This last week just witnessed the largest government intervention in the financial market - the U.S. government took control of the two mortgage giants, Fannie Mae and Freddie Mac, and will acquire $1 billion of preferred shares in each and provide as much as $200 billion to the two companies on a need basis. As the current financial crisis unfolds and spreads, the fate of more financial companies is hanging in the balance: Lehman, AIG, Merrill ... The perceived threat for a melt-down of the financial system may trigger further government rescue efforts.
In terms of its magnitude and scale, the U.S. government intervention probably dwarfs many of the government interventions targeted by WTO disciplines. You see headlines like this: "U.S. is 'more communist than China'", here, and "Is America now more socialist than France?" here. And you wonder what is the significance of an event like this for the multilateral trading system? The hazard of financial crisis may have much bigger and more immediate impact on world trade and welfare of the trading nations than, say, climate change. But where is the link between the financial markets and trade? Is it mostly in the foreign exchange system or much broader and deeper than that?
With these questions in mind, I was glad to spot Pascal Lamy's introduction to the WTO Public Forum this year, which says:
This year's Forum, which takes place against a background of financial instability, high oil and food prices, will ask: “how can the trading system be taken into the future?” In doing so, we expect to trigger a frank and open debate on the role and responsibility of the multilateral trading system on complex issues such as the food crisis, financial markets, climate change, human rights, and electronic commerce, to mention but a few topics.
But to my disappointment, the program of the Forum does not show any reference to the financial markets, let alone discussion of such issues. I understand that trade and finance are traditionally segregated both in government practice and in academic discourse. But how long can we afford to ignore the close and deep connection between the two? I would be grateful for any recommendation of scholarly writings addressing this problem.
