At back to back summits of the world’s 20 leading economies and Pacific Rim countries held in November, world leaders called for the conclusion of the Doha Round in 2011, but failed to make significant progress on rebalancing global growth and trade.
Heads of state of the G-20 and the Asia-Pacific Economic Co-operation (APEC) recognised that next year offered a critical, if narrow, window of opportunity to bring the multilateral trade talks to a conclusion.
The G-20 welcomed the ‘broader and more substantive engagement’ of Geneva-based trade envoys over the past four months and said now was the time to ‘complete the end-game’. Delegates should engage in across-the-board negotiations to promptly bring the round to a ‘successful, ambitious, comprehensive and balanced conclusion’, the final communiqué said.
APEC leaders called upon their representatives “to engage in comprehensive negotiations with a sense of urgency in the end game, built on the progress achieved, including with regard to modalities, consistent with the Doha mandate.”
The concluding statements of both gatherings appeared more resolute than previous declarations about securing parliamentary approval for an eventual Doha deal. The G-20 committed to seek ratification where necessary, and the 21 APEC members vowed to “win domestic support in our respective systems for a strong agreement.”
While all this sounds like good news for the languishing Doha Round, it remains to be seen whether WTO Members can finally agree on what would constitute the ‘successful, ambitious, comprehensive and balanced’ outcome they have been chasing for nearly a decade. So far, little has transpired to indicate that compromise is within reach between Washington’s insistence on greater access to emerging markets and the resistance of Brazil, China, India and South Africa to such demands (see page 4). Meanwhile, most G-20 and APEC countries are feverishly pursuing bilateral and regional trade pacts (see page 15).
Beyond the Doha Round, the summiteers emphasised the importance of resisting protectionism. But where the G-20 reiterated the group’s commitment to roll back any new protectionist measures that may have risen since the June Toronto summit, “including export restrictions and WTO-inconsistent measures to stimulate exports,” APEC leaders promised to eschew such measures in all areas, as well as exercising ‘maximum restraint’ in taking action that might have significant protectionist effects even if the measure did not breach any WTO provisions (see related story on page 13).
Balancing Growth: Maybe Later
The broader goal of rebalancing global growth and trade fared far less well. Against a backdrop of high unemployment in developed countries that import far more than they export, the G-20 summit in Seoul in particular was mired in acrimonious debate over who should act, and how, to reduce disparities.
The US wanted G-20 members to commit to keeping their current-account imbalances (trade surpluses or deficits) below 4 percent of GDP over the next few years. China and Germany - with trade surpluses of 4.7 and 6 percent respectively - firmly rejected the idea. Chancellor Angela Merkel objected to “politically imposed upper limits on trade surpluses or deficits that are neither economically justified nor politically appropriate.” China’s deputy foreign minister Cui Tiankai said the plan harked back “to the days of planned economies.”
Faced with an impasse, the leaders promised to “reduce the reliance on external demand and focus more on domestic sources of growth in surplus countries while promoting higher national savings and enhancing export competitiveness in deficit countries.” The Toronto G-20 summit had agreed to more or less identical language in June, but both China’s and Germany’s exports have galloped ahead regardless.
In a small step forward, the leaders set up a somewhat fuzzy process to address the problem of ‘persistently large imbalances’. They directed finance ministers and central bank governors to develop, by the first half of 2011, a set of “indicative guidelines composed of a range of indicators that would serve as a mechanism to facilitate timely identification of large imbalances that require preventive and corrective actions to be taken.” The International Monetary Fund was charged with “assessing progress toward external sustainability and the consistency of fiscal, monetary, financial sector, structural, exchange rate and other policies.”
It is unclear whether G-20 members will agree on such guidelines, let alone enforce them rigorously. In a report submitted to the Seoul meeting, the IMF estimated that based on existing trends, current account deficits in advanced deficit economies would ‘nearly double’ by 2014.
Stalemate on Currencies
Exchange rate policies were easily the most controversial topic in Seoul. In the build-up to the summit, the US led the push for a faster appreciation of the yuan, blaming China for deepening global imbalances by keeping the currency undervalued. China argued that the US trade deficit would not diminish significantly as a result of a more expensive yuan, and insisted that currency reform would be gradual and guided by national economic needs.
The pressure on China eased when, just days before the summit, the US Federal Reserve embarked on a second round of ‘quantitative easing’ (QE2), which made a number of countries in Seoul point the finger at Washington.
Fed chairman Ben Bernanke defended the injection of a further US$600 billion into US capital markets as necessary to stimulate the economy and reduce high un-employment, but Brazil noted with concern that the policy would lead to a further strengthening of the real, as well as other currencies such as the South Korean won, undercutting their competitiveness.
China and Germany were among those arguing that the Fed’s decision amounted to a deliberate effort to weaken the dollar and thus gain an export advantage at the expense of other countries.
Treasury Secretary Tim Geithner vehemently denied the allegations. The US would “never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy,” he said. Beijing, however, remained unconvinced. “Don’t make other people take the medicine for your disease,” quipped Yu Jianhua of the Chinese commerce ministry. “Quantitative easing will have a very big impact on developing countries including China.”
The arm-wrestling between the two giants resulted in a vague general commitment to “move toward more market-determined exchange rate systems and enhance exchange rate flexibility to reflect underlying economic fundamentals” with no timeline or details attached. The leaders also promised to “refrain from competitive devaluation of currencies.” The language was reproduced verbatim in the APEC leaders’ declaration a couple of days later.
Uncertain Way Forward
Continuing divisions over imbalances and exchange rates may lead to an intensification of trade-related tensions, some experts warn.
Eswar Prasad, who teaches trade policy at Cornell University, sees a worrying potential that open conflicts on currencies will “feed into more explicit forms of protectionism, which could set back the global recovery.”
University of Chicago finance professor Raghuram Rajan noted wryly that “it was always clear that the G-20 would be able to do little concrete on the imbalances… The reality is that every large country will do what it thinks is best for its own agenda.”
The challenge for trade negotiators in Geneva will be to translate the Doha-friendly rhetoric of the two summits into reality against this backdrop.
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