Rising Protectionist Pressures Cast Shadow on G-20 Agenda
With tomorrow marking the launch of the annual Group of 20 heads of state summit in Cannes, France, the international community is watching closely to see if the leaders of twenty major economies can make headway in resolving the European debt crisis amid new reports of growing trade protectionism.
However, recent reports on rising trade protectionism in G-20 countries, food price increases, and the continuing debate on exchange rate policies are also expected to feature prominently at the high-level gathering.
The 3-4 November summit comes in the wake of EU leaders announcing a bail-out deal designed to end the 27-member bloc’s sovereign debt crisis. With Greek Prime Minister George Papandreou making a surprise announcement on Monday that his country would vote on the bail-out package in a referendum, the eurozone’s ongoing struggles are expected to dominate G-20 discussions over the next two days.
WTO says trade protectionism on the upswing
Last week, the WTO released a report that found trade protectionism continues to rise among G-20 members. The report is a follow-up to an earlier study published in May of this year (see Bridges Weekly, 25 May 2011).
The report found that “disappointingly weak growth in some G-20 countries and continuing macroeconomic imbalances globally are testing the political resolve of many governments to abide by the G-20 commitment to resist protectionism.”
The WTO report is part of a joint exercise by the WTO, the Organisation for Economic Co-operation and Development (OECD), and the UN Conference on Trade and Development (UNCTAD) to monitor the leading economies’ adherence to their promises not to engage in trade and investment protectionism during the financial crisis. The three organisations have issued reports approximately every six months monitoring both types of protectionism - and any moves toward liberalisation - since September 2009.
According to the latest figures from the global trade body, the number of restricting - or potentially restricting - trade measures introduced by G-20 economies since the beginning of May 2011 has fallen slightly to 108 from the 122 recorded during the preceding six months.
While not all G-20 economies introduced such measures - and some even engaging in trade facilitation efforts - the WTO found “no indication that, over the past six months, recourse to new trade restricting measures by the G-20 as a group has slackened nor that efforts have been stepped up to remove existing restrictions.”
The global trade body cautioned that unilateral protectionist measures, while attractive in the short term, are no solution to global problems. “On the contrary [these actions] may turn the situation worse by triggering a spiral of tit-for-tat reactions in which every country loses.”
Business leaders meeting in Cannes for their own “B-20″ summit have also issued similar calls against trade protectionism in the G-20 countries.
Laurence Parisot, head of the French business confederation Medef that is hosting the B-20, told the Financial Times that “we don’t understand [this increased protectionism] because governments are always ready to make clear statements against protectionism and then through the back door they take measures that are actually protectionist.”
The B-20 delegation was scheduled to meet today with French President Nicolas Sarkozy to press its concerns; France currently holds the presidency of the Group of 20.
Food prices, agricultural export restrictions expected to attract notice
The ongoing food crisis has also drawn the attention of policymakers worldwide in advance of the G-20 summit, with the World Bank releasing a new issue of its Food Price Watch yesterday. Upon the report’s release, World Bank Group President Robert Zoellick warned that the “food crisis is far from over.”
The report found that grain prices rose 30 percent between September 2010 and September 2011; the price of maize increased by 43 percent in that period, rice by 26 percent, and wheat by 16 percent.
Zoellick urged G-20 leaders to remember that “averting crisis is not just about banks and debt. Millions of people around the world face a daily crisis of hunger and malnutrition.” Developing countries also have limited resources to protect vulnerable populations in the face of the economic crisis. He added that the G-20 should take steps at this week’s summit to address the problem head-on.
European Commission President José Manuel Barroso and European Council President Herman Van Rompuy, in a joint letter to G-20 leaders on Sunday, echoed Zoellick’s concerns.
The two European leaders urged G-20 heads of state to “address the global food security challenge by fully endorsing the Action Plan on Food Price Volatility and Agriculture agreed by G-20 Agriculture Ministers.” In June, G-20 agriculture ministers held their first-ever meeting, culminating in an Action Plan to tackle high and volatile food prices (see Bridges Weekly, 29 June 2011).
Agricultural export restrictions - a common issue in the food security discussion - also featured in the WTO report. Those measures have often come under scrutiny for exacerbating price increases and food shortages, adversely affecting consumers in developing countries.
The global trade body noted that the May monitoring report’s finding of an upward trend in G-20 use of export restrictions, mainly with regards to food products and some minerals, has now been confirmed. In addition, more new measures were set in place between May to mid-October than in the past.
“Although the majority of these actions were justified on the grounds of national responses to rising food prices, to secure domestic supply, or to address resource depletion, they nevertheless go against the G-20 standstill pledge in this respect, and have the potential to seriously affect trading partners,” the WTO cautioned.
Washington, Beijing likely to square off on Chinese currency
The ongoing feud between Beijing and Washington over China’s currency policies is also expected to play out at the G-20 summit, with a top US Treasury official telling reporters that the issue will indeed be addressed in the coming days.
US President Barack Obama is expected to urge China President Hu Jintao at the meeting to allow the yuan to appreciate further. While China has allowed the yuan to rise gradually since June 2010, rising seven percent against the dollar since then, some observers argue that the currency is still vastly undervalued.
Washington critics have long argued that China’s strict control of its currency has created, in effect, an export subsidy, making Chinese exports cheaper relative to their foreign counterparts. The US Senate recently passed legislation that targets countries that undervalue their currencies (see Bridges Weekly, 12 October 2011). The legislation reportedly has widespread backing in the US Congress’ other chamber, the House of Representatives; the House Republican leadership, however, has resisted against bringing the bill to the floor for a vote.
The currency issue also featured at a G-20 finance ministers and central bank governors meeting in mid-October, with reports indicating that Chinese negotiators had prevented the G-20 ministers from going beyond wording issued at their previous meeting in Washington on the need for emerging market economies’ currencies to be more flexible (see Bridges Weekly, 19 October 2011).
Just a day after US Treasury official Lael Brainard confirmed that China’s currency policies would indeed feature at the G-20 heads of state gathering, state-run Chinese newspaper Xinhua responded with an editorial stating that it would be “unadvisable and unhelpful to squander valuable time at the summit squeezing China over its currency policies.”
“Finding a scapegoat [for the financial crisis] is much easier than confronting the problem head-on,” the editorial continued, noting that China has made efforts to reform its exchange rate regime and would continue to make “incremental progress in that regard.”
The Group of 20 includes the following members: Argentina, Australia, Brazil, Canada, China, the EU, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the UK, and the US.
ICTSD reporting; “EU Leaders Set to Push Greece on Bailout in Emergency G-20 Talks,” BLOOMBERG, 2 November 2011; “Business to press for G20 unity,” FINANCIAL TIMES, 30 October 2011; “Greece dominates G20 preparations,” FINANCIAL TIMES, 2 November 2011; “G20 to keep focus on China currency flexibility: U.S.” REUTERS, 31 October 2011; “GLOBAL MARKETS-Europe calmer after storm; U.S. futures up pre-Fed,” REUTERS, 2 November 2011; “Joint letter from Herman Van Rompuy and Jose Manuel Barroso to G20: in full,” THE TELEGRAPH, 30 October 2011; “Targeting yuan is no antidote to global economic woes,” XINHUA, 2 November 2011.
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