Page last updated at 04:38 GMT, Friday, 30 May 2008 05:38 UK

Trade boss criticises financial mess

By Steve Schifferes
Economics reporter, BBC News, at the WTO, Geneva

The boss of one of the world's most important economic organisations has said the lack of regulation in world markets was the root cause of the financial crisis which has hit world economic growth.

WTO chief, Pascal Lamy, on globalisation

Pascal Lamy, the director-general of the World Trade Organisation (WTO), told the BBC that "a little more prudential regulation" could have helped prevent the banking crisis that has engulfed the US and Europe.

Mr Lamy said that the fundamental problem was that here was no international consensus on how to regulate the rapidly changing world financial markets or who should be the regulator.

The WTO boss also said that workers hurt by globalisation should receive more help from their governments.

Mr Lamy's remarks put him at odds with the so-called "Washington consensus" that liberalisation, privatisation, and open markets are the only way to bring about economic growth.

Trade talks

The WTO chief said he was hopeful that the long-stalled Doha round of world trade talks could be revived soon, with a meeting of trade ministers in July.

The trade talks, which have been going on for seven years, have stalled over disagreements between rich and poor countries, and growing public opposition to globalisation.

The WTO chief said he well understood the concerns of those workers who feared that globalisation would cost them their jobs, but argued that the WTO was "not an advocate of unfettered globalisation.'

And he criticised governments - including the US - for not providing enough domestic support, including retraining and job programmes, to help workers displaced by changing global trading patterns.

US wheat
There is strong opposition in the US to subsidy cuts for farmers

Trade was often just "an excuse" for not making the necessary adjustments in domestic policy to support workers hit by globalisation, he said.

And he added that he was not surprised that protests were strongest in the US, because it has the weakest system of social protection.

Protectionist pressures

Mr Lamy said that he understood the growing protectionist pressures around the world, especially in the US, and accepted that the fears about the too-rapid pace of economic change were genuine.

But he said that there were clear economic gains to be made by freeing up world trade, providing that the inevitable losers were compensated by "appropriate domestic policies".

The problem which protectionism poses for world trade talks is most acute in the US, he said.

The two Democratic candidates vying for the presidency, Hillary Clinton and Barak Obama, have been increasingly critical of trade deals during their fierce battle in the primaries.

However he insisted that the WTO was still hopeful that that the US would take an active part in the current round of trade talks, and that whoever won the presidential election in November, would see the importance of the US continuing to negotiate.

Food fight

The Doha round of talks were launched in 2001 and aimed at freeing up trade in agriculture in order to benefit developing countries.

The talks broke down in July 2006 over disagreements between the US and the EU over the size of the cuts in agricultural subsidies that each of them would have to make to open up their markets to poor countries.

Now Mr Lamy believes that the two sides are much closer together, with the US pledging to cut 70% to 80% of its domestic subsidies - something that is not yet reflected in the farm bill that is being considered by the US Congress.

And he says that the recent rises in world food prices have actually made the task of the trade negotiations easier, as farmers in the rich countries no longer need subsidies to make a profit.

But he warned that action is urgent, because high food prices are here to stay.

Traders in Chicago
Financial markets are not as regulated as trade markets, Mr Lamy says.

The growing global food crisis has worried many poor countries, who feel a stronger need for policies to protect their own farmers and to ensure that they can become more self-sufficient in agriculture.

But Mr Lamy said that the proposed trade deal would ensure that poor countries would be able to act in emergencies and special circumstances to protect key products.

He said the best way to end the food crisis was to encourage economic growth and eliminate poverty so that the poor would be able to afford a decent diet.

Economic slowdown

Mr Lamy said there was no doubt that the effects of the global financial crisis were extremely serious, especially for the US and Europe.

World economic growth and world trade are both slowing sharply.

But Mr Lamy argued that the growing economic power of emerging market countries such as Brazil, China, and India was a crucial counter-weight to the slowdown in the rich countries, adding that this would not have been possible without the expansion of free trade.

Mr Lamy has had a difficult role since he became the head of the WTO just three years ago.

Now he is hoping that his last-ditch attempt to achieve a trade breakthrough will succeed.

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