Pascal Lamy: If we go down the road of protectionism, disaster awaits

Trade has become another casualty of the global economic crisis. The slump in demand and the difficulties to access trade finance have led to a significant contraction of the world trade. According the current estimates, world trade will contract by some 3 per cent in 2009, the first decline in trade growth since 1982. Just as trade tends to grow faster than output in good times, it typically contracts faster in times of recession.

This means that one of the most powerful engines of global growth is hampering efforts to lift people out of poverty. And this is affecting both developed and developing countries. It is affecting the 12m jobs in the US which are dependent on exports. It is affecting 6.2m jobs in France . Not to mention 100m or so jobs in China.

I think it is important to reflect on this as we think of devising responses to the current crisis and as we hear talk about "protecting domestic jobs". The reality is that today a huge proportion of domestic jobs are reliant on access to export markets and without trade, these jobs risk disappearing. This is why we hear many voices against isolationist measures. Is it credible to imagine that one country can protect its domestic market without others doing the same?

Let's imagine for a second that the US decides to close its automobile market to imports, let's say Chinese, Japanese and European automobiles, worth $80. It is highly probable that the Chinese, Japanese and Europeans would decide to close their markets to American planes, cranes and chemicals, all this worth $120bn.

The domino effect that such moves could cause would be devastating. And this is why isolationism, even "smart" isolationism as some are advocating, is a recipe for global slump. And this is why resisting protectionism and avoiding an aggravation of the current crisis is an imperative today. The reality is that protectionist measures by individual countries are unlikely to help in the recovery efforts. Instead, what is necessary is to co-ordinate the domestic stimulus packages, to co-operate in addressing global challenges, and to think of using the least harmful trade-policy instruments.

Taken from a speech given by the Director-General of the World Trade Organisation at the Lowy Institute in Sydney yesterday