Guest blogger Marcelo de Paiva Abreu sets out the challenges and priorities for G-20 leaders on trade and the developing world.
Bold trade and financial initiatives will be required to control the damage that the current crisis imposes on developing countries and to assure their economic recovery. At the highest level, the G20 will need to consolidate its position as a forum where substantive coordinating efforts can take place. A positive, concrete, action agenda needs to replace the emphasis on declarations of principle and the reassertion of willingness to cooperate. In addition to these efforts to provide substance to the agenda, two political challenges must be faced. The first is how to consolidate in developed countries a view that the enhanced role of the G20 over that of the G8 should become a permanent feature of global economic governance rather than a stop gap maintained only during the crisis. The second, similarly daunting challenge, is one of ensuring that developing countries are convinced that their interests are adequately represented by the developing countries that are G20 members.
A substantive G20 work programme should concentrate first on establishing detailed conditions to assure that an effective standstill applies to those kinds of protectionist measures covered by the World Trade Organization (WTO) rules. Fuzzy commitments should be transformed into clear, detailed language. A parallel second step should be to make productive use of the results of earlier rounds of multilateral trade negotiations and to engage in efforts to revive WTO talks that go beyond the deadlock of July 2008 on agricultural subsidies and safeguards. Reaching short term compromises on other controversial issues, including cotton subsidies and agricultural peace clauses, is also necessary. The third step towards a substantive G20 work program concerns the grey area between trade and finance. This is taken up further below.
If the credibility of the WTO is undermined and, especially, the credibility of its dispute settlement system, relatively smaller economies – that is, developing economies – are bound to suffer more as their bargaining power is weaker than that of the bigger protagonists. While some claim that developing countries gained from the collapse of negotiations in July (on the grounds that the absence of agreement on trade liberalization would shield them from increases in agricultural prices predicted to emerge in their wake). But this is not the case: there would surely be a first-best solution-perhaps financial-to address such concerns about agricultural prices without blocking the progress of multilateral trade liberalization.
Amidst the present turmoil, it is time to consider how the fatigue with current multilateral trade negotiating methods can be countered. Suspicions are deepening that there is something intrinsically wrong with the way multilateral trade negotiations have been conducted in the recent past. There are many thorny issues to be addressed. For instance, how can the principle of special and differential treatment be advanced with without undermining essential WTO principles? Special and differential provisions included in the Uruguay Round agreements, which were essentially based on allowing developing countries longer periods for adjustments to new disciplines, have proved inadequate. Which format is preferrable to further negotiations: G7-like ad hoc groupings, “green room” meetings, or full membership? The trade-off between expediency and representation must be addressed directly, in addition to possible adjustments to the consensus tradition. How can the scope for excluding “sensitive” products from horizontal barrier-reducing formulae be minimized? (Particularly given that the main objective of multilateral trade negotiations is the dismantlement of barriers protecting inefficient production, such as is often the case for “sensitive” products). How can the dispute settlement mechanism become more effective? Decisions by panels and the Appellate Body have frequently been disregarded by member countries with significant bargaining power.
The third set of actions that the G20 should undertake concern the grey areas that link trade and finance. As the crisis unravels, this issue is increasingly crucial. This must be addressed in a systematic way by the WTO, the International Monetary Fund (IMF), and/or new institutions that could be created to deal specifically with international financial regulatory matters.
An important issue, already raised at the WTO, concerns how developing country exports are being affected by the credit contraction. With banks in the centre of the system placing financing the exports of developing countries low on their revised list of prospective clients, there will be clear scope for multilateral organizations to, at least temporarily play a major role in underwriting such risks.
Another trade-related financial question is entirely new. In contrast to what happened in the 1930s, the banking sector in practically all developed countries – and in some developing countries as well – is receiving massive injections of resources so as to avoid their bankruptcy and/or to help guarantee the flow of resources to finance their clients. That is, taxpayers´money is being used to rescue the financial sector. In many countries, arguments that could be described as typical of a new “financial protectionism” are heard: these injections of capital should be used exclusively for the benefit of economic agents of the same nationality of the taxpayers that are footing the bill. This is the revival, with a vengeance, of the “beggar thy neighbour” policies concerning tariffs and non-tariff barriers that, in the absence of WTO-like multilateral commitments were typical of commercial policies in the 1930s.
The economic reasoning behind such proposals is absurd, especially in a globalized world where banks provide credit on a global basis and there is a weak connection between the “nationality” of ownership of borrowing firms and the country where they conduct business. A byproduct of attempts at international coordination of the various efforts to rescue the banking sector and preserve banks’ lines of credit, might be an emerging consensus that financial transfers should be evenly distributed among specific countries with no free-riding involved. This could have an important role in countering lobbies seeking to exploit this new potentially useful protectionist instrument.
All these efforts to contain the damage caused by the economic and financial crisis are essentially concerned with mid-term scenarios. While important, such efforts should not crowd out negotiations on climate change, which will have to be upgraded in the very near future. It is essential that expediency linked to short and mid-term policies designed to counter the effects of the crisis does not undermine commitments to curb harmful emissions.
Progress with this comprehensive and complex agenda depends on political will. The last few years have been marked by a persistent deficit of political will where it counted most for international cooperation. One was reminded of the Irish poet William Yeats who wrote, “the best lack all conviction, while the worst are full of passionate intensity.” The G20 should make sure that this is reversed and that there is full collective commitment to begin a new era of effective international cooperation.
Marcelo de Paiva Abreu is a Professor of Economics at the Pontifical Catholic University of Rio de Janeiro and author of Comércio exterior: interesses do Brasil, Rio de Janeiro: Elsevier, 2007.
This article is part of a forthcoming compilation on a trade agenda for G20 leaders edited jointly by Dr. Carolyn Deere Birkbeck (Global Economic Governance Programme) and Ricardo Meléndez-Ortiz (International Centre on Trade and Sustainable Development (ICTSD)). The compilation will be published in mid-March 2009.
