World leaders vow to restart trade talks

July 9, 2009 5:04:35 PM PDT
Leaders of the exclusive club of eight industrialized leaders plus five of the fastest developing nations are calling for open markets and a battle against protectionism as the answer to the world's economic meltdown. But the need to save jobs back home is pulling them in the opposite direction. How can the goal set by the leaders -- completing a long-stalled world trade deal by next year -- be reconciled with major pressures to protect local industries?

Meeting in the quake-stricken Italian city of L'Aquila, the leaders said they wanted to finally reach an agreement next year on a long-stalled world trade deal, according to a draft of a joint declaration obtained by The Associated Press. It's a familiar pledge that has failed to prompt action in the past.

The call for completing the trade deal, known as the Doha round of trade talks, comes at a particularly difficult time. The economic crisis is stoking protectionist impulses and forcing governments, especially the United States, to intervene in the private sector in extraordinary ways.

The $787 billion stimulus bill approved by Congress contains a "Buy American" provision. That means stimulus money can only be used for projects in which all the iron, steel and manufactured goods are produced in the United States, although there are some exemptions.

The "Buy American" provision is hardly unusual these days, as Canada and China are taking similar approaches. Trade experts said the steps taken during this crisis don't yet approach the protectionist policies that helped cause the Great Depression of the 1930s.

Then, governments including the United States sought to protect domestic businesses and farmers by blocking imports. Other countries did the same and world trade withered.

In an attempt to avoid repeating that scenario, a draft of the joint statement signed by 17 nations reads: "We reaffirm our commitment to maintain and promote open markets and reject all protectionist measures in trade and investment."

The global trade talks, which were supposed to be complete in 2004, have been at a standstill for months.

Negotiators have been aiming for a broad compromise that would let poor countries sell more produce to rich countries while giving the U.S., 27-nation EU and Japan new chances for their manufacturers and service providers to enter the emerging markets of Brazil, China and India.

Yet the G8 has pledged in the past, without success, to finish the trade deal. High-level WTO negotiations failed shortly after G8 summits in St. Petersburg, Russia, in 2006, Heiligendamm, Germany, in 2007, and Toyako, Japan, in 2008.

Governments are under such enormous pressure that they will be doing well if they simply resist more protectionism, let alone reach a deal to drop more barriers, said Jagdish Bhagwati, an economist at Columbia University in New York.

"Everybody's talking a good game, but the question is whether they can play a good game," Bhagwati said. "You have to distinguish between containing protectionism and actually liberalizing further. I can't think of any example of liberalization when the macroeconomic stress is this enormous."

"This is just a ritual assertion. When it comes to actually liberalizing trade, they have to face their parliaments and their publics."

Some governments are giving in to the temptations of protecting domestic businesses, the World Trade Organization warns. In a report released last week, WTO Director-General Pascal Lamy said there has been "further slippage" toward protectionism, citing 83 new trade rules that could be considered restrictive.

Lamy warned that trade would decrease by 10 percent this year. He said the exports of rich countries would likely slip 14 percent, with that of developing countries falling by 7 percent.

Neil Mackinnon, chief economist at ECU Group in London, said the renewed promise to finish the trade agreement should not be simply dismissed.

"The global economy has suffered a massive shock to trade in the last 12 months and there has been some protectionism by stealth," he said.

The Group of Eight industrialized nations of Canada, Britain, France, Germany, Italy, Japan, Russia and the United States opened their annual summit Thursday to Group of 5 developing countries Brazil, China, India, Mexico and South Africa, as well as Egypt. Also signing off on the trade goals were the leaders of Australia, Indonesia and South Korea.

The leaders asked trade ministers to meet prior to the Group of 20 meeting of developing and rich countries in September in Pittsburgh, according to the draft.

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