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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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THE G20 LONDON SUMMIT:
Trade, protectionism and Doha as relevant issues of its agenda

by Félix Peña
February 2009

English translation: Isabel Romero Carranza


 

As a matter of course, an unforeseen event such as the current global crisis brings about bewilderment together with conflicting expectations.

The impact of the global crisis on world trade, the trends towards protectionism and the conclusion of the Doha Round will be among the main issues for the G20 to discuss when it gathers at the London Summit on the 2nd and 3rd of April. The problem, however, is to know if it will be able to agree on actions that effectively permeate into reality. What happened with what was agreed upon on issues related to international trade at the previous Washington Summit, which was held in November, is far form positive.

In the face of deep crisis, bewilderment may lead to elicit historic precedents either to provide an interpretation of the situation or to confront the possible solutions.

One such precedent may be found in the recurring image of a scenario with similar elements to those of the 1930's. The other widely evoked precedent refers to the Bretton Woods Agreements.

Is it possible that a functional equivalent to what those agreements meant for the organization of the international system after World War II results from the current G20? There are, however, several differences that can not be overlooked.


The effects of the global crisis continue to expand. They have moved from the financial into the real economy. The first signs of contagion to the political arena can be seen in some countries. History indicates that this is what happens in moments of deep crisis. The impact on world trade has already become evident, be it at the exchange level as in the trends towards protectionism. The term "de-globalization" is gaining notoriety. And the feeling is that there is still a long road ahead before the data on the new global reality becomes clear.

As a matter of course, unforeseen situations bring about bewilderment together with conflicting expectations. The positive expectations focus on the impact of the new American leadership and on the survival incentives that emerge when at the brink of a precipice. The negative ones feed on the fear of the proliferation of contingencies; a possible inadequacy of what may be called the "Obama factor" -that is, the ability of the new US President to come up with initiatives that rise to the challenge-; and, in particular, the future evolution of China's economy.

It is likely that, at the very least, the "Obama factor" will have become clearer by the time the G20 meet at the London Summit, on the 2nd and 3rd of April. It is then that the real impact of the reactivation measures approved by the US Congress on February 13th will be corroborated. (American Recovery and Reinvestment Act of 2009, on http://appropriations.house.gov/).

The effects of the crisis on world trade and on the commercial policies of the leading countries will become clearer as well. The fact is that, for the time being, protectionism has returned as a relevant problem to the world trade agenda. As a consequence, the debate over its modalities, reach and real impact has intensified. At the moment it is focused, to a great extent, on the preparatory process of the G20 Summit. It became a main topic of discussion at the Lausanne meeting of February 3rd, organized by the IMD together with the Evian Group and the International Chamber of Commerce (http://www.imd.ch/news/IMD-RLS-Roundtable-Session-1.cfm). It is a debate that carries on, with a remarkable level of excellence, in Voxeu (http://www.voxeu.org/index.php?q=node/2840) with Richard Baldwin acting as moderator and the participation of experts of international renown.

On the Rome meeting of February 13th, the G7 resumed -together with those issues related to the stabilization of the global economy and the financial markets and the reforms of the international system- the topic of the impact of the global crisis on world trade. This matter had already taken up center stage at the first G20 Summit, held in Washington last November. (For a full text of the Rome G7 Communiqué see http://www.ft.com/). However, the reference to the issue -made in a brief paragraph- only reaffirms what had been previously agreed. As noted by the Financial Times on its editorial commentary of February 14th, the G7 "talks better than it acts" (http://www.ft.com/). What was once a directory of leading nations has become, due to its limitations, a reflection of the changes that are now shaping the distribution of world power.

The impact of the global crisis on world trade, the drift towards protectionism, and the conclusion of the Doha Round remain as some of the main points on the London Summit agenda. The problem in relation to these issues, however, is to know if the G20 will be able to agree on actions that will effectively permeate into reality. On this respect it grapples with a deficit of credibility.

What was resolved in Washington regarding protectionism and, in particular, about the conclusion of the Doha Round, was never fulfilled. Last December, Pascal Lamy, Director General of the WTO, corroborated that the Summit's mandate had been insufficient for the negotiators in Geneva to agree on the modalities of multilateral negotiations. This agreement would have been necessary in order to enter the final stage of a process that drags along successive failures.

Aside from that, the monitoring of protectionist tendencies by the WTO is stinted by the fact that governments not always provide the official information -at least not on time- and by the particular characteristics of the measures being applied. (On this subject, please refer to the document JOB (09)/2, dated January 26th, 2009, entitled "Report to the TPRB from the Director-General on the Financial and Economic Crisis and Trade-Related Developments". See also Pascal Lamy's report at the meeting of the Trade Policy Review Body, on February 9th, where he alerted that with trade growth already stalled "the fragile economic prospects of every WTO Member have become especially vulnerable to the introduction of any new measure that closes off market access or distorts competition". For the full text of his presentation please go to http://www.wto.org/). The fact that the new protectionism sometimes results from business decisions -eventually fostered by public policies- complicates the monitoring task by the WTO even further.

In the face of deep crisis, bewilderment leads to elicit historic precedents either to provide an understanding of the situation or to undertake possible solutions. With regard to this matter, it seems relevant to refer to the book by Jean-Christophe Rufin, "L'Empire et les nouveaux barbares" (J.-Cl.Lattès-Poche Pluriel, Paris 1991). In this work the author finds in the defeat of Carthage by Rome a historic precedent to better understand the situation after the fall of the Berlin Wall.

One of such precedents may be found in the recurring image of a scenario with similar elements to those of the 1930's, that is, of a chain reaction of structural protectionist policies. However, the differences with the current situation are quite evident and the following three should be highlighted.

The first one of these differences is that, at the time, there were no multilateral trade institutions such as the WTO. Its rules and joint regulations entail a limitation to the discretionary power of countries to restrict or distort commercial flows. As stated by Lamy, they constitute a safety net against protectionism. Today there would be no place for such thing as the Smoot-Hawley Tariff. Yet the problem is that, in many cases, the multilateral system establishes such steep ceilings that several modalities of protectionism can find cover under them. In particular, those subtle and difficult to detect new-generation modalities, which result from a wide range of restrictions unrelated to tariffs. Some of them even originate in the very same business sectors in alliance with consumers -private rules that have a bearing, for example, in the commercialization of food products. Others may be a direct effect of the measures being applied by countries in their attempts to offset the impacts of the crisis on the level of economic activity and employment.

The second difference results from the internationalization of production that has increasingly developed during the last decades. Many companies in many countries -and not just from the most industrialized ones- function within the scope of value chains at a global scale. An uncontrolled protectionism would mean a costly complication in the production processes spanning several countries and regions. The orchestration of transnational production networks (for example, in the sense referred to by Victor Fung in his book, listed under the Recommended Reading Section) would be strongly affected in the case of an endemic protectionism and even in the case of the filibustering that may result from apparently harmless measures. To undo the global productive web by returning to a scenario of partitioned markets does not seem to be an effective contribution to overcoming the current global crisis; not even to preserve the sources of employment, least to prevent the effects on peace and political stability given the chain reactions that might follow.

The third difference is that it is presumed that nations learn from their mistakes, and those of the 1930's were dramatic enough so as to overlook the lessons gained for present times. One of these important lessons is related to the cost that entails the absence of institutions that enable some order among nations and help face collective problems as a whole. It was this lesson that led to the creation of the current multilateral trade system within a wider network of international cooperation institutions. Despite their current lacks, they constitute a dense network of public, global and regional assets that should be preserved and strengthened.

One of the main tasks of our time is to capitalize on the lessons from our past. This seems to be of the essence for the WTO within the current juncture (see our newsletter of January 2009). In this regard, there are three immediate courses of action to follow.

The first one is to fulfill the G20 Washington Summit mandate of concluding the Doha Round and implementing some sort of "protectionist truce". As stated before, the fact that this is yet to be achieved affects the G20's credibility. Before the London Summit takes place next April, it would be important to send out clear signs that the completion of the mandate is possible, even if the results of the Doha Round end up being less ambitious than originally expected. The G7 in Rome still favors an ambitious Doha Round, but after the December fizzle it is difficult to remain optimistic.

The second course of action would be to develop an effective monitoring mechanism to keep an eye over protectionist tendencies and contributes with the abovementioned truce. This would include measures that are compatible with the current WTO regulations. Given the limitations of the Secretariat to accomplish the monitoring task, it might be convenient to explore ideas that might allow for the new system to feed on information provided by non-governmental sources. This system could eventually be parallel to the official one.

The third course of action would be to hold the Ministerial Conference planned for this year with an agenda that comprises more than just the Doha Round. One of the main points on the WTO agenda should focus on how to reconcile, within the commitments that are assumed, the elements of flexibility with the much needed collective discipline, particularly in the responses given to the current crisis and to the special requirements of the least developed countries. One modality that could be implemented at the Conference would be to organize a set of parallel seminars to examine the core issues that will determine the future functioning of the multilateral global commercial system. These seminars could be prepared by regional multi-stake holders meetings.

The other frequently cited historic precedent is that of the agreements reached at the United Nations Monetary and Financial Conference, held in Bretton Woods on July of 1944, (http://en.wikipedia.org/wiki/Bretton_Woods_system). These agreements marked the origin of the process that led, after the Conference in Havana, to the creation of the GATT. The ideal situation would be that the current G20 agrees on actions that are focused on renewing the present institutions of international cooperation by adapting them to the challenges of the 21st Century. However, it is unlikely that this will happen, at least in the short or even the medium term. The reason is quite simple: Bretton Woods was possible because, at that time, it was clear where world power resided. It was the outcome of a war which, even before it ended, clearly prepared the ground for an undisputable US leadership.

Nothing similar exists today. All signs indicate that the new realities of world power will take time to settle. Only then will it be possible to know for certain which number to append to the letter G, in order to gage a global institutional environment with sufficient critical mass to translate decisions into actions. This is no easy task. The only certainty is that the numbers 2, 7 or 8 no longer suffice. What criteria should be used to determine which are the countries that, when joined together, can generate a power cluster considerable enough to guarantee that their decisions permeate into reality? This poses an efficiency challenge but, above all, a legitimacy one.

To begin with, only two types of countries meet the requirements needed to become the engines of the new global governance: those large enough and those that have the influence to haul along their neighbors. The larger nations stand out due to their current or potential indicators, especially those related to their population, gross product, and participation in world trade (they are the monster countries in the sense of the term coined by George Kennan). United States, China, India and Russia are the main examples. And those countries that have the power to haul along others are those that have shown the ability to group neighboring countries in permanent and sustainable alliances. Commonly, they reflect collective leaderships with a determined degree of institutionalization in a regional geographic area. Such is the case of the larger European countries that lead and form part of the European Union. There may be some cases of countries that aspire to become leaders in other regions. But they still lack the characteristics of countries such as Germany, France or Great Britain.

Looking forward to the conditions for a possible Bretton Woods II, in regards to world trade it is still advisable to keep on doing whatever is necessary to strengthen the WTO. This involves concluding the Doha Round, even the less ambitious version of it. It requires, above all, a work agenda that enables to provide urgent and efficient responses to the effects of the global crisis on world trade and development.


Recommended Readings of Recent Publication:

  • Fung, Victor; Fung, William K.; Wind, Yoram, "Competing in a Flat World. Building Enterprises for a Borderless World", Wharton School Publishing, Wharton, University of Pennsylvania-Pearson Education, New Jersey 2008.
  • Gutierrez, José Antonio, "The Andean Community and the European Union: Crisis on the FTA negotiations?", "Bilaterals.Org", 24-10-2008, on http://www.bilaterals.org/article-print3?id_article=13556.
  • Hester, Annette, "The New Global Energy Geopolitical Game: Is Canada Ready to Play?, Canadian Foreign Policy in a Changing World, nº 2, Canadian International Council, January 2009, on http://www.canadianinternalcouncil.org.
  • INTAL-BID, "Informe Mercosul - Período Segundo Semestre 2007, Primeiro Semestre 2008" INTAL-BID, Informe Mercosul nº 13, Novembro 2008, on http://www.iadb.org/intal.
  • Jaffrelot, Christophe (dir), "L'Enjeu Mundial. Les Pays Émergents", SciencesPo.Les Presses-L'Express, Paris 2008.
  • JETRO, "2008 JETRO White Paper on International Trade and Foreign Direct Investment", Japanese External Trade Organization (JETRO), Overseas Research Department, on http://www.jetro.go.jp.
  • Martinez Alfonso, Laneydi; Peña, Lázaro; Vazquez, Mariana, "Anuario de la Integración Regional de América Latina y el Gran Caribe", nº 7, year 2008-2009, CEGRE-CIEI-CIEM-CRIES, on http://www.cries.org.
  • Mitchell, Andrew D., "Legal Principles in WTO Disputes", Cambridge Studies in International and Comparative Law, Cambridge University Press, New York 2008.
  • Nueva Sociedad, "La integración fragmentada", Revista Nueva Sociedad nº 219, Buenos Aires, January-February 2009, Fundación Friedrich Ebert, on http://www.nuso.org.
  • The Brookings Institution, "Rethinking US-Latin American Relations. A Hemispheric Partnership for a Turbulent World", Report of the Partnership for the Americas Commission, The Brookings Institution, Washington, November 2008, on http://www.brookings.edu.
  • Trade SIA EU-MERCOSUR, "Final Overview Trade SIA EU-Mercosur", Final Report, Consultation Draft, November 2008, on http://www.sia-trade.org/mercosur.

Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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