Recap
Last week’s column responded to three queries readers had raised in regard to my earlier discussion on trade. One of these was to explain how “trade-in-services” is accounted for, since they already knew from experience what is meant by “trade-in-goods”, sometimes called “trade in commodities“ or “merchandise trade”. A second was to explain why, given the major structural changes in global trade patterns and relations, poor countries (including CARICOM) continue to be vulnerable to a global economic crisis that originated in the collapse of financial markets in rich countries. And, finally to explain why, apart from the accompanying recession, a financial crisis and credit crunch would negatively impact global trade.
The information I have provided in responding to these queries will be useful for the discussion in coming weeks. I plan to evaluate global efforts to develop coordinated trade policies. Especially in light of the juxtaposition of 1) the substantial contribution international trade has been making in recent decades to global growth and 2) the significant decline in world trade projected for this year.
From G8 to G20
Before I assess trade policy responses to the global economic crisis, however, readers should be aware that in response to recent experiences there have been striking changes in the organisation and management of the international economy. Based on sheer economic clout and market size the G7 and subsequently the G8 grouping of countries, had decades ago arrogated to itself final decisions on global economic strategy and policy.
The major international organizations they had helped to create earlier, particularly the International Monetary Fund (IMF) and World Bank (established after World War II and known as the Bretton Woods Twins) as well as the World Trade Organisation (WTO) established in 1995 (to replace the General Agreement on Tariffs and Trade, GATT) were made responsible for day-to-day implementation, execution, and management of G8 policy.
Because the G8 comprises only the United States, the United Kingdom, Canada, France, Germany, Italy, Japan and Russia it could not speak for the rapid emergence of such global powerhouse economies as Argentina, Brazil, China, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea and Turkey, previously classed as “developing economies”. Their roles in global and regional economies have now become so enormous that they can no longer be side-lined from international efforts to restore the global economy and/or prevent a recurrence of severe global economic crises in the future. Out of this concern the G20 has risen to become the premier organisation which is now coordinating international efforts to deal with the global economic crisis and its aftermath.
Since the crisis erupted just over a year ago the G20 has met on three occasions. The first time (November 2008) was at the invitation of the then President of the United States, George W. Bush. The second meeting took place in April 2009 (London). And, recently its third meeting since the crisis was held in September 2009 in Pittsburgh.
As explained in earlier columns, the G20 comprises a group of twenty Finance Ministers and Central Bank Governors from 20 countries.
These are the persons holding national political portfolios for dealing with the crisis (Ministers of Finance) and those holding the highest level technical responsibilities for so doing (Central Bank Governors).
The composition of the G20 countries include the G8, the ten emerging economies listed above, the rotating President of the European Union and its Central Bank, and Australia. Spain and the Netherlands are specially invited. In addition the IMF, the World Bank, their Development Committee, and the International Monetary and Finance Committee are in attendance.
While the G8 represents about two-thirds of global GDP and the vast proportion of the world’s scientific, industrial, military, and Research and Development (R&D) capability, it only covers about one-seventh of the world’s population. The G20 is far more representative. It accounts for approximately 85 percent of global GDP and more importantly for present purposes, 80 percent of global trade. It is far more representative of today’s global population than the G8, accounting for about two-thirds of this. However, as I have previously urged, the G20 is in no way a substitute for a fully-fledged United Nations Economic Security Council.
Trade Policy
This extended description of the shift of global economic management from the G8 to the G20 has been accompanied with a pronounced emphasis on trade policy as part of the solutions to the global crisis. At the first Washington G20 Summit, the final Declaration committed their governments and global economic institutions to “maintaining open trade and investment policies”. This was combined with expressed support for a broad neo-liberal agenda of 1) free market principles 2) the rule of law 3) respect for private property 4) competitive markets and 5) efficiently and effectively regulated financial system as a cornerstone strategy for fighting the global economic crisis.
By the time of the Second G20 Summit (April 2009) WTO and other world trade projections, which we have already looked at, were predicting a sharp decline in global trade for this year, as much as nine (9) percent. Not surprisingly, as a result the Summit focussed a great deal of attention on trade issues.
Of the six major pledges made at that Summit one was “to promote global trade and investment and reject protectionism to underpin prosperity.”
The pledge on trade was accompanied with a number of specific commitments, some of which reaffirmed others that had been given previously. The goal behind this pledge, and indeed all the others, was “to bring the global economy out of recession and prevent similar crises in the future”. It was made in recognition of the critical importance of world trade and investment toward ending the recession.
For the benefit of readers, the other pledges were 1) to restore confidence in the global economy, promote growth and provide jobs 2) end the financial crisis and credit crunch so as to restore lending and “repair” the financial system 3) restore trust in the financial system through strengthening regulation 4) reform global financial institutions and enhance their funding and 5) promote sustainable and environmentally-friendly development.
In the coming weeks, I shall indicate and evaluate the specific commitments to trade policy measures made by the G20.
This will lead into a discussion of the state of the WTO world trade negotiations under the Doha Round.