The G20 and the multilateral trade impasse

The G20 and the multilateral trade impasse

By Diana Tussie
FLACSO. Buenos Aires, Argentina
http://www.clubmadrid.org/img/secciones/G20_FINAL_REPORT.pdf

[[HAZ: Este fue uno de los documentos circulados para debate en el reciente meeting del G20 en Korea]]

In many countries, the surge in national industry bailouts, stimulus packages
and subsidies contains worrying aspects of foreign commercial discrimination
to protect domestic jobs. These policies represent an emerging trade agenda
that the G20 will need to tackle, regardless of the fate of the stalled Doha round.
Nonetheless, Doha retains symbolic value in terms of providing a cooperative
climate for multilateral trade talks, precisely because of this longer term agenda
looming in the background.

Trade stagnation

The onset of the global fi nancial crisis saw dramatic global trade deterioration.
After a 27 year boom, fi gures for 2009 suggest a contraction of 12.2 per cent
in global trade, the sharpest decline in almost 70 years. Even those countries
whose exports had boomed over previous years, such as China, India and
Argentina, experienced a signifi cant decline. China’s exports fell by 16 per cent,
while India, Argentina, South Africa and Brazil recorded declines of over 20 per
cent.

The fear of collapsing trade that gripped world leaders helped to bring about
the fi rst G20 Leaders Summit in Washington DC in November 2008. While
pushing forward fi nancial regulatory reform, they were quick to commit to an
open global economy. In their communiqué, G20 leaders declared that it was
critically important to reject protectionism and avoid turning inward in the face
of falling growth and rising unemployment. The G20 committed to the following:
‘we will refrain from raising new barriers to investment or to trade in goods and
services, imposing new export restrictions, or implementing WTO inconsistent
measures to stimulate exports’. And for extra emphasis on the importance of
trade to global economic health, they tasked their trade ministers to ‘reach
agreement this year on modalities that lead to the successful conclusion to the
WTO’s Doha Development Agenda with an ambitious and balanced
outcome’.

The G20 leaders remained alert to the prospects of trade wars. In their April
2009 London meeting they declared that: ‘Reinvigorating world trade and
investment is essential for restoring global growth. We will not repeat the historic
mistakes of protectionism of previous eras’. The leaders renewed their public
commitment to what was known, by then, as the Standstill Provision and
agreed to extend it through 2010. On the question of completion of the Doha
Round, the leaders once again reaffi rmed their call to reach ‘an ambitious and
balanced conclusion’. However, notwithstanding declarations in several G20
communiqués, efforts to conclude the Doha Development Agenda negotiations
have made little progress.

In January 2009 Pascal Lamy, director general of the World Trade Organisation
(WTO), referred to the global trading system as ‘an insurance policy against
protectionism’. To enhance the trade system, Lamy declared that the WTO
would issue periodic reports on global trends in international trade policy
developments as part of the WTO’s surveillance mandate. The Secretariat’s
hope was that members would fi nd these reports useful in facilitating discussions
to cope with the crisis. At the London Summit, the G20 urged the WTO and
other international bodies ‘to monitor and report publicly on our adherence to
these undertakings on a quarterly basis’. The WTO, UNCTAD and the OECD
now jointly issue periodic reports.

The Framework for Strong, Sustainable and Balanced Growth adopted at
Pittsburgh in September 2009 calls for aligning fi scal, monetary, foreign
exchange, trade and structural policies among the G20 nations. The collective
examination of global imbalances is identifi ed as one of the elements in the
Framework. The need for global economic balance has been brought home
painfully by the Greek debt crisis.

So how determined have the G20 countries been – beyond rhetorical
pronouncements at the G20 summits – in avoiding protectionism? The short
answer is not very determined, but nor has the result been deplorable. Many
international and regional organisations have monitored trade policy since the
Washington summit, and all have noted that high intensity protection has not
occurred.

The focus on trade has declined somewhat since the Washington summit
despite the repeated mention of the subject in subsequent meetings and the
collapse of world trade in 2009. The dismal performance of international trade
fl ows can mostly be explained by the sharp contraction in global demand. This
was magnifi ed by the limited availability of trade fi nance and the fact that the
decline in trade occurred simultaneously across a number of countries and
regions.

The decrease in demand and the explosion of unemployment across the G20
countries as the fi nancial crisis spilled over into the ‘real economy’ have led to
a new trade predicament. This is because many government measures have
included potentially discriminatory features. Even if serious protectionism has
been averted and trade relations have remained amicable, a new series of
concerns is now simmering in the background. Given the spiralling number of
bailouts and stimulus packages, the trade agenda will need revamping,
regardless of whether a Doha Round package is agreed upon.

Addressing core concerns

A number of leading think tanks have come together to monitor state measures
that might discriminate against foreign trade interests, related to imports,
exports, foreign workers and investments.

With the assistance of trade experts from across G20 countries, Global Trade
Alert began to collect trade measures that might discriminate against foreign
commercial interests. The table below summarises measures initiated by G20
countries since the Standstill Provision up to 1 July 2010.

[[see tables in web above]]

The table shows that since the Standstill Provision was agreed, G20 countries
have implemented at least 658 measures (red and amber coded measures)
that are almost certain to discriminate against foreign commercial interests. Of
the measures initiated by G20 countries through June 2010, about half are
almost certainly discriminatory. While some measures have been taken that
improve trade (mostly introduced to offset the effect of an overvaluation of the
exchange rate) the number of discriminatory measures is signifi cant.

This record cannot be seen as adherence to a global commitment. Rich
countries have relied on subsidies and poor countries have used duties to
restrict imports.

If G20 leaders have been less than vigilant when it comes to maintenance of the
Standstill Provision, what then of their commitment to conclude the Doha
Round? Here, too, it seems that rhetoric far exceeds real commitment.

From the outset, much convincing was required of developing countries,
especially the poorest in Africa, that this Round would bring them substantial
benefi ts. Though the Round was supposed to deal with development issues, in
fact it came down to concerns over agriculture and non-agricultural manufactured
products (NAMA). Originally scheduled to reach conclusion by January 2005,
the start-stop cycle has been painfully prolonged as parties dissected as never
before the domestic implications of the tabled proposals.

Emerging and developing economies cannot be expected to commit to an
institution in which they are marginalised. Doha mobilised a set of new coalitions
among Southern countries, most prominently the G20 trade coalition (not to be
confused with the current leaders G20 Summit). Operated under various guises,
it was led by India and Brazil and supported in various manners by a number of
other developing countries.

Following the Washington Summit in November 2008, senior offi cials in Geneva
failed to make progress in the fi ve critical areas identifi ed by WTO DG Pascal
Lamy: NAMA, tariff cutting, initiatives for specifi ed sectors, the special safeguard
mechanism for developing countries to protect against agricultural import
surges, and the issue of preference erosion. With this setback, Lamy called off
the December 2008 ministerial meeting.

At the London Summit in April 2009, the G20 reiterated its call to conclude the
Round by 2010. Yet just a few days later, Rahul Khullar, India’s commerce
secretary, publicly stated that completion of the Doha Round was out of reach,
given public anger over job losses and the collapse of economic growth. During
2009 Argentina (subsequently supported by several developing G20 countries)
raised the concern that bailouts and fi scal support in developed countries have
a strong protectionist and distorting impact on international trade, resulting in a
lsubsidise. Yet these packages were not reported in a symmetrical fashion in
WTO reports, in contrast to the border measures that developing countries
have resorted to.

The G20’s role

The alarm over trade protection has receded into the background of the G20
agenda despite the reiterated call for good behaviour. But a looming trade
agenda is taking shape. Competitiveness has become more complex and
cutthroat requiring support from the state to assist industries to be competitive
in the global marketplace. Contingent legalised protectionism has a very large
place inside the WTO and all free trade agreements. While not insurmountable,
the challenges presented to global trade by the economic crisis demand
appropriate recognition.

• WTO members should anticipate that the continued effort at a broad
Doha agreement will falter against the reality of domestic resistance.
• The G2O should accept the “smallest” agreements possible towards a
conclusion of the Doha Round, as a means to support the legitimacy
of the WTO. Generous market opening offers for LDCs must be part of
the package.

• The G20 must encourage open discussions at the WTO to examine
the sources of discrimination that lie not so much with the issues that
concern the current Doha Round, but on matters emerging from the
current economic crisis: discriminatory procurement, bailouts and
subsidies.

• The G20 must start a work programme on this emerging trade agenda,
as laid out in Table 2.oss of competitiveness on the part of countries without any capacity to subsidise. Yet these packages were not reported in a symmetrical fashion in WTO reports, in contrast to the border measures that developing countries
have resorted to.

[[see table in the original doc above]]

The G20 has a responsibility to maintain momentum around these issues
beyond the current crisis, with the acknowledgement that these issues are
pertinent to all countries, including 172 non-members. That means broadening
the voices it listens to. There are signifi cant advantages to be had from greater
openness to so-called ‘systemically unimportant’ non-member states. Usually
bigger countries harbour the leading thinkers and public debates, but small
countries understand the issues as well and they understand implementation
more than most.

The G20 could rectify this bias by undertaking structural changes and thorough
outreach. Changes to the G20´s structure might include adding seats for LDCs
on a rotating-basis, including two or three countries as formal G20 members.
Creating a constituency system and reshuffl ing membership with a greater
regional focus (limiting European representation to one EU seat) is vital. Outreach
could include formal meetings and seminars and joint work on global public
good issues, inviting select observes to participate in G20 meetings and holding
meetings in non-member countries.

The G20 will not be able to move the emerging trade agenda if process issues
are not tackled. A basic step would be to consider establishing a permanent
secretariat, outside North America or Europe. This would provide a permanent
provision of substantive technical support independent of the G8 dominated
institutions. A G20 secretariat could also provide space for consultation on
sensitive issues which does not adequately exist in the WTO agenda, as
presently configured.

With the establishment of a secretariat the G20 could also undertake regional
dialogues that would feed into the formal G20 process. This could include a
network of horizontal capacity building to strengthen widespread technical
ability to contribute to the formal G20 process.

Along the above lines the G20 should broaden its working groups from the
current priority reform areas (regulation and transparency; international
cooperation and market integrity; IMF reform; World Bank and other multilateral
development bank reforms). Thematic working groups could focus on crosscutting
issues. In these ways the G20 would be better equipped to address the
trade dimension of economic recovery.

http://www.clubmadrid.org/img/secciones/G20_FINAL_REPORT.pdf