.

LAMY: Well, it's a big systemic question, and there are obvious similarities and obvious differences in these two distant fields of international governance.

On the similarities side, sort of public good, open trade is, today, a public good as environment is a public good. Similarity in the fact that it's multilateral mostly. I mean, even more obviously on the environmental side. And the case for a multilateral solution under a form of regulating national sovereignty constraints is the same technology in both cases.

There also are differences -- one big difference is that in many ways, trade negotiations are a positive-sum game. Environmental negotiations, more difficult because the burden sharing sort of -- and you can see that on climate change is a sort of more of a perceived zero-sum game.

And the truth is, also, that, in trade negotiations, we have 60 years of experience, difficult, painful rounds. You know, we are, for the moment, implementing edition number eight of the world book, and we are negotiating edition number nine.

In many ways, on climate change, it's a different story, although there is a track record of multilateral environment agreements that's reasonably good. But it's scattered all over the place -- you've got the Montreal Protocol, you've got the Kyoto Protocol, you've got the convention on biodiversity.

So the governance structure is also fairly different as if, you know, in WTO you had an organization with its own secretariat for trading goods and then another organization which is its own secretariat for trading services because trading goods and services have nothing to do -- which may make sense like biodiversity or climate.

The other argument may also make sense, but the institutional setup is fairly different. Now, in terms of the relationship -- things are reasonably clear. A, the WTO constitution which dates from 1994 is clear on this. Trade opening is to be put on the service of sustainable development. So in a way, there is a sort of public good number one and public good number two.

Public good number one is environment. By the way, it's also growth and jobs. So the hierarchy is there. The interrelation between environmental protection and trade is already enshrined in quite a number of chapters of our world book. Technical barriers to trade -- (inaudible) -- agreement -- so the notion that you can distort trade for environmental reasons provided, blah, blah, blah, blah, blah is already there.

And the blah, blah, blah, blah, blah -- sorry for the shortcut -- there's a lot of that in the jurisprudence of the dispute settlement system. If you look at the evolution of the appellate body stance on this relationship between trade environment, there is an evolution in, you know, shrimp -- (inaudible) -- tuna, dolphin -- until Brazil-U.S. retreat at -- (inaudible) -- last year.

So we have a corpus of -- so that means that if there was to be, today, a problem of contradiction between environmental protection and trade rules that would be raised by a WTO member, we have the necessary elements to deal with that. Now, does this mean that we -- there will be no problem? This will be easy? No.

But what remains for sure is that there is no unilateral trade solution to a multilateral problem which is carbon emissions reduction. It's a multilateral issue. It needs to be dealt with where it has to be dealt with in the international system, which (is the UNF ?) to proceed. If one day, on the basis of a multilateral solution -- and this multilateral solution will be complex. On the basis of this trade measures need to be part of an agreed-to box, fine. This will happen. It happened with the Montreal Protocol, for instance. Take the Montreal Protocol, 1992 -- CFCs -- agreement that CFCs had to be constrained, agreement among the parties that trade measures could intervene between parties and non-parties of the agreement, agreement within the party that if some of the parties would not abide to the protocol, trade measures between the parties could be part of the toolbox of implementation.

Now, they never had to do that because the thing worked. But intellectually, it's perfectly doable. But and this is the position of the WTO members, not just my position -- as you know, WTO remains a member-driven organization. Their position is, this problem is in the hands of negotiators in the UNF to proceed.

There will be no WTO negotiation that can substitute convergence within the UN after Brazil. Once they've got there, then if there is a need to adjust, we will do it, as we've always done it. There's never been a problem in the past about multilateral environmental agreements and trade, even in cases where multilateral environmental agreement had trade consequences.

Toxic waste, endangered species -- no problem. Even, you know, Kimberley Diamonds, at some stage, found a solution of this kind. So, it remains that it has to be an environmental negotiation first.

FOSLER: Yes, sir.

QUESTIONER: Good afternoon. Daniel Bases with Reuters. I wanted to know if the announcement a week and a half ago or so from the Chinese, they would allow more flexibility in their currency, might create a better atmosphere for the Doha talks, and in that case, do you think there is actually going to be the political will in Toronto amongst the G-20 to get the process started again? Thank you.

LAMY: Well, well-tried on trying to extract from the WTO DG a comment on currencies. (Laughter.) Even after a glass of wine -- (Laughter) -- I have to remain extremely cautious on this. You know, comments on currency developments are for Washington, D.C., DSK and not Geneva, Switzerland, PL.

And there are two fundamental reasons for that. First, there is an international order. We didn't decide it. We didn't decide it, but you know, IMF is IMF, WTO is WTO. That's the way it is structured. The second is that if you look at where -- if you look at the WTO clock, 60 years, eight rounds, so average, seven years to get there, average implementation period of, once it's decided, sort of seven years.

So, our clock sort of ticks every 15 years, which may be a bit elephantesque, but you know, that's -- and on a 15 year horizon, currency developments are clearly in the zone where all economists would agree that on the 15 year horizon, currency follows economies. As economists put it, the relationship between a currency and an economy is like when you walk your dog. You leave home simultaneously, then during the walk, sometimes the dog is a bit ahead, sometimes a bit behind. But you are back home simultaneously. (Laughter.)

So that's the 15 year horizon on which we work. Now, true, there are atmospherics, and I think this sort of decision of unpegging was something which was politically significant for the Chinese leadership to announce. There is, there was, there is a debate in China on this which is quite tense, and one of the parameters of which is something which most other countries have not understood, which is that in domestic politics in China, the feeling by public opinion is that the reserves of the Central Bank are a collective property of the people.

If you read the Chinese press, you will find hot debate on this. I don't think anybody in the U.S. or elsewhere really believes that the reserves of the Central Bank belong to you, and that if the Central Bank wins or loses on the currency movements, it's a problem of political accountability. In China, it is. So it's something which is sort of -- which has its weight of political flesh, which many people probably do not have estimated.

Now, again, whether this will change trade flows, I am on the side of those who believe that it balances, such as the U.S. trade deficit or the China trade surplus have much more to do with macroeconomic management, with savings, investment, consumption, than they have with trade policies.

Not that trade policies do not marginally influence trade flow, but trade policies influence the relative competitiveness of economies, and whichever adjustments of the rate of competitiveness of China and the U.S. you could do as a consequence of trade policy is marginal as compared to the fundamental problems, which is this difference in saving and consumption.

FOSLER: Another. Sir?

QUESTIONER: Robert Levin. The last few months in this building, we have been told a number of times that for the developed countries to plan to export themselves out of recession, and for developing countries to plan to accelerate development by exports is wrong, that the markets do not exist and will not develop to absorb increased imports from countries.

And therefore, economic policies generally should be to foster domestic consumption of domestically produced goods and domestic services. This is not suggested, our speakers have told us, as a fig leaf for protectionism, but rather a recognition of economic realities. What is your view of this idea?

LAMY: I don't see a contradiction. I don't see a contradiction, especially if you accept to look at the map of world trade as it is today. I'm referring to what we said previously about global supply chains. There is not such a thing as a Chinese economy trading globally with the U.S. economy. There are things which are done in China, part of which come from elsewhere, including from the U.S., by the way, so it's not the sort of bilateral, sort of, puppet theater representation which many people have. It's much more complex than that.

Now, what's for sure is that the main source of world growth in the years to come is in developing, emerging countries, which means that the way they balance their role between domestic consumption and export will change, is changing and will keep changing. They all agree that they need to do more domestically and that the balance of their economies must be more domestically oriented, rather than export oriented, simply because this is what their populations are asking for.

So the Chinese leadership will agree on that. The president will agree with that. He will 100 percent agree on that. So this will happen, the import content of this rebalancing will be there, and it will be there for U.S., EU, Japan.

So what's true is that if you are looking at where domestic consumption is a potential for growth, that's mostly in this country, which is why U.S., EU, Japan has been doing it for quite a number of years -- I mean, are de facto exporting themselves out of the crisis. This is what's happening. Look at -- you know, look at the German economy. Look at where unemployment in Germany is, isn't it, that's what you see.

So this is happening. The question is not whether -- I mean, and I think all G-20 members would agree with that. The question is a problem of pace; is a problem of how do you adjust the sort of financing of this, monetary-wise, budget-wise; and whether this rebalancing by emerging countries -- whose economies have been, on the whole, better managed than others over the last 10 years -- whether they're still, which sometimes the view raised that mismanagement by EU, U.S., Japan, notably on monetary policy and financial regulation, whether there is still (reach ?) for them or not. You've seen what Brazil or Korea did on hot money, a movement of capital in their direction, which they tried to mitigate with measures of their own. Now, there is there a point of interaction, which needs to be -- which needs to be observed globally.

But I don't see any contradiction with the sort of recommended overall economic trajectory and these suggestions. U.S., EU, Japan need these markets to grow in the future. They need to exceed these markets. They also need to pay for that, in terms of a rebalancing their own trade policy, notably on tough things like agriculture.

FOSLER: Well, Monsieur Lamy, I think that ends us at probably the most crucial challenge that we all face. And I thank you very much on behalf of the council for taking the time to be with us today -- a very interesting discussion.

I'm sorry if there are questions that we didn't get to. But I guess I walk away from this a tad optimistic.

LAMY: Good. (Laughter.)

FOSLER: So I thank you. (Applause.)

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