G20 communiqué an improvement

If you read the undertakings on trade and protectionism—with only a moderately skeptical eye—as a firm undertaking, it is not as "wooly" as the critics claim. On the contrary, it is a substantial improvement on other recent efforts and streets ahead of the wobbly paragraph 13 of their November 2008 communiqué.

The underlined phrases (my emphasis) are the significant parts. They make the undertakings more effective, (although not water-tight). I discuss their significance over the fold.

An open global economy

"11. World trade is falling for the first time in [25 years]. We need to sustain the benefits of globalisation and open markets, and promote trade as a crucial driver of growth in the world economy. Therefore:

• We reaffirm the commitment made in Washington not to raise new barriers to investment or to trade in goods and services, including within existing WTO limits, not to impose new trade restrictions, and not to create new subsidies to exports.
• We will rectify promptly any such measures. We extend this pledge for a further 12 months;
• we will notify promptly governments and other relevant institutions of any measures which have the potential to cause direct or indirect trade distortions;
• we will minimise any negative impact on trade and investment of our domestic policy actions including action in support of the financial sector. We will not retreat into financial protectionism;
• we commit to conduct our economic policies responsibly with regard to the impact on other countries and to refrain from competitive devaluation of our currencies.

12. We call on the WTO, together with the IMF and other international bodies as appropriate, to report on our adherence to these undertakings on a quarterly basis.
13. We are committed to reaching rapid agreement, on the basis of progress already made, on modalities leading to a successful conclusion of the Doha Round which would boost the global economy by at least $150 billion per annum."
Extract from the Financial Times account of the G20 draft communiqué

Here's how I read the underlined bits.

I've outlined here (and in my paper with Andrew Stoler, for Simon Evenett's book on "Murky Protectionism") what a detailed G20 standstill commitment would look like. That sort of commitment would have taken longer to negotiate and would have occupied at least twice the space in the communiqué as the current statement. But it would have been specific and so hard to 'wriggle' out of.

The actual G20 commitments are less specific, but it would be difficult, nevertheless, to try to squeeze past them without drawing (embarrassing) attention to the fact. Referring to the phrases I underlined above:

1. "…including within WTO limits" comes close to pledging not to take advantage of 'wiggle room' in the WTO rules. This is the greatest single advance over the November 2008 effort that spoke only of "new barriers" and "WTO inconsistent measures to stimulate exports". The problem with this new text may be the interpretation of the words "new barriers": is an anti-dumping measure a "barrier" or a "remedy" (as the U.S. would say). Is an increase in an applied rate of duty up to the scheduled bound rate of duty "new", or (because the bound rate is already in the WTO schedule) is it "old"?
2. "We will rectify promptly…" is an undertaking that seems to leave the New York undertaking in the dust. It appears to say that if they do something inconsistent with the previous paragraph, which extends to WTO-consistent barriers, then they'll not only reverse the measure but 'rectify'; that is, make it good. How? For example, if a government has given a subsidy to domestic motor vehicle production through support to a tied dealer network, how will that government 'make good'? By taxiing the subsidy away again? When will they do this? Will they report on the 'rectification'? Not clear. But if they live up to this I'll be astonished.
3. "…any measures which have the potential to cause direct or indirect trade distortions" is as broad a range as you could imagine. Unfortunately it is attached only to a notification obligation. The question is—especially in an undertaking with only a one-year life—whether post-facto notification will be much use in avoiding distortions. Also there is no provision for 'reverse notification' (see our paper in the "Murky Protection" book), but the next item could take care of that.
4. "…[WTO] to report on our adherence to these undertakings on a quarterly basis" brings a welcome sense of urgency and promptness to the transparency mechanism. It will, however, be a huge undertaking for the WTO Secretariat to stay on top of all developments including those not (yet) notified by the G20 governments. Also within the scope of this direction from the G20 to WTO is the power to report on governments' compliance with their new, wide-ranging notification undertaking. There could be hundreds—possibly thousands—of "potential distortions" that could arise each quarter in these 20 big economies (counting the European Communities as one!). This direction to WTO means that the Secretariat should report not only on the "barriers" and "measures" which are covered by this communiqué, but also on any failure to notify a "potential distortion". A humongous job to manage on a quarterly basis and one that calls for a very nice sense of judgement on the part of the WTO Secretariat.

Tags for this entry: trade wto g20 subsidies tariffs anti-dumping standstill