A meeting last weekend of 20 major economic powers in Washington gave a fresh impetus to the troubled Doha Round of global trade talks by agreeing to strive for a blueprint deal by the end of 2008 (see related article, this issue). But the extent to which that rhetoric will translate into actual movement in the negotiations remains to be seen.

Negotiators are expecting WTO Director-General Pascal Lamy to call a December ministerial meeting aimed at reaching agreement on the formulas for tariff and subsidy cuts for agriculture and industrial goods, and exceptions to them. Although no date has been set, many suggested that a meeting could be held around the 10th, with some suggesting dates a few days later than that.

Any such deal would have to be formally adopted by the WTO’s General Council, which is scheduled to begin a two-day meeting on 18 December – shortly before trade negotiators stop work for the winter holidays. Sources suggested that a new draft text would have to be issued some time around 28 November by the chair of the agriculture talks, Ambassador Crawford Falconer (New Zealand), in order to allow policy-makers enough time to analyse it before ministers arrive in Geneva.

Onus on 20 countries

Falconer has challenged negotiators to show flexibility in their positions in order to allow him to produce a new draft. “I certainly don’t feel…I have the basis to do a revised version of the July text,” he warned an informal meeting of the full membership on 17 November.

Falconer told Members that he expected the 20 countries that had met in Washington to show signs of new flexibility very quickly. “I am looking forward to hearing this afternoon, at least from those 20 Members, the concrete changes in their positions that they had foreshadowed to their heads of government,” he announced wryly, before acknowledging that it may take negotiators “a day or two” to share information on any new room for manoeuvre they may now have.

Changes in position would have to be clear to him by “no later than the end of next week” if the year-end target date was to be met, Falconer cautioned.

He indicated that he was ready to begin intensive consultations immediately, and continue these in the week of 24 November. Members were also expected to meet within coalition groupings. Falconer will also hold an informal meeting of the full Membership on Friday afternoon.

The likelihood of an imminent ministerial meeting appears to have galvanised much-needed momentum in the Doha talks, which as recently as last week seemed to be juddering to a near halt. “It now seems inevitable that we’ll have a meeting,” said one delegate, admitting that, before the weekend, the likelihood had seemed nearer 60 percent.

Delegates suggested that the severity of the economic situation - the biggest financial crisis for eight decades, and the real risk of widespread recession in 2009 – had focused minds on the need for a Doha trade deal. One pointed out that, when governments are obliged to take such major steps as nationalising their banks, they may find it easier to make some concessions that at other times might seem too painful.

Five key issues

Delegates reported that they suspected Falconer was particularly awaiting signs of movement on around five key outstanding issues. He had already identified four of these in an August report to the Membership, written after the July mini-Ministerial collapsed: the special safeguard mechanism, tariff rate quota creation, tariff simplification and cotton. A fifth issue has also surfaced more recently: the number of permitted ‘sensitive products’ which developed and developing countries will be able to shield from tariff cuts in exchange for expanded import quotas.

Special safeguard mechanism still deadlocked

The special safeguard mechanism, which developing countries will be able to use to raise tariffs temporarily in the event of import surges and price depressions, remains highly controversial. Developing countries in the G-33 have insisted that an effective and usable mechanism to safeguard their poor farmers is a precondition for a Doha Round deal, while exporters in both developed and developing countries have argued that any such safeguard must not interfere with ‘normal trade’. The issue was widely seen as a major cause of the mini-ministerial breakdown in July (see BRIDGES Weekly, 7 August 2008, http://ictsd.net/i/news/bridgesweekly/18034/).

Since September, Members have discussed various options that could lead to convergence on the issue, such as modifications to the maximum number of months that countries would be allowed to apply the safeguard, or the option of prohibiting successive impositions of the safeguard until a given period of time had elapsed. However, no clear consensus has emerged on these options, said sources familiar with the talks.

Sensitive products: Japan and Canada seek more flexibility

Two developed countries, Japan and Canada, were reportedly seeking greater flexibility in the negotiations on the number of sensitive products that they would be allowed. Members currently are allowed to designate four percent of tariff lines as sensitive, provided tariff quotas were expanded accordingly; those with over 30 percent of tariff lines in the top band would be allowed another two percent, provided again that Members compensate for this through quota expansion. Sources indicated that Japan was trying to obtain the right to designate an additional two percent of tariff lines as sensitive. Canada was also reportedly seeking to expand the flexibility available to them on sensitive products, in a move that was also resisted by exporting countries.

TRQ creation

Several trade sources agreed that, despite exporters’ initial demands, there appeared now to be an emerging consensus that some limited form of tariff rate quota (TRQ) creation would be allowed. It remained unclear, however, what form this would take. Falconer had previously outlined four categories of products for which new quotas could conceivably be created (see BRIDGES Weekly, 23 October 2008, http://ictsd.net/i/news/bridgesweekly/31623/). One delegate suggested that Falconer’s new text could propose a figure for the number of tariff lines for which TRQ creation could be allowed.

Tariff simplification

Tariff simplification - the conversion of ‘specific tariffs’, which are set at a precise level, to ad valorem tariffs, which are expressed as a percentage of the product’s value – has long been controversial amongst Members. Trade sources reported that some exporting countries were exploring new options that tried to move away from the issue of the percentage of tariff lines that needed to be converted to ad valorem equivalents (see BRIDGES Weekly, 23 October 2008, http://ictsd.net/i/news/bridgesweekly/31623/).

Cotton

While the draft modalities text on cotton currently reproduces the proposal of the C4 group of African cotton producers that seek ambitious reductions in developed country subsidies, rich countries have so far failed to make alternative proposals. The issue is widely seen as another make-or-break issue for the round.

Looking forward

Falconer indicated that he would be willing to meet with delegates to discuss tariff simplification, as well as other outstanding issues on domestic support or export competition. He encouraged Members to ensure representation at a senior level, warning that he may cancel meetings if there was an insufficient quorum of capital-based officials. Trade sources also indicated that another ‘green room’ meeting, with around 20 to 25 senior officials, could be held this Sunday, to be followed by more intensive meetings all next week.

Explaining the sudden push for a deal, some delegates pointed to the depth of the economic crisis; others suggested that some saw a political window of opportunity in the time between the US elections earlier this month and 20 January 2009, when President-elect Barack Obama takes office. However, others also pointed to the crucial role played by Falconer, who is returning to New Zealand at the end of the year. “People will regret his departure” said one developing country delegate, noting that it would be hard to find a replacement who could display both the listening skills and technical knowledge of the current agriculture chair.

ICTSD reporting.

Instead, heads of state from the Group of Twenty, whose countries account for the lion’s share of world output, trade, and population, used their first-ever summit to promise continued monetary and fiscal measures to stimulate their domestic economies, to resist protectionism in trade and investment, and to cooperate on financial market stabilisation and regulatory reform. (N.B. This G-20 should not be confused with the developing country alliance in the WTO agriculture negotiations.)

The leaders also pledged to “strive to reach agreement this year” on a framework for concluding the struggling Doha Round of WTO negotiations, and to expand the voice of developing countries in the World Bank and International Monetary Fund.

But more than the show of unity, the Doha exhortation, the pledge to maintain development aid, or the specific instructions on regulatory reform and financial oversight, the 14-15 November meeting in Washington was noteworthy for the central role given to developing countries in shaping future financial reforms.

The gathering marked “the coming out party of the emerging countries in the governance of the global economy,” said Andrew Cooper, associate director of the Centre for International Governance Innovation in Waterloo, Canada.

The G-20 leaders agreed to meet again by the end of April, by which time US President-elect Barack Obama, whose administration will be a key determinant of how the reform process unfolds, will have taken over from George W. Bush. The plan to meet again implies that the G-20 will be playing a larger role in the informal coordination of the world economy, a place heretofore occupied by the Group of Seven leading industrialised nations (with or without Russia).

It is too soon to say whether the G-20 is replacing the G-7/8, said Cooper, an expert on the industrialised bloc’s relationship with emerging economies. But the larger group, which includes China, Brazil, India, Indonesia, Mexico, South Africa, South Korea, and Turkey, is “certainly on the ascendancy,” and taking over as a “hub” of governance.

Support for economic stimulus, open economy

The G-20 leaders pledged to “take whatever further actions are necessary to stabilise the financial system.” Central banks around the world have cut interest rates in recent weeks, in an attempt to stimulate slowing economies. They also pledged to “use fiscal measures to stimulate demand to rapid effect.” Earlier this month, China announced a US$ 586 billion infrastructure and social spending plan to bolster domestic demand. The incoming US administration also supports a new stimulus package.

As for the problems faced by developing countries that are finding it hard to access finance amidst the worldwide credit crunch, their five-page declaration called for ensuring that the IMF, the World Bank, and other multilateral development banks “have sufficient resources” to maintain lending during the crisis.

The leaders underlined a “shared belief that market principles, open trade and investment regimes, and effectively regulated financial markets” are essential to economic growth and employment, as well as poverty reduction.

Specifically, they agreed to “refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing WTO-inconsistent measures to stimulate exports” over the next 12 months.

Harvard professor Dani Rodrik described these pledges as “so-so.” Writing on his blog (http://rodrik.typepad.com/dani_rodriks_weblog/2008/11/and-now-the-real-g-20-communiqu.html), he noted that there was “no coordination” planned for different countries’ fiscal stimulus packages, and that “the promises made to emerging markets are vague.” Furthermore, though the statement on protection and export support was “clear,” there was no monitoring or enforcement mechanism to hold countries’ to their word.

Indeed the Financial Times reported Monday that Russia would go forward with sharp increases to import tariffs on cars, on the grounds that the changes had been planned before the G-20 meeting. Russia, which is not a WTO member, has previously said that it would consider reversing import duty cuts made as part of its accession negotiations.

The G-20’s promise on the WTO – to “strive” to conclude a ‘modalities’ agreement by next month – echoed dozens of unheeded exhortations made by various governments and groups in recent years. Whether this one will actually lead to shifts in governments’ negotiating positions – a prerequisite for any Doha Round deal – remains to be seen.

The chair of the Doha Round agriculture negotiations said on 17 November that governments would have to show movement by the end of next week for there to be time to draft an updated draft agreement text in early December (see related story, this issue). Australia, Brazil, the UK, and other governments have been pushing for bringing trade ministers from key WTO Members back to Geneva in mid-December for another try at closing out a modalities deal, after a failed attempt last July.

Geneva-based trade officials say that it is not clear how the economic turmoil will affect the trade negotiations. One view on the vicissitudes of the Doha Round held that the rude health of international trade and the world economy in recent years meant that governments saw little motivation to make the concessions necessary to reach a deal. Now, simply locking in currently applied tariff levels could seem a more attractive prospect than it did some months ago. On the other hand, economic fears can heighten protectionist pressures, as politicians seek to avoid further job losses.

Finance ministers to work on reforms

Finance ministers from the G-20 countries have been tasked with implementing an ‘action plan’ on financial reform, which was appended to the leaders’ five-page declaration. Their objectives will be to ensure that regulations do not serve to exacerbate cyclical booms and busts, to improve global accounting standards, to improve cooperation between national regulatory authorities, and to improve risk management and financial oversight.

The G-20 called for the Financial Stability Forum, set up in 1999 to improve financial information sharing and surveillance in the wake of the Asian financial crisis, to be expanded between now and March 2009 to include “a broader membership of emerging economies,” beyond the current Singapore and Hong Kong.

G-20 members also agreed to undergo “vigorous and even-handed surveillance reviews” by the IMF, implying a strengthened role for the Bretton Woods institution in providing “macro-financial policy advice.”

They also called for the IMF and the World Bank to be “comprehensively reformed so that they can more adequately reflect changing economic weights in the world economy and be more responsive to future challenges.” Giving greater voice and representation to developing countries would imply diluting the voting power of European countries in particular, which has proved contentious in the past.

ICTSD reporting; “Russia to raise import duties,” FINANCIAL TIMES, 17 November 2008.

Director-General Pascal Lamy gathered 30 representatives of private banks, financial institutions and export credit agencies in Geneva last week to take stock of the effects of the international financial crisis on trade finance.

Following the meeting, Ambassador Bruce Gosper, the Head of the General Council, chaired an informal briefing for WTO delegates to report on the morning meeting and to discuss the effects of the international financial crisis on trade and trade financing, particularly with regard to developing countries’ imports and exports.

Many developing countries rely on trade finance - loans tied directly to cross-border trade transactions - to help fund their participation in the global market. But with many banks short on cash, such loans are now hard to come by.

The experts at last week’s meeting confirmed that “the market for trade finance has severely deteriorated over the last six months,” Lamy reported in a briefing for WTO delegates later that day. And the situation is expected to worsen in the months to come.

But affordable access to trade financing in such crises is crucial to ensure that international trade can help absorb the shock of a global economic slump, Lamy said. Over 90 percent of all trade transactions involve some sort of short-term credit, and the liquidity that such loans provide has underpinned recent growth in world trade.

Trade finance is widely considered one of the most secure modes of finance, a point that Lamy stressed to delegates. The loans have a short maturity, their execution is relatively routine, and the traded goods themselves can serve as collateral.

“The basic message is that trade finance is the most secure, the safest, the least toxic asset which you can trade in banking and insurance,” Lamy told delegates, Reuters reported.

But since the Asian financial crisis in the late 1990s the supply of trade finance has become extremely sensitive to liquidity squeezes, such as the current sub-prime mortgage crises.

The international financial crisis affects trade financing in two chief ways, the participants of the expert meeting found. First, the crisis exacerbates a shortage of liquidity to finance trade credit: the gap between supply and demand in trade financing is currently estimated at US$ 25 billion. Second, the credit crunch and economic slowdown have made banks averse to financial risk.

But the consequent drop in trade finance has a huge multiplier effect, in terms of keeping trade afloat, Lamy said.

These problems are being felt most intensely in developing countries, many of which struggle to qualify for international loans in other contexts. Indeed, growth in trade in emerging market economies - which are most vulnerable to the detrimental effects of a limited supply of trade financing -is needed to sustain global economic growth as developed countries reel from the blow of the ongoing crisis.

“A priority task is to enhance capacity to mitigate the effects of the increased perception of risks and to provide the market with earmarked liquidity for trade finance,” Lamy told delegates at the briefing. To do so, a number of public authorities, like governments and central banks, will have to provide even more support than what they have already offered, in order to mitigate risks more complex than trade finance.

Over the medium term, Lamy suggested improved mechanisms of information sharing, risk assessment techniques and data collection on trade finance. While this is not a responsibility of the WTO, Lamy expressed a desire to work with individual actors on these issues.

The trade finance practitioners at last week’s meeting outlined the practical steps that are already being taken to address the situation and shared ideas on how to further mitigate the deteriorating situation. World Bank President Robert Zoellick has announced his intention to triple the ceiling of trade finance guarantees to US$ 3 billion under the trade facilitation programme. And export credit agencies grouped in the Berne Union have increased business by more than 30 percent over the last few months - a move actively backed by several governments, including China, Germany and Japan.

Lamy’s briefing to WTO delegates allowed the officials an opportunity to provide their take on the crisis in the hope that Lamy would accurately represent their concerns at the G20 meeting in Washington, which took place later that week (see related story, this issue).

Not since the aftermath of 9/11 had so many calls for international solidarity been made by WTO Members, according to a source present at the briefing. Speeches were uncharacteristically decorous, undoubtedly because of the timing and topic of the meeting.

The consensus among Members was that it was time for a new approach to world finance. Egypt declared that it was time for a new “economic menu,” and Brazil insisted that increased international participation, supervision and transparency were required. Canada said that the global financial system needed to contribute to overall stability.

Many Members called for renewed efforts in negotiation the Doha Round of trade talks, expressing the hope that modalities in talks on agriculture and non-agricultural market access could be concluded before the end of the year. The EU urged the Director-General to finish modalities by the end of the year, stipulating that it was time to bring the ministers to town. The US stood out as the only country to add the qualifier “if possible,” to that goal, according to a source in the WTO. Finalising modalities would send a stabilising and confidence-boosting signal to international markets, analysts say.

Delegates reaffirmed their commitments to continuing liberalisation of the global market, warning against the consequences of protectionism, but also calling for increased regulation of international financial markets. Suggestions and requests for the creation of a WTO structure to examine trade finance, public policy and the effects of the current situation were quite common as well, coming from several delegations including Cote d’Ivoire and Tanzania, who spoke on the behalf of the African group and Least Developed Countries, respectively.

Many delegations explicitly addressed the predicament of developing countries. Canada voiced its concern that bailout plans could put Aid for Trade or public finance at risk, and Egypt wanted policy space for developing nations.

China offered itself as a model for other countries, citing its stimulus plan for its domestic market, the source said. Realising that falling exports could not lead to any improvements for its economy, China said that it was ready to discuss any way that it could help the global economy.

ICTSD reporting; “WTO chief warns trade finance situation deteriorating,” XINHUA, 12 November 2008; “WTO meet discusses ways to ease trade finance,” BUSINESS-STANDARD, 13 November 2008; “Cost of some trade finance deals up sixfold - WTO,” REUTERS, 12 November 2008; “WTO warns trade finance ‘deteriorating’ amid financial crisis,” AGENCE-FRANCE PRESSE, 12 November 2008.

“Climate change and our dependence on foreign oil, if left unaddressed, will continue to weaken our economy and threaten our national security,” he said in a surprise video message to a summit of government officials from the US and abroad.

“Too often,” Obama said, Washington has failed to match the leadership displayed by various US governors and required on an international level in order to confront the challenges posed by climate change.

“That will change when I take office,” Obama vowed. “My presidency will mark a new chapter in America’s leadership on climate change.”

Obama repeated his proposals for action, including a federal cap and trade system and a goal to reduce emissions to 1990 levels by 2020, with an additional 80 percent emission reduction by 2050. To support this goal and in an effort to make the US more energy independent, Obama has earmarked an annual amount of US$ 15 billion to invest in private sector progress on clean energy.

Opponents of such a high level of engagement say that making aggressive commitments to cut greenhouse gases would do more harm than good to the US economy.

But the President-elect answered critics by saying that his green policy could be a way through the current financial crisis: “It will also help us transform our industries and steer our country out of this economic crisis by generating five million new green jobs that pay well and can’t be outsourced.”

But Obama qualified his remarks by noting that the global threat of climate change requires a global response. Attention will now turn to Poznan, Poland, where government officials from around the world will gather in early December for a meeting of the United Nations Framework Convention on Climate Change. Although Obama will not be present for the talks, he has asked members of Congress attending the conference to report back to him.

“Now is the time to confront this challenge once and for all. Delay is no longer an option. Denial is no longer an acceptable response. The stakes are too high. The consequences, too serious,” Obama warned.

Convened by the Republican governor of California, Arnold Schwarzenegger, the Bi-Partisan Governors Global Climate Summit was held earlier this week in Los Angeles.

ICTSD reporting; “Obama affirms climate change goals,” THE NEW YORK TIMES, 18 November 2008; “Obama vows climate change ‘engagement’,” BBC, 18 November 2008.

The deal is just one of many that China has signed as it continues its search for new sources of raw materials and new markets for its manufactured goods. China is also in the midst of free trade talks with Australia, India, and Costa Rica.

China signed its first non-Asian free trade agreement, or FTA, with Chile in 2005. Since then, Beijing has honed its negotiating skills and expanded into new territory.

Chile is now assisting Costa Rica in negotiations toward a similar deal with China, and talks will begin in January in San Jose. The rest of South America is watching the trade deals closely, as China is a major importer of the continent’s abundant supply of base metals such as iron ore and copper.

China’s relations with India have been strained recently due to India’s close ties to the US, competition over Africa’s natural resources, and India’s growing trade deficit with China, but the two countries’ close economic links have prompted bilateral negotiations. With the recent completion of a feasibility study on a potential FTA, talks between the two countries seem poised to move forward.

China made headlines in April when it signed its first FTA with a developed nation, New Zealand. Now China has turned its sights to neighbouring Australia. Though the two countries have been in negotiations since 2005, 12 rounds of talks have still not produced any agreements. This could be due in part to the size of the proposed agreement, as Australia is seeking a comprehensive FTA covering all economic sectors. Australia has also reportedly been unsatisfied with the extent of the market access China has offered, especially concerning agricultural goods. The next round of negotiations will be held in Beijing this December.

ICTSD Reporting; “India and China,” IBEF, October 2008. “Chile helps Costa Rica with China FTA,” CENTRAL AMERICAN DATA. “Peru, China to view viability of free trade deal,” REUTERS. “Costa Rica seeks FTA with China,” CENTRAL AMERICAN DATA, November 11, 2008. “Costa Rica, China to launch free-trade agreement talks,” INO, November 17, 2008. “China and India: New Vision, Old Tensions,” BUSINESSWEEK, January 15, 2008. “China and Chile: South America Is Watching,” BUSINESSWEEK, November 18, 2005. “Australia-China FTA Negotiations,” AUSTRALIAN GOVERNMENT DEPARTMENT OF FOREIGN AFFAIRS; “Peru trade minister says China trade deal set,” AP, 19 November 2008.

“Current trends in energy supply and consumption are patently unsustainable - environmentally, economically and socially - they can and must be altered,” said Nobuo Tanaka, Executive Director of the International Energy Agency (IEA).

Overall, the IEA projected that global energy demand will grow by 45 percent by 2030, implying a 1.6 percent annual increase, with growth from China and India accounting for over a half of this increase. While the IEA projected that renewable will become the second largest source of electricity soon after 2010, in part because of the high prices of fossil fuels, a third of the new energy demand will be met by coal.

In addition to the obvious climate concerns this raises, the World Energy Outlook said that the rapidly growing demand requires major investment. But the US$ 26 trillion the IEA’s analysts predict that governments will need to spend on the development of energy infrastructure between 2007 and 2030, up approximately US$ 4 trillion from the figure cited in the IEA’s 2007 outlook, is not necessarily being invested - especially in light of the current economic recession. In fact, the report warned of a potential energy crunch once the global economy begins to pick up speed again.

And oil will remain the dominant energy source in the world. In terms of production, the World Energy Outlook said Middle East OPEC members will provide most of the additional oil demand, while non-OPEC providers will register a slight production decline. Even under strict climate change policies, oil production is projected to continue to grow until peak production in 2030, where oil prices are likely to average more than US$ 120 per barrel, the report said.

But the oil market itself will change, according to the IEA. As more government producers emerge, there will be less room for market signals. Furthermore, many current oil fields will decline in productivity, leaving expensive and challenging options for new exploitation.

Commenting on the current price of oil - at just under US $60 a barrel, down 60 percent since historic highs in July - Tanaka said: “One thing is certain. While market imbalances will feed volatility, the era of cheap oil is over.”

Climate mitigation scenarios

As in previous years, the IEA juxtaposed “business as usual” projections of the global energy landscape in 2030 with those needed to actively address the very real threat of climate change. Under the “business as usual” scenario, run-away warming would amount to a six-degree-centigrade increase within a century, with catastrophic consequences for humanity, warned the IEA.

But the report said that alternative scenarios based on low-carbon energy development and energy efficiency could contain global warming at plus two to three degrees centigrade - a target embraced by the EU because it would allow the world to avoid the full force of “dangerous climate change.”

“We cannot let the financial and economic crisis delay the policy action that is urgently needed to ensure secure energy supplies and to curtail rising emissions of greenhouse gases,” Tanaka says in conclusion. “We must usher in a global energy revolution by improving energy efficiency and increasing the deployment of low-carbon energy.”

To access the 2008 World Energy Outlook: http://www.worldenergyoutlook.org/2008.asp.

ICTSD reporting; “New Energy Realities - WEO Calls for Global Energy Revolution Despite Economic Crisis,” IEA RELEASE, 12 November 2008; “New Energy Realities - WEO Calls for Global Energy Revolution Despite Economic Crisis,” WWF RELEASE, 12 November 2008; “International Energy Agency raises alarm on oil, climate,” EURAKTIV, 13 November 2008; “IEA stokes doubts over world’s climate fight,” REUTERS, 12 November 2008.

“It is thus clear that the idea that developing countries would somehow be ‘de-coupled’ from the crisis is a myth,” Supachai Panitchpakdi told an executive session of UNCTAD’s trade and development board.

Money sent home from migrants working abroad is a major source of external financing for many developing and emerging economies. Indians send home US$ 27 billion each year, according to World Bank figures, while China and Mexico each see an inflow of roughly US$ 25 billion annually from their citizens working abroad.

For several small developing nations - including Honduras, Moldova, Tajikistan and Tonga - remittances account for more than one quarter of gross domestic product, according to World Bank numbers for 2006, the most recent year for which data are available.

While the precise effect of the ongoing economic turmoil is difficult to predict, Supachai said that the crisis could cause total remittances to drop between one and six percent for 2009.

But developing countries will be hit by more than just the predicted drop in remittances, Supachai said. Other probable effects of the economic crisis include a decline in foreign direct investment inflow to the developing world - by as much as 40 percent - and new and expanded problems with credit.

“We are likely to witness new debt crises, not in the usual highly indebted, poor countries but in developing countries or economies in transition where currency and maturity mismatches have taken a toll on macro-fundamentals,” the UNCTAD chief said.

ICTSD reporting.

If the successful proposal includes state aid that violates Washington’s world trade commitments, the EU will likely challenge the suspect measures at the WTO, European Commission President Jose Manuel Barroso said last week. WTO trade law dictates the level and type of support that countries are allowed to grant their domestic producers.

But European governments are also under pressure to support their financially troubled auto industries amid job-loss fears.

German Chancellor Angela Merkel is set to meet with General Motors subsidiary Opel next Monday to discuss an aid package worth US$ 1.27 billion. In the UK, where auto trade represents 8 percent of the economy, auto makers have said they will ask the government for “a package of measures to stimulate demand.” Car sales in Britain fell by 23 percent in October. And currently the EU is being lobbied for 40 billion euros in low-interest loans and incentives to do away with old cars.

On the other side of the Atlantic, leading Democrats unveiled plans Monday to help the US auto industry with a US$ 25 billion loan programme. Crafted by Michigan Senator Carl Levin, the proposal would amend the Treasury Department’s existing US$ 700 billion Troubled Asset Relief Programme for financial services, which was approved in October.

According to the Democrat rescue plan, loans would be granted for a 10-year period - longer ones would only be given with Treasury discretion - and they would be subject to an interest rate of 5 percent for the first five years, rising to 9 percent. The proposal also calls for limits on executive compensation and the prohibition of dividend payments.

But proponents of the bill face strong opposition from those who argue that an immediate bailout will not solve the more extensive competitiveness problems in the industry.

Instead, the White House and many Republicans favour amending a different US$ 25 billion law - already approved in September - and designed to improve technology and develop more fuel efficient cars. This version, by allowing government veto power over business decisions worth US$ 25 million or more and requirement for submission of a detailed viability and competitiveness plan, among other conditions, is said to make stricter demands on the auto industry. The package proposed by the Democrats would be in addition to this loan.

Executives from the ‘big three’ of US car manufacturers - Chrysler, Ford and General Motors - have been lobbying for ‘immediate’ government aid. The heads of Chrysler and GM have warned that without a loan package their companies might file for bankruptcy before the year’s end. GM reported a loss of US$ 4.2 billion and Ford one of US$ 2.98 billion in just the third quarter of 2008.

It is feared that without a rescue package the stock market may plummet as it did after the Lehman Brothers’ September collapse. And because so many companies are tied to the auto industry - including suppliers, dealers, car haulers and rental companies - some say that a collapse could be ‘cataclysmic’. The three car manufacturers together employ close to a quarter of a million workers and those arguing for a rescue package claim that the industry affects more than 4 million other jobs. The government would have to dole out US$ 200 billion to cover unemployment benefits if GM goes under, economic analysts say.

President-elect Barack Obama has indicated that he would support an aid package to the auto industry - albeit with strong conditions attached. Bush too supports extending help, but opposes the Democrat bailout because it will use the Treasury funds earmarked for financial service companies.

The US Senate is expected to vote on the bailout late this week, but some say that delaying the vote until January would increase the bill’s chances of being approved.

ICTSD reporting; “U.S. auto execs take case for bailout to Congress,” REUTERS, 18 November 2008; “Democrats propose $25 billion in loans for carmakers,” LOS ANGELES TIMES, 18 November 2008; “Congress takes first step on automaker bailout,” REUTERS, 18 November 2008; “Europe under pressure to join auto bailout,” THE ECONOMIC TIMES, 18 November 2008; “Car industry gets jittery over crunch,” DOWJONES NEWSWIRE, 15 November 2008.

China agreed last week to loosen state controls on news services and providers of financial information, putting an end to a trade dispute with Canada, the EU and the US. A new regulatory framework will be put in place by 1 June next year, according to memorandums of understanding that China struck with each of the complainant countries.

“I am very pleased we have been able to sign an agreement with China today to allow financial information suppliers like Bloomberg, Dow Jones and Thomson Reuters to operate in China free of unfair restrictions that threatened to place them at a competitive disadvantage,” US Trade Representative Susan Schwab said in a statement.

EU Trade Commissioner Catherine Ashton echoed Schwab’s sentiments: “Today’s agreement ensures that investors and market operators will be able to receive comprehensive and objective financial information. This shows what can be achieved when interested parties cooperate in search of solutions.”

The agreements settle a WTO dispute in which Brussels, Ottawa and Washington faulted Beijing for adopting discriminatory restrictions against foreign providers of financial data.

In 2006, Beijing renewed the monopoly held by the state news agency Xinhua, effectively preventing foreign providers of financial information services from dealing directly with Chinese clients. All foreign financial information suppliers were required to operate through a government agency controlled by Xinhua News Agency, a direct competitor of the foreign suppliers of financial information.

The EU and the US initiated dispute settlement procedures at the international trade body in March 2008; joint consultations were held in April. A few months later, Canada also filed a complaint against Beijing.

Under the agreements announced last week, China will employ a fair and transparent approach to licensing. Responsibility for regulating financial information services will be passed from Xinhua News Agency to an independent regulator, as required under the terms of China’s entry into the WTO. Beijing has promised that the new regulator will only request information from financial information suppliers that is relevant and that adequate protection will be provided when dealing with confidential business information.

Additionally, the requirement that foreign suppliers do business through an agent will be eliminated. Beijing further confirmed that foreign suppliers of financial information will face no obstacles when setting up commercial establishments in China.

“This outcome is particularly significant in these volatile financial times,” USTR Schwab added. “It shows that the WTO and the rules of the multilateral trading system are successfully resolving major international trade problems,” she said.

ICTSD reporting; “China settles WTO info row with US, EU, Canada,” REUTERS, 13 November 2008; “China settles financial info dispute with EU, US, Canada,” AGENCE FRANCE PRESSE, 13 November 2008.

The safeguard mechanism is intended to shield producers from sudden surges in imports or drastic drops in the price of the goods they produce. If a specific volume or price threshold is crossed, then a compensatory tariff can be imposed on imports of the good in question.

Only five such ‘safeguards’ have been initiated thus far this year, the report said, down from a high of 34 for all of 2002. Since 1995, a total of 89 such measures have been implemented.

India has initiated 15 of the trade restrictions over the past 14 years, the most of any country. Turkey is next with 14, followed by Jordan, which has implemented 12.

Chemical products have been the most frequent targets of the measures, followed by foodstuffs, and base metals. Roughly 25 measures have been imposed on agricultural products since 1995.

Some warn that such mechanisms might become more popular as national governments look for ways to protect domestic producers from the full brunt of the global economic turmoil. A future report will no doubt show whether such a scenario actually plays out.

Controversy over when a new safeguard mechanism could be used has been blamed for triggering the collapse of a high-level July meeting of the WTO’s Doha Round of trade talks. Disagreement largely centred on whether, and by how much, developing countries would be allowed to raise tariffs beyond current caps in order to protect subsistent farmers from import surges.

Delegations also disagreed over how long the safeguard should last, and how many months countries would have to wait before imposing a new measure on a product that has received the protection in the past.

India and many other developing countries fought for flexibility in invoking safeguards to protect domestic producers, while the US, joined by several major South American exporters, demanded market predictability for their producers.

ICTSD reporting.