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Friday, August 7, 2020
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GENEVA, Feb 26 2009 (IPS) - Today we are experiencing the worst economic recession since World War II. No country is immune. Trade is shrinking, growth is declining, and unemployment is on the rise.
The future is not clear. It is too early to judge whether we are at the bottom of the recession or whether this is just the beginning. But one thing is clear: the depth and scope of the crisis will be a function of the capacity of individual countries to act together at the global level and re-inject confidence in our economic and social systems.
But where will the confidence come from?
It should come from the belief that the financial system has been repaired and is back in operation. This requires focusing on cleaning banks’ balance sheets and is a matter of urgency even if resisted by bank shareholders. Unless this happens, there is no turning point in sight.
It should come from the belief that a serious attempt is being made to fill the hole in the international regulation of finance in order to avoid future accidents of this type.
It should come from the belief that individual stimulus packages are closely knitted together into a global joint effort.
It should come from the belief that the weakest and the poorest in our countries and continents are taken care of in policy responses.
It should come from the belief that leaders of major economies can work together in full co-ordination and trust to agree on common solutions.
And finally, the confidence should come from the belief that the world trade environment is not deteriorating and that isolationist pressures are contained.
Global leaders have a collective responsibility to provide confidence to the people, not only their own people but the people of the world.
It is encouraging that world leaders have seen the potential risks ahead. The G20 Leaders Summit in Washington last November underscored the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. Leaders of economies representing 90 percent of the world’s GDP agreed to refrain from raising new barriers to investment or trade and from imposing new export restrictions over the next 12 months. They also called for a rapid conclusion of the World Trade Organisation (WTO) Doha Round.
The next G20 Summit, in London, April 2, will be a test of the capacity of major economies to work together to find solutions to pull the world economy out of a deeper recession.
The first response to the crisis should be to complete the Doha Round of world trade negotiations as quickly as possible. The Doha Round is the best insurance policy against protectionist moves: the proposal currently under consideration would halve WTO tariff ceilings. Without Doha, tariffs applied on trade could double, rising to existing ceilings set previously by the WTO. The same is true for rich country agriculture subsidies, the ceilings of which would be reduced by 70-80 percent with the deal currently on the table.
Governments should resist the temptation to raise trade barriers, which today can take many forms: raising tariffs, applying non-tariff barriers, abusing trade remedies such as anti-dumping, doling out subsidy packages or imposing “buy local” conditions. Rejecting these moves is not a question of ideology but a matter of self-interest. Does anyone believe that they can protect themselves without the others doing the same? Beggar-thy-neighbour policies carry the risk of prompting retaliation by other countries and driving down the overall level of trade -thus destroying output and jobs around the world.
We must also ensure the availability and affordability of import and export finance. Trade has decreased as a result of a drop in demand, but it is also the result of lack of trade finance. At a meeting with providers of trade finance hosted by the WTO last November, the shortfall in credit for trade was estimated at USD 25 billion. The response initially focused on providing guarantees for trade credit. Thus, the World Bank’s International Finance Corporation (IFC) announced a tripling of the ceiling of its trade finance guarantees. Regional development banks, including the Asian Development Bank, also stepped in. However, three months later the problem persists and a lack of liquidity remains.
Finally, the international community should not forget their aid pledges in favour of the poorest countries, especially now that the crisis is also hitting them hard.
The world is changing. We live in an era of new technology and innovation, enjoying faster communications and lower costs of transportation. The methods of global production have also changed in that most goods are no longer manufactured solely in one country. We are also faced with more global issues, from global warming, energy shortages, and the world food supply, to nuclear proliferation and even outer space security. None of these can be resolved by one country or a small group of countries. We need collective efforts by all countries. (END/COPYRIGHT IPS)
(*) Pascal Lamy is Director-General of the World Trade Organisation (WTO).
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