Pascal Lamy Photo: Courtesy of China Europe International Business School

Editor's Note: 

With the rising protectionism and unilateralism worldwide, there is still no denying that the global trade environment has never faced so many uncertainties and challenges as it does today. As an experienced trade expert, Pascal Lamy (PL), who served as WTO director-general from 2005 to 2013, talked with Global Times reporter Wang Jiamei (GT) in an exclusive interview on Saturday to share his views on topics like the trade war and WTO reforms. 

GT: China and the US reached a trade deal in principle, but it seems that there are still uncertainties. So what's next? What do you think of the phase one deal? 

PL: I don't know what's next because US President Donald Trump is known to be unpredictable. That's the way he wants to be. 

His method is to surprise. This creates huge uncertainty in the world economy on top of the geopolitical issues between the US and China. There's a lot of noise, a lot of disagreements, a lot of damage, and very tiny results, if any, at the end of the day. 

The real purpose of the first phase is to remove tariffs which have been previously put in place, so it's basically going back to square one, with a lot of losses for the world economy in the meantime. 

GT: The Trump administration recently reinstated tariffs against Brazil and Argentina, and has threatened tariffs against France. What do you think of the impact on global trade? Is there any possibility for a tariff war? 

PL: No. I think these tariff spats will remain contained, because the US are the only one that behaves this way. Trump believes that raising tariffs on trading partners is the right thing to do for the US. 

And he is wrong. Of course, the largest part of the tariffs is put on China because he believed the US trade deficit is too big. He is the only person who believes the US trade deficit is a big problem. As long as you have the money to finance your trade deficit, this is not a problem. 

Is he also totally wrong that the world trade rules need to be improved? No. 

He's right. As far as the WTO rule is concerned, we need improvements, and we need WTO reform, notably in order to better withstand Chinese practices and the growth of state-owned enterprises in China. Competing with China when you are a private company is a problem whether in the Chinese domestic market or in the international market because you have to compete with companies that are supported by the Chinese state, and this is a big thing as far as I'm concerned. This is the number one problem for everybody. 

China has to move toward more competitive neutrality. As far as I know, the bilateral deal between China and the US doesn't even touch this fundamental issue. 

GT: The Appellate Body of the WTO has become non-functional temporarily. How do you see the US opposition in some WTO issues? 

PL: The US has some issues with the dispute system in the WTO. They were unhappy because they lost cases. The US won 80 percent of the cases they have in the WTO, they lost 20 percent to others like China, the EU, or others. This is the normal proportion. But they are unhappy about the cases they lost and they believe that when they lost cases this is because the WTO judges misinterpreted the rules. This is a matter of judgment. I'm not saying everybody at the WTO courtroom always did things right. 

On some very precise things, I myself would probably question some interpretation. But this violent way of taking the court hostage is not the way to go. If you have a problem with the way judges interpret the rules, you sit around the table, you explain your problem, and you try to find your solution. 

And right now the only solution is to make sure that while the US is trying to take the dispute system hostage, other countries do not agree with that and keep abiding by the rules of the WTO as far as the disputes are concerned. 

GT: According to some media reports, China is likely to support the EU's vision of an appeal-arbitration model in the WTO. What's your comment on that? 

PL: Other than the US, WTO members have to keep the dispute system working. The WTO is about rules. It's about monitoring and enforcing these rules, and it's about, if necessary, in a few cases, litigating. Litigation is a very tiny part of WTO activity. It's not the main function of the WTO, the main function of the WTO is making rules, monitoring rules, and rule enforcement.

So in some cases, you need a litigation system. And what the EU, China and others have to do is to keep the litigation system working, if necessary, without the US, if the US doesn't want to participate. 

GT: Some observers say Europe is divided over the attitudes toward China cooperation, like on Huawei's 5G. What do you think should be the EU's stance when it comes to critical China cooperation issues? 

PL: In some cases, the EU has not been as united as it should be with China. This is an EU problem. The EU has to unite more in order to gain the necessary weight and strength in the relationship with China. It should be a cooperative relationship, but you cooperate better if you are equal than if you are not equal. 

The EU has to become stronger for instance on things like Chinese investments in Europe in critical strategic sectors. Having an EU position instead of having maybe a German position, a Hungary position, or an Italian position. The EU will be better with an EU position. 

And the same for Huawei. Whether Huawei can be accepted in the core of new 5G system because of a cybersecurity reason is an issue on which we need an EU position, not the French position, not a German position, and not a Spanish position. 

By the way, this is what is cooking. The European Commission is preparing a proposal with the necessary expertise on these issues about cybersecurity, which is extremely complex.  

GT: It's been 18 years since China's accession to the WTO. Could you make any comment on China's role in the world economy and global trade system over the past decades? 

PL: The answer to your question lies in numbers. If you look at numbers, China's accession to the WTO has been extremely good for China and extremely good for the world. As could be expected, the trade surplus of China moved down from 10 percent of the GDP to nearly zero, which means that Chinese imports have increased more rapidly than Chinese exports. That's a good thing for China and the world overall. 

Of course, this higher presence of China in the world economy has increased competition, as could be expected. 

And there is nothing new that trade opening may be extremely good for some and may be very painful for others. And it sometimes creates a reaction. For instance, in the US, during the election Trump made the case that some in the US had been hard hit by China's expansion and that he would protect them. For that I think this is wrong. I think protectionism does not work to protect workers. So far, Trump's protectionism is a failure.

GT: Based on your experience, do you have any suggestion for us in this changeable trade environment? 

PL: Trade opening works if you reduce obstacles to trade in a way that properly levels the playing field and that adequately shares the gains for some and the losses for others. So it's not just about removing obstacles to trade. And the conditions for this to work change as the world economy changes, as technology changes, and as the economy digitalizes.  

The agenda of the WTO in opening trade has to change. This is complex because it's a big organization and decisions are taken by consensus, which makes progress extremely slow. But the way to go remains. Let's remove obstacles to trade and let's do it in a balanced way, and address new issues, which were not there 20 or 30 years ago. 

For instance, trade and the environment. Some people believe that the expansion of international trade is bad for the environment, because it triggers a lot of transport, and transport is a carbon emitter. 

There are also plenty of good arguments to say that international trade is good for environmental protection. This is a major issue for the WTO for the decades to come.