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International trade appears to be on a political back burner as WTO Members grapple with a worsening economic climate, but some still hope for a breakthrough in December.
Although governments continue to profess their commitment to completing the Doha Round, their focus in recent weeks has been almost exclusively on propping up the global financial and banking systems and, to the extent possible, staving off a deep and lasting recession. Yet another summit, involving the leaders of the world’s 20 largest economies, will take place in mid-November to co-ordinate a comprehensive response to the crisis. The Doha Round is also on the agenda.
However, recent negotiations in Geneva have not produced significant results, and the chairs of the agriculture and industrial tariff negotiations have said that prospects for a breakthrough before next year are not encouraging (see articles on pages 9 and 10).
Some countries nevertheless still believe that a December ‘modalities’ or framework agreement in these two areas is not only possible but necessary to counter the effects of the financial crisis, as well as to ensure that multilateral trade negotiations do not disappear into cold storage when President-elect Barack Obama takes over the White House in January. Speaking to Reuters after the historic US election, Brazil’s trade minister Celso Amorim argued that it would “facilitate things for President-elect Obama if we were able to finalise the modalities by the end of this year. It would relieve him of very difficult choices at the start of his government.” With the modalities agreed, “it would be only fair to complete the job,” he said.
Minister Amorim and his Australian counterpart Simon Crean hope that the 15 November summit will issue a ringing call for concluding the round, including specific negotiating instructions and deadlines. Such a high-level political push could pave the way for a ministerial meeting some time in early December, they argue.
This view is not widely shared in Geneva, partly because none of the many exhortations issued by leaders outside the WTO has ever been heeded. A number of Members, including China, have cautioned that the Director-General should call a ministerial meeting only if he strongly believes that it has a real chance of success. Alternatives being considered informally include an agreement on a period of ‘standstill’ and ‘maximum restraint’ – intended to preserve at least the status quo – until time is ripe to restart serious negotiations.
Major Economies Teeter on the Brink of Recession
In the real world, politicians’ reactions to growing fears of a wide-spread recession are likely to have a significant impact on the outcome of Doha Round.
The US economy contracted by 0.3 percent between percent between July and September, the biggest drop in GDP since 2001. For the first time in 16 years, the UK’s gross domestic product sank by 0.5 percent during the same period. The 15 euro-zone countries and Japan are thought to be already in recession.
Consumer spending in major economies is down sharply, while unemployment is up. The US shed 760,000 jobs in the first nine months of the year, while 164,000 people lost their jobs in the UK between June and August. These figures are expected to rise, and many other OECD countries are also bracing for significant job losses.
China’s phenomenal growth rate declined for the first time in two and a half years. India has also experienced a slowdown, although both countries continue to grow at a healthy pace of 9 and 7.5 percent respectively. However, some of their export sectors are expected suffer as main markets contract. Indian call centres and business services providers are preparing to cut a quarter of their workforce, and half of China’s toy exporters have gone out of business.
Lamy Calls for Resisting Protectionism
With the need to keep jobs (and tax revenue) at home uppermost in politicians’ minds, do governments still have the political courage to cut subsidies to farmers or fishermen, reduce protective tariffs, or open their services sectors to more global competition?
WTO Director-General Pascal Lamy, who recently announced his candidacy for a second term at helm of the institution, certainly thinks they should. In a recent lecture at University of California, Berkeley, he argued that “in bad times, trade has had a stabilising impact on the global economy.” He also suggested that the ‘ruinous beggar-thy-neighbour trade policies’ adopted by the industrialised world in wake of the 1929 crash had contributed to the great depression through “a domino effect of retaliation and counter-retaliation among trading partners, which provoked a severe contraction of international trade.” Rather than safeguarding domestic jobs, these policies had led to a marked increase in unemployment, he said, adding that “with major economies seemingly on the cusp of recession, the additional growth generated from removing trade barriers would be a welcome shot in the arm.”
Mr Lamy acknowledged that world leaders now faced greater challenges than at any time since World War II, but he also insisted that “compared with negotiations regulating international finance and climate change measures, the Doha Round is low-hanging fruit and a failure to pluck this fruit will send reverberations through other geopolitical forums.”
Trade Financing Initiatives
A number of developing countries are already facing difficulties in financing their exports as commercial credit has dried up for insurance, shipping and guarantees. Pascal Lamy has convened major providers of trade finance to a meeting on 12 November to “examine the issue and find ways to alleviate the situation if it were to deteriorate.” Brazil has called for the WTO working group on trade, debt and finance to look into ways to mitigate the effects of the banking crisis (see page 9).
In response to these concerns, the World Bank increased its trade finance programme from one to one-and-a-half billion dollars in October, and the IMF created a short-term loan programme to help emerging markets with healthy track records surmount temporary liquidity problems caused by the credit crunch and investor flight.
Spillover Effects
UN Secretary-General Ban Ki-moon has raised concern that donor countries might backslide on their development assistance commitments, including the US$16 billion they have pledged for the achievement of the UN’s Millennium Development Goals. The Financing for Development conference scheduled for late November will provide an opportunity to review the situation, including the role of trade in lifting countries out of poverty (see page 15).
Efforts to tackle climate change could be affected by the economic downturn as well. For instance, EU member states are increasingly divided over upholding the bloc’s greenhouse gas reduction targets due to competitiveness concerns (see page 18). Any lowering of the unilateral goals could have a disastrous effect on the December climate conference in Poznán that is to start preparing a successor agreement to the Kyoto Protocol. Yvo de Boer, who heads the UN climate convention secretariat, has expressed concern that the talks could slide “into a WTO-like process that goes on without a clearly agreed deadline” or – even worse – that they would result in a highly fragmented approach to climate change.
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