Sun, Apr 15, 2018 page6

• Lamy on Taiwan, Trump and trade

  • By Victoria Tsai 蔡靜怡 and Alexander Martin
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  While markets, investors, and governments around the world were anxiously awaiting US President Donald Trump’s next move in his country’s escalating trade dispute with China, one man who from 2005 to 2013 stood at the head of the WTO sought to remind observers of the stakes involved.

  “Trade wars are something for media people,” former WTO director-general Pascal Lamy said. “What really matters are real wars, wars that kill people. And if trade wars lead to real wars, we have a big problem.”

  Lamy, who recently visited Taipei to address a major APEC-affiliated conference on “smart” cities and trade, has enjoyed a distinguished career, having served as head of the cabinet of former European Commission president Jacques Delors and then as European commissioner for trade, during which period he helped drive some of the EU’s most significant policy moves toward tighter integration.

  Now, Lamy sees in Trump a threat to the multilateral consensus he helped develop.

  “He seems to be after wrecking the system in order to move back to bilateralism. This is a totally different ballgame,” he said.

  For many observers, it might be tempting to lump Trump’s tariff announcements together with Brexit as symptoms of a turn toward nationalism, but in trade terms, Lamy regards Trump as an altogether more dangerous disease.

  “Twenty years from now, the UK will still have more than 50 percent of its trade with the EU, whatever technicalities are behind that,” he said. “The Trump offensive is a much bigger issue because it is a clear attack on a system which has been built for 70 years.”

  For Lamy, our modern multilateral trading system, established in 1947 under the General Agreement on Tariffs and Trade (GATT) and developed under the WTO, emerged from the belief that “trade integration has benefits which accrue from rules-based operation.”

  In his view, these rules not only inaugurated a prolonged period of unprecedented prosperity, but they also served as a bulwark against a return of the protectionism that fueled international conflict for centuries up through World War II.

  Now, Trump is challenging that consensus, using tariffs to reduce the US’ trade deficit while calling the WTO “unfair” to the US.

  “Moving back to the concept of trade as a win-lose game is basically moving back to the Middle Ages. That [concept] had a name, which was ‘mercantilism,’” Lamy said.

  Mercantilism, under which a nation uses its economy to bolster its political and military might at the expense of other nations, relies on the now-debunked premise that wealth is finite and that advantage is absolute.

  “In the 21st century, with an international economy which is as integrated as the one we have today, the notion that imports are bad and exports are good simply does not make sense. This is what is dangerous,” Lamy said.

  Will the WTO and its multilateral order underpinning today’s world economy prove resilient enough to stand up to Trump’s attacks? Lamy sounded an ominous warning.

  “If WTO members believe — which I do, but I’m not speaking for them — if they believe that this collective insurance against protectionism, against nationalism, against power-based trade relationships needs to be protected, they will have to take the necessary steps to protect it,” he said.

  Conversation turned to APEC, which, despite the ongoing spat between the US and China, has made significant headway on its long-term goals of reducing tariffs and facilitating market access among its members in the Asia-Pacific region. However, as the marginal benefits of tariff reduction dwindle and commerce increasingly moves online, how can APEC remain a relevant force in driving regional integration?

  “The big question for APEC is moving toward the convergence of measures whose purpose is to protect the consumer from risks, which is this whole area of norms, standards, authorization and certification… all this is risk management. And this is where there remain major obstacles to trade which stem from the differences in the ways countries address these issues,” Lamy said.

  These differences, in turn, derive in large part from cultural norms and the particularities of individual political systems. Taiwan’s laws governing the ownership and sharing of personal medical and consumer data, for example, diverge from those of the US, in part because Taiwanese society places different value on the idea of privacy, and in part because the Taiwanese civil law system approaches adjudication and enforcement through different mechanisms.

  There might be no substitute for time, patience and open communication in reconciling the laws, standards and cultural norms of APEC member economies on such sensitive and complicated issues.

  “If, one day, APEC has to harmonize animal welfare standards between Canada, Chile, Australia, Singapore, Vietnam and the Philippines, good luck! But that’s the slope that needs to be considered,” Lamy said.

  Having driven efforts to negotiate and pass the Maastricht Treaty, the Schengen Agreement and the European Single Market, which respectively paved the way for a common currency, open borders and harmonized trade across the European continent, Lamy’s career at the EU is itself a testament to the potential of regional integration to overcome narrow national self-interest.

  The road to integration is not always so smooth, of course, and the UK’s vote to leave the EU is a reminder that backsliding can bring real economic consequences, even for those not directly involved.

  Some of Taiwan’s established export chains, particularly for car parts, use the UK as an entry point for shipping goods onward to the EU. Now, the real probability of the UK leaving the EU single market risks entangling those chains that were built to take advantage of regulatory uniformity.

  “If I’m Taiwan, I will try and make sure that the UK does not diverge from the EU. My problem is whether the car parts single-market regulation remains the same. If it remains the same, you have no problem,” Lamy said.

  The alternative?

  “If Taiwanese spare parts have to be shipped and customs-controlled several times as they have to cross borders between the UK and the continent, this will cost you money and this money will be passed on to the consumer. So removing the UK egg from the EU omelet is a bad deal for everybody,” he said.

  Having proved himself a tough negotiator in his roles at the EU and WTO, Lamy is clear-eyed about what issues Brexit talks ultimately hinge on.

  “Most of this discussion — which I hesitate to call a negotiation, because it’s more like a surgery operation — is only a question for the UK to decide how much they want to distance themselves from Europe regulatory-wise, knowing that the more they distance themselves, the more they can pretend they are more sovereign than they were and the more this will have costs for them,” he said.

  In the end, it will be the ongoing political tug-of-war between Brexiteers and Remainers in the UK that determines the economic implications of Brexit for their country and those that trade with it. Lamy would not sugarcoat the implications for Taiwan.

  “It cannot be a good thing. The question is whether it will be a little bad, a medium bad or a big bad thing for Taiwan,” he said.

  What would he tell local exporters if the UK starts veering toward a “harder” Brexit that foregoes regulatory convergence?

  “Plan B is a no-brainer. Move to the EU continent where 85 percent of the EU market will remain,” he said.

  While President Tsai Ing-wen’s (蔡英文) administration works to turn Brexit into an opportunity for closer bilateral ties between Taipei and London, Taiwanese firms operating in the EU are hoping for a soft landing as they continue to cast anxious eyes across the English Channel.

  Victoria Tsai is an associate research fellow at the Taiwan Institute of Economic Research. Alexander Martin is an assistant research fellow at the institute.
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