The Scene
Pascal Lamy negotiated China’s accession to the WTO in 2001 on behalf of the EU.
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Lamy → negotiate → EU
A decade later, in a speech in Shanghai, Europe’s former trade commissioner lauded what he called a “win-win” outcome.
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he → laud → what
But like a growing number of current and former European leaders, he’s grown alarmed as China’s trade surplus with the EU has ballooned.
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surplus → grow → EU
Lamy, now with the Jacques Delors Institute, was one of the authors of a recent policy paper that called for restrictions on Chinese exports using a quota system — an idea that the EU has now embraced.
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EU → call → that
Q&A
This interview has been lightly edited for clarity and brevity.
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interview → edit → clarity
I interpret the recent deal on hybrid cars’ export restraints as a first step in the right direction.
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I → interpret → direction
I think the European side will consider this as a down payment.
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side → think → payment
In my view, we need further steps to seriously address this rocketing Chinese trade surplus with Europe.
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we → need → Europe
But from the EU side, this will not be seen as sufficient.
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this → see → side
Yes, indeed, although voluntary export restraints raise a series of technical issues.
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restraints → raise → issues
It’s certainly easier for hybrid cars than it is for chemicals or pharmaceuticals.
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it → ’ → chemicals
And, of course, when you look at the numbers you need quite a lot more given the [EU’s] €350 billion annual trade deficit with China.
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you → look → China
You once called China’s WTO accession a “win-win.”
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You → call → accession
Recently, you said that “China is killing open global trade.”
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China → say → trade
What changed?
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What → change → ?
I changed my mind because China changed.
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China → change → mind
None of us predicted the speed of economic growth in China.
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None → predict → China
A lot of people now say ‘you made a mistake by not forecasting that China would become an enormous elephant.’
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China → say → mistake
My usual answer is: Who said that at the time?
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Who → say → time
Give me some evidence that we had a choice between those who said ‘be careful’ and those who said ‘that’s a great idea.’
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that → give → those
[Former Chinese Premier] Zhu Rongji thought that the Chinese miracle was a clever mix of Chinese characteristics and good old Western liberal capitalist market recipes.
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miracle → think → characteristics
He believes that the incredible economic success of the past 20 years is due to the fact that China is led by the Chinese Communist Party.
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China → believe → Party
Also, the state-owned sector is larger today than it was in 2010.
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it → own → 2010
What’s changed, too, is that China no longer plays the game of comparative advantage, which is the ideological basis of the World Trade Organization.
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which → change → Organization
If you are better — cost and quality wise — than I am at everything, where’s the comparative advantage?
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advantage → ’ → everything
Isn’t a big part of the problem that China now out-competes Europe?
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China → compete → Europe
I’m not saying that all of China’s comparative advantage is, let’s say, WTO illegitimate.
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’s → say → advantage
But there’s another part which is not in line with an open rules-based trading system.
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which → ’ → system
By the way, what’s also changed is that a lot of markets that were open to China — the US, Turkey, Japan — have taken protectionist measures.
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that → change → measures
China’s exports are now going to Europe, the only large and deep market that is still wide open.
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that → go → Europe
Germany and France have proposed a “kill switch” that could shut China out of European markets completely.
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that → propose → markets
I disagree with that formula.
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I → disagree → formula
It’s like the US using Section 301 to determine whether a trade partner is playing fair or not.
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partner → ’ → Section
The Jacques Delors Institute has proposed a WTO compatible quota system with in-quota tariffs and out-of-quota tariffs.
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Institute → propose → quota
That’s a big difference — it’s predictable, rules-based, with benchmarks and numbers, and everyone understands clearly how the system works.
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system → ’ → benchmarks
China also has a ‘kill switch’ — rare earths.
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China → have → switch
Can Europe really afford to risk a trade war?
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Europe → afford → war
China’s rare earth dominance is time-limited.
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dominance → limit → ?
The US, EU, and Japan have started working on alternatives.
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US → start → alternatives
If you over-use market dominance, markets adjust, and there’s a big price incentive to innovate.
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markets → use → dominance
…and 7 more, not listed.
The Aporia
