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Faced with deteriorating economic indicators across the board, decision-makers are navigating between the ‘siren call’ of protectionism and the need to avoid beggar-thy-neighbour policies.
According to the WTO’s latest assessment, export volumes will shrink by 9 percent in 2009, the biggest such contraction since World War II. The IMF now predicts that global GDP will slip by up to 1 percent this year after six decades of growth. The fund projects that developing and emerging economies will continue to grow, but only by half of the World Bank’s December 2008 estimate of 4.5 percent. Many of these countries, including China and Malaysia, have suffered double-digit export losses compared to last year’s levels.
As World Bank President Robert Zoellick has noted, one of the consequences of the financial crisis is that “poor countries are finding that every source of their development finance - remittances, export and commodity demand, aid and capital flows - are now being affected.” The International Labour Organisation forecasts that 50 million more people around the world will be unemployed in 2009 compared to 2007, most of them in the developing world.
The London-based Overseas Development Institute predicts that developing countries will experience income losses worth at least US$750 billion before this year is over. Another 50 million people are likely to be pushed into absolute poverty.
It is against this backdrop that the heads of state of the world’s twenty largest economies were about to meet in London when this issue of Bridges went to press. Ahead of the summit, President Obama wrote in a widely disseminated op-ed that G-20 nations had “an economic, security and moral obligation to extend a hand to countries and people who face the greatest risk.” UN Secretary-General Ban Ki-Moon called upon G-20 leaders to top their national stimulus packages with a trillion-dollar international plan to help least-developed and middle-income developing countries weather a crisis not of their own making.
What Can the G-20 Deliver?
The main purpose of the summit was the co-ordination of responses to the deepening global recession. Much of the discussions were expected to focus on the stabilisation and reform of financial markets and banking sector regulation. In light of the marked differences in countries’ responses to the crisis so far, particularly with regard to the scope and duration of economic stimulus measures, few expected the one-day meeting to result in a detailed common action plan.
What the summiteers were thought likely to deliver instead was a general commitment to sustain efforts to stimulate growth, restore credit to businesses and consumers, and keep markets open. The leaders already promised to do all this in November, but since then 17 of the 20 participating countries have taken a broad variety of measures that have trade-restricting effects (see graph opposite).
Armed with new data on decreasing international trade, a worsening shortage of trade finance and insidiously rising protectionism, WTO Director-General Pascal Lamy called for a renewed commitment to a speedy conclusion of the Doha Round. However, dozens of such statements have failed to make a noticeable impact on the negotiations in Geneva in the past, mainly because countries continue to disagree on what would constitute the “ambitious and balanced outcome” that high-level officials profess to support.
Many would like the G-20 to commit to providing quarterly reports to the WTO on any new trade measures, including subsidies, undertaken in response to the crisis. The institution’s efforts to monitor such actions have been considerably hampered by the lack of up-to-date information from Member governments (see page 6).
The most concrete result of the G-20 summit was likely to be an agreement to at least double the resources of the International Monetary Fund, as foreshadowed by the group’s finance ministers (see page 5). The fund has promised to increase credit limits for countries struggling with the financial crisis and to relax loan conditions for developing nations in need of short-term assistance.
Trade Negotiations Stagnate in Geneva
Multilateral trade negotiations have been brought to a virtual standstill by the uncertainty surrounding the way the US intends to move forward (see pages 16 and 17). Delegates are also waiting to see whether the outcome of India’s April-May congressional elections is likely to change the country’s trade priorities.
Chile’s Ambassador Mario Matus, the new chair of the WTO General Council, has suggested that the organisation’s first priority should remain to try to conclude the Doha Round modalities. But he also said that the WTO’s regular committees should review developments ‘outside these walls’ in order to generate ideas for the future, including in areas such as energy, climate change, protectionist measures and even the legitimacy and representativeness of the organisation itself. “Only by addressing the real concerns of society will we be able to avoid the risk of slipping into irrelevance,” Ambassador Matus concluded.
Ministerial Probable in Second Half of 2009
Chair Matus also said that Members should start consultations on the formal ministerial conference that the WTO is bound by its statutes to hold every two years. Only informal gatherings - entirely focused on the Doha Round negotiations and involving a small number of participants - have taken place since 2005.
Ambassador Matus said he would wait for the results of the G-20 summit before putting the issue to the General Council, which could agree in May to hold a ministerial conference, but leave the dates to be decided later. Nevertheless, Mr Matus assumed that the meeting would take place in the second half of this year.
If it goes ahead, the conference is expected to ‘take stock’ of developments in the Doha Round rather than engage in negotiations. Ministers would also provide strategic guidance for the WTO’s work from a broader perspective. For instance, Ambassador Matus said he could not imagine having a ministerial where the participants would not discuss the implications of the economic crisis. Several delegations are reportedly in favour of a focus on the new challenges faced by the multilateral trading system (Bridges Year 12 No.6 page 3). This is also one of the four themes of the WTO’s next Public Forum, to be held in September. Participants have been invited to reflect on a ‘post-crisis agenda’ for the institution.
Another Go at Doha Modalities?
In a separate development, Pascal Lamy told Australian media in March that he hoped there would be a ‘window of opportunity’ to bring a smaller group of trade ministers to Geneva before the traditional August break to try and conclude a framework Doha deal on agriculture and industrial market access. The last such attempt collapsed in July 2008, and plans to reconvene the meeting in December were shelved due to insufficient indications that the event would be successful. “What remains to be coped with is a small portion of the big list we had to cope with last July. A large part of that is already stabilised, so with a bit more political energy on a smaller number of topics, normally it should work,” the ever-optimistic WTO head said.
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