It’s not just the Eurozone: A trade crisis is growing. The G20 must show leadership
THE crisis spawned in 2007 has in many ways come to resemble Hydra – the mythical many-headed serpent of Ancient Greece, which grew two new heads every time one was cut off – already last Wednesday’s Brussels Summit shows no sign of marking a true turning point for the Eurozone. And while the euro-crisis commands attention, lurking just behind it is a growing – and almost unseen – trade crisis.
Protectionism – the murky art of closing markets to foreign goods or services – is raising its head in some familiar places. In France, the surprise result in the Socialist primaries was that a candidate who advocates protectionism knocked former presidential candidate Segolene Royal into fourth place. In Washington, a bill currently sits before Congress which proposes to introduce punitive charges on Chinese imports unless Beijing re-values the renminbi. In Brazil, after months of complaining that currency movements were working to Brazil’s disadvantage, the new Brazilian government flexed its muscles by introducing preferential terms for local manufacturers competing for government contracts.
Business is already feeling the very real effects of these shenanigans. Those trying to get into foreign markets are facing new obstacles to trade – not just higher tariffs, but opaque regulations, discriminatory procurement practices, hidden export subsidies, and the biased tax treatment of foreign investments.
The reasons for this creeping protectionism are understandable: we have been passing through a time of almost unprecedented economic uncertainty, coupled with closely-fought electoral cycles in some key countries. For international business, it’s a dangerous concoction. Its all-too-tempting for a politician on the campaign trail to add another glug of protectionism, maybe with a dash of nationalist rhetoric.
The problem is that what works on the campaign trail has disastrous effects in practice. And if anyone needs reminding of the risks: it was precisely the rise of protectionism which tipped the financial crisis of the 1930s into a global depression.
What’s particularly worrying here is that key global institutions are not gripping this risk. The World Trade Organisation (WTO) languishes, picking over the entrails of the nearly dead Doha round, and wondering what on earth governments will do when they turn up in Geneva for the WTO’s big jamboree in December. The G20 meeting in Cannes later this week risks being stuck with last year’s agenda when real life has moved a long way on. Add some buck-passing between the two and you have a good recipe for further global paralysis on trade.
So of course, it is tempting, as Anthony Browne did in last week’s Morning Wire, to give up on the multilateral approach to trade liberalisation and join the chorus of voices arguing for more bilateral free trade negotiations.
But bilaterals are easier to talk about than to deliver. They turn out quite often to be no easier to negotiate than multilateral agreements. It is not unusual for a bilateral deal to take close to ten years to complete – and these are mostly the easy ones. Worse, looking ahead, if you give up on the goal of a truly global trade deal there is the fundamental risk that the world will break down into regional trading blocs which have no real success talking to each other. Fine, if all your business is with the EU. But if you really want to go global you need something more powerful to open the doors.
Doha may be dead – or at best comatose for the foreseeable future. But that doesn’t mean we should give up. We need fresh thinking about how to use the multilateral machinery to counter immediate protectionist threats and to maximise future global growth. The answer should start at this week’s G20 Summit, with three simple steps.
One, policy makers need to grasp that the dynamics of international trade have undergone a significant transformation over the past decade. The focus on collecting import-export statistics doesn’t really do justice to the complexities. For all the political huffing and puffing, the US and China might be in a symbiotic relationship which quite suits them.
Two, the World Trade Organisation urgently needs to be given a new role to monitor countries’ trade policies to keep protectionist excesses in check. Three, the major global powers should recommit to new trade talks – starting with coalitions of the willing – on issues of fundamental importance to business. Prime candidates could include agreements on investment protection, e-commerce and services.
The process of global trade liberalisation is impossible without clear leadership. This role has usually fallen to America, but nothing is likely to come out of Washington until after the presidential elections next year. But someone needs to step up to the plate right now. Maybe the G20 this week and the WTO Ministerial later in the year will show us just who.
Stephen Pattison is the director of the International Chamber of Commerce UK.