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Summit theme five - Gaining an agreement for trade

The financial crisis has once again raised the spectre of protectionism. In November 2008, the leaders of the G20 countries pledged to do all that they could to resist protectionism, but by April 2009, 17 out of 20 had introduced some new protectionist measure. From the ‘Buy American’ clause in the US fiscal stimulus package to the latest row over tyres between the US and China, it is clear that the temptation to protect domestic industries during difficult economic times can prove great, especially for politicians who are trying to build political capital to push through other policies.

Many speakers at the Globalisation Redefined conference were vocal about the need to push through global reforms to limit the scope for protectionist tendencies. The completion of the stalled Doha round was seen as a vital piece in this puzzle, but there were concerns expressed that concluding the negotiations had little domestic support in the US. “We have to Obama-ise the deal,” as one speaker put it.

Nevertheless, there was confidence among some speakers that a deal could be reached. “We believe that there is a realistic possibility for us to conclude the WTO talks in Geneva and to put in place a multilateral trading regime that corrects the historic distortions and imbalances, and ensures a world order that is fair and equitable,” said one leading minister from a key emerging market.

Business leaders highlighted the importance of free trade in terms of its role in economic recovery, and the benefits that it brings to consumers. “The best way for business to succeed and grow is to allow the movement of goods and services in an unfettered way across borders,” said one speaker. “We also think that free trade can ensure that people get the cheapest, best-quality product possible.”

The free movement of labour was also singled out as an important goal, and one that is often hampered by an extremely bureaucratic approach. One speaker described how, in Kenya, it is just as difficult to get a work permit for a citizen of the neighbouring country Uganda as it is to get a permit for a UK citizen. Such a policy hampers the transfer of knowledge and means that businesses lack flexibility in their recruitment options.

During the current crisis, the issues of trade finance and trade credit insurance have risen to the fore. Two years ago, these were themes that rarely troubled the higher echelons of power, but as the availability of both has collapsed around the world, they have been squarely on the G20 agenda. “Trade finance is not something we used to think about very much, but it is now,” remarked one speaker.

With commercial banks unable to provide the necessary liquidity to finance trade, governments and multilateral institutions have stepped into the fray. The European Bank for Reconstruction and Development, for example, has created a trade facilitation programme, focused on less developed countries, that is designed to enable trade to continue.

As economic conditions deteriorated, companies began to become more concerned about the insolvency of their customers. Many sought protection from non-payment through trade credit insurance. As a result, demand for this type of insurance soared, which meant that the traditional providers of this protection have been unable to service the huge spike in requests. Many in the private sector have withdrawn cover, concerned that their exposure to the risks of non-payment has become too great. As a result, governments have again been forced to make up the shortfall.

The issue of trade finance and credit insurance highlights a step change that has been seen during the current crisis. Keeping the wheels of the global economy turning has become a shared responsibility – not just between businesses in developed and emerging markets, or between countries, but across the full range of institutions and stakeholders. Governments, non-governmental organisations, multilateral institutions and businesses all have a role to play, and must all work together in order to foster greater cohesion across geographic boundaries and create the conditions for future prosperity. As Rahm Emanuel, chief of staff for President Obama famously said: “You should never let a good crisis go to waste.”