News and Analysis • Volume 13 • Number 2 • June 2009

13 - G-20 Promised Much, but Monitoring Will Be Key

Much has been made of the G-20 leaders' commitment to refrain from taking protectionist measures at their London summit in April, but the language is vague enough to allow governments plenty of leeway to restrict imports, encourage exports and subsidise domestic recovery plans.

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The leaders stressed that the financial contributions they had pledged to the International Monetary Fund and multilateral development banks, as well trade finance to be disbursed through various channels, constituted an “additional US$1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale” (see related article on page 12).

As foreshadowed by the G-20 finance ministers, the International Monetary Fund was the big winner of the summit (Bridges Year 13 No.1 page 5). The leaders committed to immediately increasing the Fund’s resources by US$250 billion. The money will eventually be merged with a US$500 billion cash injection when new, more flexible borrowing arrangements available to a greater number of countries are put into place. If these commitments are kept, the IMF would see a three-fold increase of its current resource pool. In addition, the leaders said resources from agreed IMF gold sales would be used for concessional finance for the poorest countries.

The power structure within the IMF will also see some revisions after the summit. The G-20 leaders called for a ‘realignment’ of the quota shares that determine countries’ voting power and contribution levels; the shift is expected to give emerging economies like China and India a greater say in how the IMF is run. Moreover, the leaders agreed that future chiefs of the Fund will be chosen on their merits, not their country of origin.

Another U$100 billion was promised to support multilateral development banks’ lending to low-income countries.

The funds made available to the international financial institutions are to be used to “support growth in emerging market and developing countries by helping to finance counter-cyclical spending, bank recapitalisation, infrastructure, trade finance, balance of payments support, debt roll-over and social support.”

Anti-protectionism Pledges

The leaders reaffirmed the commitment they made in Washington in November to “refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organisation (WTO) inconsistent measures to stimulate exports.” They extended the pledge until the end of 2010, and promised to “rectify promptly any such measures.”

A draft declaration circulated shortly before the summit contained stronger language: “We reaffirm the commitment made in Washington not to raise new barriers to investment or to trade in goods and services, including within existing WTO limits, not to impose new trade restrictions, and not to create new subsidies to exports.” Had this wording been retained, G-20 members would have been honour-bound to keep their tariffs and export subsidies at their April 2009 levels for a year.

Opting instead for the Washington language, G-20 members continue to have considerable latitude to raise tariffs or subsidise exports. The US used this flexibility in May, when it reinstated export subsidies for 92,000 metric tonnes of non-fat milk powder, butter and some cheeses. Agriculture Secretary Tom Vilsack stressed that the measure was ‘fully consistent’ with the United States’ WTO obligations (see page 8).

The leaders promised in London to “minimise any negative impact on trade and investment of our domestic policy actions including fiscal policy and action in support of the financial sector.” They pledged to promptly notify the WTO of any such measures and called on the WTO and other international bodies “to monitor and report publicly on our adherence to these undertakings on a quarterly basis.”

In addition, they committed to making available at least US$250 billion over the next two years to support trade finance through their export credit and investment agencies, as well as multilateral development banks.

Doha Text Papers over Cracks

In November, the G-20 had promised to “strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO’s Doha Development Agenda with an ambitious and balanced outcome.” Striving, alas, did not prove sufficient, and a planned ministerial gathering to finalise the modalities was cancelled in December.

In London, the leaders said they were still committed to reaching an ambitious and balanced conclusion to the round, “which is urgently needed. This could boost the global economy by at least $150 billion per annum. To achieve this we are committed to building on the progress already made, including with regard to modalities.”

Again, an earlier draft was more robust, calling for a “rapid agreement, on the basis of progress already made on modalities leading to a successful conclusion of the Doha Development Round.”

The wording in the London declaration papers over differences within the G-20, as well as the WTO membership, on whether the latest negotiating texts on modalities are an acceptable basis for moving forward: ‘building on progress already made’ does not necessarily mean that future discussions would be ‘based on’ the chairs’ texts.

The leaders promised to give ‘renewed focus and political attention’ to efforts to wrap up the negotiations, using relevant international meetings to drive progress.