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.
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.
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
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
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
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
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.