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Trade and the November 15 Summit: First Do No Harm

by | November 3rd, 2008 | 12:19 pm
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The leaders of the world’s major economic powers (the so-called G-20 nations), convening in Washington on November 15, plan to discuss the global financial crisis and the need for reform of the international financial system. That seems like a lot to do on a weekend retreat. But in addition, the notables will also be asked to deal with the collateral damage to world trade caused by the financial and economic turmoil.

Discussing trade makes sense, since growing protectionist pressures could complicate the task of managing the current financial crisis. As their economies have weakened and unemployment risen, some governments have responded with an array of countervailing measures: subsidies to automakers, antidumping cases targeting Chinese exports, and beggar-thy-neighbor controls on food exports. Normally, such excesses would be constrained for fear of derailing ongoing global-trade talks. But expectations for the Doha Round are so low that trade officials figure there is now little to lose from dispensing new doses of protectionism. If these trends are not reversed, trade barriers will rise and Doha will fail.

What will the summit leaders do about this spurt of protectionism and the drift in the global trade negotiations under the World Trade Organization (WTO)? If the past is prologue, the answer is not much. I suspect that the summit leaders will probably echo the exhortation of their G-7 predecessors at the Louvre in 1987—another period of economic difficulty—who “agreed that efforts to deal with economic problems by erecting trade barriers were self-defeating and pledged to intensify their efforts to resist protectionism and reaffirmed their strong support for the [current] round of trade negotiations….”

Good words, but hollow like the innumerable and forgettable summit declarations about the perils of protectionism over the past few years that were not followed up with concrete initiatives at the negotiating table. Like the boy who cried “wolf,” will anybody listen to or believe the summit leaders now that danger really is lurking at the WTO’s door?

In the crisis of the moment, trade will necessarily take a back seat to discussions on the immediate need to stabilize markets and revive the global economy. But the summit declaration also needs to recognize and respond to the threat of new trade protectionism.

What could the summit leaders do?

The first response should be to avoid actions that make things worse, and to resist the protectionist impulses building as economies weaken. The summit leaders should commit to greater self-discipline and agree not to impose new protectionist measures (called a “standstill” in trade jargon). Second, the leaders should commit to pursue new initiatives to unblock the stalled Doha Round of multilateral trade negotiations. Because the G-20 comprises leading developed and developing countries, these commitments would convey a more credible signal that leaders mean what they say and will follow up with a detailed action plan on trade and the Doha Round in the coming months.

What could be done in subsequent summit meetings to unblock the Doha Round?

The talks have stalled mainly over which countries should cut tariffs and subsidies on farm products and by how much. But problems persist across the broad WTO agenda, including in the manufacturing and services sectors. Trade ministers repeatedly have failed to bridge differences between the major economic powers. Summit leaders, by contrast, could provide new political impetus to the negotiating process.

Clearly, summit leaders won’t go into the details of the “negotiating modalities” or the parameters of a special safeguards mechanism for temporary protection against increased farm imports, the specific issue that helped torpedo the talks over the summer. Rather, their task is to make political decisions that change negotiating incentives for both developed and developing countries and allow trade ministers to get back to work. Meaningful action could be taken in three specific areas.

First, summit leaders should commit to an “early harvest” of specific trade reforms already negotiated in the Doha Round but not implemented pending conclusion of the overall WTO deal. US and European leaders should take the lead by agreeing to eliminate agricultural export subsidies, cut domestic subsidies to cotton producers (which would also bring the United States into compliance with its WTO obligations), and accept the new obligations of the negotiated deal on customs reform and other measures to cut red tape and facilitate trade. Summit participants should also commit to liberalizing trade and investment in services in all modes of delivery (as the United States Trade Representative, Susan Schwab, hinted at during the WTO meetings in late July). Such commitments would demonstrate in a concrete way that trade-restrictive measures will be reduced and would provide a valuable down payment on a prospective Doha Round agreement.

Second, summit leaders should agree to facilitate the purchase and distribution of food aid. They should disavow export controls (or at least agree to exempt food shipments contracted by the World Food Program from export restrictions), make best efforts not to tighten other restrictions on food trade, and remove “buy national” requirements that impede the distribution of food supplies. The Doha Round will not be regarded as relevant if it does not respond to this fundamental problem.

Third, summit leaders need to commit not to implement new protectionist policies in the context of evolving laws and regulations that address the challenge of climate change. The best way to do so would be to agree to a “peace clause” in which they defer for several years the imposition of new trade restrictions based on the carbon content of imports. Such measures could well proliferate as governments seek to reinforce the international competitiveness of domestic industries facing the higher costs of complying with new taxes or regulatory requirements to reduce greenhouse gas emissions, thus creating additional obstacles to the negotiation of a global, post-Kyoto regime.

After seven years of negotiations, WTO members have made modest but nonetheless useful progress in many areas. But nothing has been implemented because officials insist that “nothing is agreed until everything is agreed.” Rubbish. There is ample precedent for implementing trade reforms on a provisional basis during the course of ongoing trade negotiations. The Uruguay Round introduced new dispute-settlement procedures years before the final deal was struck in April 1994, and in December 2006 trade officials put in place new rules on regional trade pacts developed during the Doha Round. Such “early harvests” do not legally obligate WTO members to maintain them if the overall negotiations falter. But they demonstrate goodwill and cooperation and thereby contribute to building consensus on a final deal.

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